AQUILA ROCKY MOUNTAIN EQUITY FUND
380 Madison Avenue, Suite 2300
New York, New York 10017
800-ROCKY-55 (800-762-5955)
212-697-6666
Prospectus
Class A Shares May 1, 2000
Class C Shares
Aquila Rocky Mountain Equity Fund (the "Fund") is a mutual
fund whose objective is capital appreciation. It seeks to achieve
its objective through investment in securities (primarily common
stock or other equity securities) of companies having a
significant business presence in the general Rocky Mountain
region of our country.
For purchase, redemption or account inquiries contact the Fund's
Shareholder Servicing Agent:
PFPC Inc.* 400 Bellevue Parkway * Wilmington, DE 19809
800-ROCKY-22 (800-762-5922) toll free
For general inquiries & yield information
800-ROCKY-55 (800-762-5955) toll free or 212-697-6666
The Securities and Exchange Commission has not approved or
disapproved the Fund's securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
THE FUND'S OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS
"What is the Fund's objective?"
The Fund's investment objective, which is a fundamental policy of
the Fund, is to purchase and hold securities for capital
appreciation.
"What is the Fund's investment strategy?"
We call the general area consisting of Colorado, Arizona,
Idaho, Montana, Nevada, New Mexico, Utah and Wyoming 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. These are companies (i) whose
principal executive offices are located in the Rocky Mountain
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. 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. In addition to common
stocks, equity securities can include preferred stock and
convertible fixed-income securities. In general, the Manager
follows a "value" approach to investing.
"What are the main risks of investing in the Fund?"
Among the risks of investing in shares of the Fund and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Fund.
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
condition 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.
The Fund invests in companies varying widely in market
capitalization, reflecting the different sizes of companies doing
business in the Rocky Mountain Region. 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 Manager believes offer the potential of capital
appreciation due to their overall characteristics. These
companies are comparatively less well known and may have less
trading in their shares than larger companies. 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.
Convertible fixed-income investments are subject to interest
rate and credit risks.
Because the Fund will invest most, and may invest all, of
its assets in Rocky Mountain Companies, it may have less
diversification and may experience greater volatility than funds
without this investment policy. Furthermore, because the Fund's
assets are subject to economic and other conditions affecting the
various states which comprise the Rocky Mountain Region, an
economic down-turn in one or more of those states could adversely
affect the Fund's performance.
Investment in the Fund is not a deposit in any bank and is
not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Aquila Rocky Mountain Equity Fund by
showing changes in the performance of the Fund's Class A Shares
from year to year over a five-year period and by showing how the
Fund's average annual returns for one year, five years and since
inception compare to a broad measure of market performance. How
the Fund has performed in the past is not necessarily an
indication of how the Fund will perform in the future.
<TABLE>
<CAPTION>
Bar Chart]
Annual Total Returns
1995-1999
<C> <C> <C> <C> <C>
24 23.01
XXXX 20.56
20% 19.68 XXXX XXXX
XXXX 18.68 XXXX XXXX
16% XXXX XXXX XXXX XXXX
XXXX XXXX XXXX XXXX
12% XXXX XXXX XXXX XXXX
XXXX XXXX XXXX XXXX
8% XXXX XXXX XXXX XXXX
XXXX XXXX XXXX XXXX
4% XXXX XXXX XXXX XXXX
XXXX XXXX XXXX XXXX
0% XXXX XXXX XXXX XXXX
XXXX XXXX XXXX XXXX
- -4% XXXX XXXX XXXX XXXX
-5.31 XXXX
- -8%
1995 1996 1997 1998 1999
Calendar Years
During the period shown in the bar chart, the highest return for
a quarter was 14.98% (quarter ended June 30, 1999) and the lowest
return for a quarter was -11.66% (quarter ended September 30,
1998).
Note: The Fund's Class A Shares are sold subject to a maximum
4.25% sales load which is not reflected in the bar chart. If the
sales load were reflected, returns would be less than those shown
above.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the Period Ended 1 Year 5 Year inception
December 31,1999 of the Fund
<S> <C> <C> <C>
Aquila Rocky Mountain Equity Fund
Class A Shares (1) 15.46% 13.70% 10.08%*
Aquila Rocky Mountain Equity Fund
Class C Shares 18.62%*** N/A 11.31%**
Russell 2000 Index****
21.35% 16.70% 15.94% *
(Class A
Shares)
12.09% **
(Class C
Shares)
<FN>
(1) The average annual total returns do reflect the maximum 4.25%
sales load.
</FN>
<FN>
*From commencement of operations on July 22, 1994.
</FN>
<FN>
**From commencement of new class of shares on May 1, 1996.
</FN>
<FN>
***The average annual return for Class C Shares for one year
assumes redemption at the end of the year and payment of 1% CDSC.
<FN>
****The Russell 2000 Index is an unmanaged index of small company
stocks throughout the United States.
</FN>
AQUILA ROCKY MOUNTAIN EQUITY FUND
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
</TABLE>
<TABLE>
<CAPTION>
Class A Class C
Shares Shares
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases.....
(as a percentage of offering price) 4.25% None
Maximum Deferred Sales Charge (Load) None(1) 1.00%(2)
(as a percentage of the lesser of
redemption value or purchase price)
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends or
Distributions
(as a percentage of offering price).....None None
Redemption Fees..........................None None
Exchange Fees............................None None
Annual Fund Operating Expenses (expenses that are
deducted from the Fund's assets) (3)
Management Fees (4)......................1.50% 1.50%
Distribution (12b-1) Fee.................0.25% 0.75%
All Other Expenses:
Service Fee........................None 0.25%
Other Expenses (4).................4.15% 4.14%
Total All Other Expenses (4) 4.15% 4.39%
Total Annual Fund
Operating Expenses (4)..................5.90% 6.64%
<FN>
(1) If you buy Class A Shares in transactions of $1 million or
more there is no sales charge but you will be subject to a
contingent deferred sales charge of up to 1% if you redeem your
shares during the first two years after purchase and 0.50 of 1%
during the third and fourth years after purchase
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the
redemption proceeds of the shares if redeemed during the first 12
months after purchase.
</FN>
(3) The Manager has undertaken to waive its fee until the Fund
attains an asset size of $10 million. The Adviser and the The
Manager anticipates that when Fund assets reach $10 million, fees
for that fiscal year will be waived following a predetermined
formula. Thereafter, it may determine to waive some or all of its
fees. However, as the asset size of the Fund increases, these
waivers would be progressively reduced so that when assets exceed
approximately $25 million the Fund would pay substantially all
fees as they are accrued. Since the Fund's inception, the
Manager, in its sole discretion, has been reimbursing some or all
of the Fund's other operating expenses.
</FN>
<FN>
(4) The actual expense ratios for the fiscal year ended December
31, 1999 after giving effect to the waivers, expense
reimbursement, and the expense offset for uninvested cash
balances were incurred at the following annual rates: for Class A
shares, management fees, 0.00%; 12b-1 fee, 0.25%; and other
expenses, 1.26% resulting in Total Fund Operating Expenses of
1.51%; for Class C Shares, management fees, 0.00%; 12b-1 fee,
0.75%; service fee, 0.25% and other expenses, 1.31% resulting in
Total Fund Operating Expenses of 2.31%.
</FN>
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, that you reinvest all
dividends and distributions, and that the Fund's operating
expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares............$987 $2,097 $3,187
$5,826
Class C Shares............$759 $1,943 $3,187
$5,892(5)
You would pay the following expenses if you did not redeem your
Class C Shares:
Class C Shares............$659 $1,943 $3,187
$5,892(5)
<FN>
(5) Six years after the date of purchase, Class C Shares are
automatically converted to Class A Shares. Over time long-term
Class C Shareholders could pay the economic equivalent of an
amount that is more than the maximum front-end sales charge
allowed under applicable regulations, because of the 12b-1 fee
and Service fee. Because these fees are paid out of the Fund's
assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying
other types of sales charges.
</FN>
</TABLE>
<PAGE>
INVESTMENT OF THE FUND'S ASSETS
"Is the Fund right for me?"
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.
"What is the Rocky Mountain Region?"
The general Rocky Mountain region of our country consists of
Colorado, Arizona, Idaho, Montana, Nevada, New Mexico, Utah and
Wyoming.
"What are Rocky Mountain Companies?"
Companies of any size and in any industry with a significant
business presence in the Rocky Mountain Region are called Rocky
Mountain Companies. These are companies (i) whose principal
executive offices are located in the Rocky Mountain 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.
"What are equity securities?"
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.
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 or other equity securities of the same or a different
issuer.
"How are the Fund's investments chosen?"
The Manager will generally seek to invest in established,
financially sound, well-managed Rocky Mountain Companies whose
securities it considers to be selling at reasonable prices
relative to their growth rates and anticipated future values. In
general, the Manager follows a "value" approach to investment
selection; that is, 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 Manager believes are experiencing
better growth relative to comparable investments. The Manager
currently focuses on approximately 300-400 Rocky Mountain
Companies from which it selects investments for the Fund's
portfolio. In selecting investments the Manager anticipates
considering a number of factors. These include but are not
limited to: quality of management, ability of the company to
generate earnings, revenue growth and free cash flow, strength of
the company's balance sheet and the overall economic, monetary,
political and market environment. The investment disciplines that
the Manager employs to help control risk include, but are not
limited to, monitoring valuation levels, earnings momentum and
cash flow. The Manager also emphasizes visits to companies and
frequent discussions with management. The Fund does not engage in
active trading to achieve its investment objective.
In unusual market conditions when the Manager 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. government
securities, corporate bonds or high grade short-term money-market
securities, without geographic or percentage limitation. Only
corporate securities rated "A" or better by a nationally
recognized statistical rating organization will be purchased.
Under these circumstances, the Fund may not achieve its
investment objective.
"What are the other risk factors and special considerations
regarding investment in Rocky Mountain Companies?"
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.
In addition to considerations specifically affecting the
Rocky Mountain Region, other risk factors include the following.
There are two types of risk generally associated with owning
fixed-income securities: market risk and credit risk. Market risk
relates to fluctuations in market value arising from changes in
interest rates. If interest rates rise, the value of fixed-income
securities will normally decline and if interest rates fall, the
value of fixed-income securities will normally increase. All
fixed-income securities, including U.S. government securities,
which are generally considered to be the most creditworthy of all
fixed-income obligations, are subject to interest risk.
Securities with longer maturities generally have a more
pronounced reaction to interest rate changes than shorter-term
securities. Other economic factors may also affect the value of
fixed-income securities. Credit risk relates to the ability of
the issuer to make periodic interest payments as scheduled and
ultimately repay principal at maturity.
Since the practice of many growth-oriented companies in
which the Fund will invest is to reinvest most or all of their
earnings in the development of their business, the Fund does not
expect to receive dividends enabling it to provide investors with
any significant amount of current income. In addition, during at
least the early fiscal years of the Fund, it is anticipated that
all of such income will be applied to payment of Fund operating
expenses, so that none will be available for distribution to
shareholders.
FUND MANAGEMENT
"How is the Fund managed?"
Under an agreement with the Fund, Aquila Management
Corporation (the "Manager"), 380 Madison Avenue, Suite 2300, New
York, NY 10017, founder of the Fund, serves as its investment
adviser and administrator; as such, in addition to providing
administrative services, the Manager supervises the investment
program of the Fund and the composition of its portfolio.
Under its agreement with the Fund, the Manager provides for
investment supervision, including supervising continuously the
investment program of the Fund and the composition of its
portfolio, determining what securities will be purchased or sold
by the Fund, and arranging for the purchase and sale of
securities held in the portfolio of the Fund; and, at its
expense, for pricing of the Fund's portfolio daily. The Manager's
administrative services include providing for the maintenance of
the headquarters of the Fund, overseeing relationships between
the Fund and the service providers to the Fund, either keeping
the accounting records of the Fund or, at its expense and
responsibility, delegating such duties in whole or in part to a
company satisfactory to the Fund, maintaining the Fund's books
and records and providing other administrative services.
During the Fund's fiscal year ended December 31, 1999, the
Fund accrued management fees under its agreement with the Manager
at the annual rate of 1.50% of its average annual net assets. All
of these fees were waived.
Information about the Manager
The Manager is the founder and serves as Manager for three
other funds oriented to the Rocky Mountain Region: Tax-Free Trust
of Arizona, with assets of $370 million, Tax-Free Fund of
Colorado, with assets of $198 million and Tax-Free Fund For Utah,
with assets of $38 million, all as of December 31, 1999. It is
the founder and Manager and/or administrator of the Aquilasm
Group of Funds, which consists of tax-free municipal bond funds
(including those named above), money-market funds and equity
funds. As of March 31, 2000, these funds had aggregate assets of
approximately $3.2 billion. The Manager, which was founded in
1984, is controlled by Mr. Lacy B. Herrmann, directly, through a
trust and through share ownership by his wife.
Barbara Walchli, C.F.A., has acted as portfolio manager for
the Fund since July, 1999, when she joined the Manager. Prior to
becoming the Fund's portfolio manager, Ms. Walchli had 18 years
of analytical investment experience, including 12 years
developing short- and long-term equity strategy, 11 years as
director of equity research and 8 years managing
performance-oriented portfolios and funds. She managed or
co-managed funds totaling $1.7 billion in assets and was
responsible for equity strategy for a group managing $27.5
billion in assets. She also hired and supervised a number of
equity analysts. Ms. Walchli holds an MBA in finance from Arizona
State University and an AB from Smith College. She is a chartered
financial analyst and member of various investment associations.
NET ASSET VALUE PER SHARE
The net asset value of the shares of each of the Fund's
classes of shares is determined as of 4:00 p.m., New York time,
on each day that the New York Stock Exchange is open (a "business
day"), by dividing the value of the Fund's net assets (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Fund's shares is
based on portfolio market value, except that fixed-income
securities maturing in 60 days or less are generally valued at
amortized cost. The price at which a purchase or redemption of
shares is effected is based on the net asset value next
calculated after your purchase or redemption order is received in
proper form. The New York Stock Exchange annually announces the
days on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. However, the Exchange may close on days
not included in that announcement.
PURCHASES
"Are there alternate purchase plans?"
The Fund provides individuals with alternate ways to
purchase shares through two separate classes of shares (Class A
and Class C). Although the classes have different sales charge
structures and ongoing expenses, they both represent interests in
the same portfolio of securities. You should choose the class
that best suits your own circumstances and needs.
"Can I purchase shares of the Fund?"
You can purchase shares of the Fund if you live in one of
the states listed below. You should not purchase shares of the
Fund if you do not reside in one of the following states.
Otherwise, the Fund can redeem the shares you purchased. This may
cause you to suffer a loss and may have tax consequences.
On the date of this Prospectus, Class A and C Shares are
available only in:
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) *
Wyoming
"How much money do I need to invest?"
Option I
* Initially, $1,000.
* Subsequently, any amount (for investments in shares of the
same class).
Option II
* $50 or more if an Automatic Investment Program is
established.
* Subsequently, any amount you specify ($50 or more).
* You are not permitted to maintain both an Automatic
Investment Program and an Automatic Withdrawal Plan
simultaneously.
Under either option your investment must be drawn in United
States dollars on a United States commercial bank, savings bank
or credit union or United States branch of a foreign commercial
bank (each of which is a "Financial Institution").
"How do I purchase shares?"
You may purchase the Fund's shares:
* through an investment broker or dealer, or a bank or
financial intermediary that has a sales agreement with the
Distributor, Aquila Distributors, Inc., in which case that
institution will take action on your behalf, and you will not
personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Fund's Agent, PFPC Inc.
The price you will pay is net asset value plus a sales charge for
Class A Shares and net asset value for Class C Shares. ( See
"What price will I pay for the Fund's shares?")
In either instance, all purchases of Class A Shares are subject
to the applicable sales charge.
Opening an Account Adding to An Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to Aquila payable to Aquila
Rocky Mountain Equity Rocky Mountain Equity
Fund. Fund.
* Complete the application * Fill out the pre-printed
included with the Prospectus, stub attached to the Fund's
indicating the features confirmations or supply the
you wish to authorize. name(s) of account owners,
the account number, and the
name of the Fund.
* Send your check and * Send your check and
completed application account information
to your dealer or to your dealer or
to the Fund's to the Fund's
Agent, PFPC Inc. Agent, PFPC Inc.
Unless you indicate otherwise, your investment will be made
in Class A Shares.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a predetermined
amount to be regularly transferred from your account.
* Telephone Investment: You can make single investments of up
to $50,000 by telephone instructions to the Agent.
Before you can transfer funds electronically, the Fund's
Agent must have your completed application authorizing these
features. Or, if you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Fund may modify or terminate
these investment methods or charge a service fee, upon 30 days'
written notice to shareholders.
REDEEMING YOUR INVESTMENT
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been received in proper form.
There is no minimum period for investment in the Fund,
except for shares recently purchased by check or by Automatic or
Telephone Investment as discussed below.
If you own both Class A and C Shares and do not specify
which class you wish to redeem, we will redeem your Class A
Shares.
Certain shares are subject to a contingent deferred sales charge,
or CDSC. These are:
- Class C Shares held for less than 12 months from the
date of purchase.
- CDSC Class A Shares. (See "Sales Charges for Purchases
of $1 Million or More" below.)
Upon redemption, enough additional shares will be redeemed
to pay for any applicable CDSC.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, DE 19809
By telephone, call:
800-762-5922
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Fund offers expedited
redemption.
Expedited Redemption Methods
(Non-Certificate Shares Only)
You may request expedited redemption for any shares not
issued in certificate form in two ways:
1 By Telephone. The Agent will take instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified; or
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past 30
days) as the account from which you are redeeming. You may only
redeem by check via telephone request once in any 7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Fund, the Agent, and the Distributor are not
responsible for losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify a caller's identity. The Agent may record calls.
2 By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at 302-791-3055
or by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter, signed by the registered shareholder(s) (no signature
guarantee is required), must indicate:
account name(s)
account number
amount to be redeemed
any payment directions
To have redemption proceeds sent directly to a Financial
Institution account, you must complete the Expedited Redemption
section of the Application or a Ready Access Features Form. You
will be required to provide (1) details about your Financial
Institution account, (2) signature guarantees and (3) possible
additional documentation.
The name(s) of the shareholder(s) on the Financial
Institution account must be identical to those on the Fund's
records of your account.
You may change your designated Financial Institution account
at any time by completing and returning a revised Ready Access
Features Form.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
Certificate Shares. Mail to the Fund's Agent: (1) blank
(unsigned) certificates for Class A Shares to be redeemed, (2)
redemption instructions and (3) a stock assignment form.
To be in "proper form," items (2) and (3) above must be
signed by the registered shareholder(s) exactly as the account is
registered. For a joint account, both shareholder signatures are
necessary.
For your protection, mail certificates separately from
signed redemption instructions. We recommend that certificates
be sent by registered mail, return receipt requested.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other than
the shareholder of record. The Agent may require signature
guarantees if insufficient documentation is on file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the address
of record, except as noted above. In all other cases, signatures
must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
participant in the Securities Transfer Association Medallion
Program ("STAMP"), the Stock Exchanges Medallion Program ("SEMP")
or the New York Stock Exchange, Inc. Medallion Signature Program
("MSP").
A notary public is not an acceptable signature guarantor.
Non-Certificate Shares. You must use the Regular Redemption
Method if you have not chosen Expedited Redemption to a
predesignated Financial Institution account. To redeem by this
method, send a letter of instruction to the Fund's Agent, which
includes:
account name(s)
account number
dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be redeemed
payment instructions (we normally mail redemption proceeds
to your address as registered with the Fund)
signature(s) of the registered shareholder(s) and
signature guarantee(s), if required, as indicated above.
"When will I receive the proceeds of my redemption?"
Redemption proceeds are normally sent on the next business
day following receipt in proper form of your redemption request.
Except as described below, payments will normally be sent to your
address of record within 7 days.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested on your
application or Ready
Access Features Form,
wired or transferred
through the Automated
Clearing House to your
Financial Institution
account
Through a broker
/dealer Check or wire, to your None;
broker/dealer however, your
broker/dealer may
charge a fee.
Although the Fund does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. Upon 30
days' written notice to shareholders the Fund may modify or
terminate the use of the Automated Clearing House to make
redemption payments at any time or charge a service fee, although
no such fee is presently contemplated. If any such changes are
made, the Prospectus will be supplemented to reflect them.
The Fund may delay payment for redemption of shares recently
purchased by check (including certified, cashier's or official
bank check) or by Automatic Investment or Telephone Investment up
to 15 days after purchase; however, payment for redemption will
not be delayed after (i) the check or transfer of funds has been
honored, or (ii) the Agent receives satisfactory assurance that
your Financial Institution will honor the check or transfer of
funds. You can eliminate possible delays by paying for purchased
shares with wired funds or Federal Reserve drafts.
The Fund has the right to postpone payment or suspend
redemption rights during certain periods. These periods may
occur (i) when the New York Stock Exchange is closed for other
than weekends and holidays, (ii) when the Securities and Exchange
Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines an emergency exists which
causes disposal of, or determination of the value of, the
portfolio securities to be unreasonable or impracticable, and
(iv) during such other periods as the SEC may permit.
The Fund can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Fund's portfolio securities ("redemption in
kind") in conformity with SEC rules. This method will only be
used if the Board of Trustees determines that payments partially
or wholly in cash would be detrimental to the best interests of
the remaining shareholders.
"Are there any reinvestment privileges?"
If you reinvest proceeds of redemption within 120 days of a
redemption you will not have to pay any additional sales charge
on the reinvestment. You must reinvest in the same class as the
shares redeemed. You may exercise this privilege only once a
year, unless otherwise approved by the Distributor.
The Distributor will refund to you any CDSC deducted at the
time of redemption by adding it to the amount of your
reinvestment.
Reinvestment will not alter the tax consequences of your
original redemption.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class A Shares. Under an
Automatic Withdrawal Plan you can arrange to receive a monthly or
quarterly check in a stated amount, not less than $50.
ALTERNATE PURCHASE PLANS
"How do the different arrangements for Class A Shares and Class C
Shares affect the cost of buying, holding and redeeming shares,
and what else should I know about the two classes?"
In this Prospectus the Fund provides you with two
alternative ways to invest in the Fund through two separate
classes of shares. All classes represent interests in the same
portfolio of 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.
Class A Shares Class C Shares
"Front-Payment Shares" "Level-Payment Shares"
Initial Sales Class A Shares are None. Class C
Charge offered at net asset Shares are offered
value plus a maximum at net asset value
sales charge of 4.25%, with no sales charge
paid at the time of payable at the time
purchase. Thus, of purchase.
your investment is
reduced by the
applicable sales
charge.
Contingent None (except for A maximum CDSC of
Deferred Sales certain purchases of 1% is imposed upon
Charge ("CDSC") $1 million or more). the redemption of
Class C Shares held
for less than 12
months. No CDSC
applies to Class C
Shares acquired
through the
reinvestment of
dividends or
distributions.
Distribution and An asset retention There is a level
Service Fees service fee of 0.25 charge for
of 1% is imposed on distribution and
the average annual service fees for
net assets 6 years after the
represented by the date of purchase
Class A Shares. at the aggregate
annual rate of 1%
of the average net
assets represented
by the Class C
Shares.
Other The initial sales Class C Shares,
Information charge is waived or together with a pro-
reduced in some rata portion of all
cases. Larger Class C Shares
purchases qualify acquired through
for lower sales reinvestment of
charges. dividends and other
distributions paid
in additional Class
C Shares,
automatically
convert to Class A
Shares after 6
years.
Systematic Payroll Investments
You can make systematic investments into either Class A
Shares or Class C Shares each pay period if your employer has
established a Systematic Payroll Investment Plan with the Fund.
To participate in the payroll plan, you must make your own
arrangements with your employer's payroll department, which may
include completing special forms. Additionally, the Fund
requires that you complete the application included with this
Prospectus. Once your application is received by the Fund and a
new account is opened, under the payroll plan your employer will
deduct a preauthorized amount from each payroll check. This
amount will then be sent directly to the Fund for purchase of
shares at the then current offering price, which includes any
applicable sales charge. You will receive a confirmation from
the Fund for each transaction. Should you wish to change the
dollar amount or end future systematic payroll investments, you
must notify your employer directly. Changes may take up to ten
days.
"What price will I pay for the Fund's shares?"
Class A Shares Offering Price Class C Shares Offering Price
Net asset value per share Net asset value per share
plus the applicable sales charge
You will receive that day's offering price on purchase
orders, including Telephone Investments and investments by mail,
received in proper form prior to 4:00 p.m. New York time. Dealers
have the added flexibility of transmitting orders received prior
to 4:00 p.m. New York time to the Distributor or Agent before the
Distributor's close of business that day (normally 5:00 p.m. New
York time) and still receiving that day's offering price.
Otherwise, orders will be filled at the next determined offering
price. Dealers are required to submit orders promptly. Purchase
orders received on a non-business day, including those for
Automatic Investment, will be executed on the next succeeding
business day. The sale of shares will be suspended (1) during any
period when net asset value determination is suspended or (2)
when the Distributor judges it is in the Fund's best interest to
do so.
"What are the sales charges for purchases of Class A Shares?"
The following table shows the amount of sales charge incurred by
a "single purchaser" of Class A Shares. A "single purchaser" is:
* an individual;
* an individual, together with his or her spouse, and/or
any children under 21 years of age purchasing shares for their
account;
* a trustee or other fiduciary purchasing shares for a
single trust estate or fiduciary account; or
* a tax-exempt organization as detailed in Section
501(c)(3) or (13) of the Internal Revenue Code.
I II III
Amount of Purchase Sales Charge as Sales Charge as
Percentage of Approximate
Public Percentage of
Offering Price Amount Invested
Less than $50,000 4.25% 4.44%
$50,000 but less
than $100,000 4.00% 4.17%
$100,000 but less
than $250,000 3.50% 3.63%
$250,000 but less
than $500,000 2.50% 2.56%
$500,000 but less
than $1,000,000 1.50% 1.52%
For purchases of $1 million or more see "Sales Charges for
Purchases of $1 Million or More."
For example:
If you pay $10,000 (Column I), your sales charge would be 4.25%
or $425 (Column II). ($10,000 x .0425 = $425)
The value of your account, after deducting the sales charge from
your payment, would increase by $9,575. (This would be the
initial value of your account if you opened it with the $10,000
purchase). ($10,000 - $425 = $9,575)
The sales charge as a percentage of the increase in the value of
your account would be 4.44% (Column III).($425 / $9,575 = .044386
or 4.44%)
Sales Charges for Purchases of $1 Million or More
You will not pay a sales charge at the time of purchase when
you purchase "CDSC Class A Shares." CDSC Class A Shares are Class
A Shares issued under the following circumstances:
(i) Class A Shares issued in a single purchase of $1
million or more by a single purchaser; and
(ii) all Class A Shares issued to a single purchaser in
a single purchase when the value of the purchase, together with
the value of the purchaser's other CDSC Class A Shares and Class
A Shares on which a sales charge has been paid, equals or exceeds
$1 million.
If you redeem all or part of your CDSC Class A Shares during
the four years after you purchase them, you must pay a special
contingent deferred sales charge upon redemption.
You will pay 1% of the Redemption Value if you redeem within
the first two years after purchase, and 0.50 of 1% of the
Redemption Value if you redeem within the third or fourth year.
The Redemption Value is the net asset value of the redeemed
shares when they were purchased or when they are redeemed,
whichever is less
This special charge also applies to CDSC Class A Shares
purchased without a sales charge pursuant to a Letter of Intent.
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales charge
in accordance with the above schedule when making subsequent
purchases of Class A Shares.
Letters of Intent
" Single purchasers" may also qualify for reduced sales
charges, in accordance with the above schedule, after a written
Letter of Intent (included with the Application) is received by
the Distributor.
General
Class A Shares may be purchased without a sales charge by
certain classes of purchasers.
Certain Investment Companies
If you redeem shares of an investment company (not a member
of the Aquilasm Group of Funds) on which you have paid a sales
charge, you can invest the proceeds within 120 days in Class A
Shares of the Fund without paying a sales charge. You can get
additional information from the Distributor.
"What are the sales, service and distribution charges for Class C
Shares?"
* No sales charge at time of purchase.
* Annual fees for service and distribution at a combined
annual rate of 1% of average annual net assets of the Fund
represented by Class C Shares.
* After six years, Class C Shares automatically convert to
Class A Shares, which bear lower service and distribution fees.
Redemption of Class C Shares
* 1% charge if redeemed within the first 12 months after
purchase. This contingent deferred sales charge, or CDSC, is
calculated based on the lesser of the net asset value at the time
of purchase or at the time of redemption.
* No CDSC applies if Class C Shares are held for 12 months
after purchase.
* Shares acquired by reinvestment of dividends or
distributions are not subject to any CDSC.
Broker/Dealer Compensation - Class C Shares
The Distributor will pay 1% of the sales price to any
broker/dealer executing a Class C Share purchase..
"What about confirmations?"
A statement will be mailed to you confirming each purchase
of shares in the Fund. Additionally, your account at the Agent
will be credited in full and fractional shares (rounded to the
nearest 1/1000th of a share).
General
The Fund and the Distributor may 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.
"Is there a Distribution Plan or a Services Plan?"
The Fund has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Fund to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Manager, out of its own funds, to make
payment for distribution expenses; and
(iii) protect the Fund against any claim that some of the
expenses which it pays or may pay might be considered to be
sales-related and therefore come within the purview of the Rule.
Pursuant to the Plan, the Fund makes payments with respect
to both Class A and Class C Shares under agreements to certain
broker/dealers, or others who have (i) rendered assistance
(whether direct, administrative, or both) in the distribution
and/or retention of the Fund's shares or (ii) assisted in the
servicing of shareholder accounts.
For any fiscal year, payments under item (i), which are made
through the Distributor or Agent, may not exceed 0.25 of 1% for
Class A Shares, and 0.75 of 1% for Class C Shares, of the average
annual net assets represented by each class. Because these
distribution fees are paid out of assets on an ongoing basis,
over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
For any class, these payments are made only from the assets
allocable to that class.
Shareholder Services Plan for Class C Shares
The Fund's Shareholder Services Plan authorizes it to pay a
service fee under agreements to certain qualified recipients who
have agreed to provide personal services to Class C shareholders
and/or maintain their accounts. For any fiscal year, such fees
may not exceed 0.25 of 1% of the average annual net assets
represented by Class C Shares. Payment is made only out of the
Fund's assets represented by Class C Shares.
Service fees with respect to Class C Shares will be paid to
the Distributor during the first year after purchase and
thereafter to other qualified recipients.
"Transfer on Death" Registration (Both Classes)
The Fund generally permits "transfer on death" ("TOD")
registration of shares, so that on the death of the shareholder
the shares are transferred to a designated beneficiary or
beneficiaries. Ask the Agent or your broker-dealer for the
Transfer on Death Registration Request Form. With it you will
receive a copy of the TOD Rules of the Aquilasm Group of Funds,
which specify how the registration becomes effective and
operates. By opening a TOD account, you agree to be bound by the
TOD Rules.
DIVIDENDS AND DISTRIBUTIONS
"How are dividends and distributions determined?"
The Fund distributes dividends from net investment income,
if any, on an annual basis following the end of its fiscal year
which is December 31st. Because the Fund invests primarily in
equity securities, distributions from the Fund, if any, will
consist mostly of capital gains, which may be long- or short-term
depending upon the length of time the Fund has held the
securities it then sells. 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 and distributions 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 and
distributions of each class can vary because each class will bear
certain class-specific charges.
Dividends and distributions will automatically be reinvested
in full and fractional shares of the Fund of the same class at
net asset value on the record date for the dividend or
distribution, unless you request otherwise.
You may choose to have all or any part of the payments for
dividends or distributions paid in cash. You can elect to have
the cash portion of your dividends or distributions deposited,
without charge, by electronic funds transfers into your account
at a financial institution, if it is a member of the Automated
Clearing House.
You can make any of these elections on the Application, by a
Ready Access Features Form or by a letter to the Agent. Your
election to receive some or all of your dividends and
distributions in cash will be effective as of the next payment of
dividends after it has been received in proper form by the Agent.
It will continue in effect until the Agent receives written
notification of a change.
All shareholders, whether their dividends and distributions
are received in cash or reinvested, will receive a quarterly
statement indicating the current status of their investment
account with the Fund.
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Fund
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders, and from capital
gains distributions (if any)."
TAX INFORMATION
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.
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. Distributions from the Fund are also subject to
applicable state income taxes. Consult your tax adviser.
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The financial highlights table is intended to help you understand
the Fund's financial performance for the periods of the Fund's
operations. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the
rate that an investor would have earned or lost on an investment
in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP,
whose report, along with the Fund's financial statements, is
included in the annual report, is incorporated by reference into
the SAI and is available upon request.
<TABLE>
<CAPTION>
Class A(1) Class C(2)
Year ended December 31, Year Ended Year
Ended
December
31,
1999 1998 1997 1999 1998
1997
<S> <C> <C> <C> <C> <C>
<C>
Net Asset Value, Beginning
of Period ...........$16.76..$17.89 $15.05 $16.53 $17.79
$15.07
Income from Investment
Operations:
Net investment
income (loss) (0.04) - 0.01 (0.19) (0.16)
(0.11)
Net gain (loss) on
securities (both
realized and
unrealized) .......3.48 (0.96) 3.44 3.43 (0.93)
3.44
Total from Investment
Operations ...... ..3.44 (0.96) 3.45 3.24 (1.09)
3.33
Less Distributions:
Dividends from net
investment income ..-.. (0.01) - - (0.01)
- -
Distributions from
capital gains ...(0.24) .(0.16) (0.61) (0.24) (0.16)
(0.61)
Total Distributions .(0.24) .(0.17) (0.61) (0.24) (0.17)
(0.61)
Net Asset Value, End of
Period ........... .$19.96. $16.76 $17.89 $19.53 $16.53
$17.79
Total Return (not reflecting
sales charge)(%) .. $20.56..(5.31) 23.01 19.63 (6.07)
22.18
Net Assets, End of Period
($ thousands) .1,363.. 1,880 3,144 185 162
7
Ratios/Supplemental Data
Ratio of Expenses to
Average Net
Assets (%) .... .1.55.. 1.74 1.58 2.34 2.53
2.34
Ratio of Net Investment
Income to Average Net
Assets (%) ......(0.27). (0.22) (0.03) (1.10) (1.07)
(0.78)
Portfolio Turnover
Rate (%) .......... .6.45.. 19.52 10.39 6.45 19.52
10.39
The expense and net investment income ratios without the effect
of the
Adviser's and Administrator's voluntary waiver of fees and the
Administrator's voluntary expense reimbursement were:
Ratio of Expenses
to Average Net Assets(%)
5.86 4.74 6.48 6.59 5.70
7.19
Ratio of Net Investment
Income(Loss) to
Average Net Assets(%)(4.59) (3.22) (4.93) (5.35) (4.23)
(5.63)
The expense ratios after giving effect to the waivers
reimbursement and
expense offset for uninvested cash balances were:
Ratio of Expenses to
Average Net Assets(%) 1.51 1.55 1.50 2.30 2.33 2.26
<CAPTION>
Class A(1) Class C Class C(3)
Year Ended Year Ended Year Ended Period Ended
December 31, 12/31/96
1996 1995 1997
<C> <C> <C> <C>
$13.13 $11.06 $15.07 $14.59
(0.02) (0.07) (0.11) 0.01
2.47 2.25 3.44 1.00
2.45 2.18 3.33 1.01
- (0.01) - -
(0.53) (0.10) (0.61) (0.53)
(0.53) (0.11) (0.61) (0.53)
$15.05 $13.13 $17.79 $15.07
18.68 $19.68 22.18 6.94+
2,178 1,737 7 4
1.55 2.03 2.34 1.30*
(0.19) (0.72) (0.78) 0.06*
20.32 15.14 10.39 20.32+
8.79 10.36 7.19 8.54*
(7.43) (9.05) (5.63) (7.18)*
1.50 1.91 2.26 1.25*
<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 May 1, 1996 to December 31, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
<FN>
Note: Effective July 28, 1999, Aquila Management Corporation
assumed the role of investment adviser, replacing KPM Investment
Management, Inc.
</FN>
</TABLE>
<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
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.
** Uniform Gifts/Transfers to Minors Act.
Please type or print name(s) exactly as account is to be
registered
1._______________________________________________________________
_
First Name Middle Initial Last Name Social Security
Number
2._______________________________________________________________
_
First Name Middle Initial Last Name Social Security
Number
3._______________________________________________________________
_
Custodian's First Name Middle Initial Last Name
Custodian for
____________________________________________________
Minor's First Name Middle Initial Last Name
_____________________________
Minor's Social Security
No.
Under the _________UGTMA**.
State
4.
_________________________________________________________________
_
(Name of corporation or organization. If a trust, include the
name(s) in which account will be registered and the name and
date of the trust instrument. An account for a pension or profit
sharing plan or trust may be registered in the name of the plan
or trust itself.)
_________________________________________________________________
_____
Tax I.D. Number 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
Income dividends and capital gains distributions are
automatically reinvested in additional shares at net asset value
unless otherwise indicated below.
Income dividends are to be:___% Reinvested ___%Paid in cash*
Capital Gains Distributions are to be: ___% Reinvested ___% Paid
in cash*
* For cash dividends, please choose one of the following
options:
___Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing
the
Financial Institution account where I/we would like you to
deposit
the dividend. (A Financial Institution is a commercial bank,
savings
bank or credit union.)
___Mail check to my/our address listed in Step 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ YES ___ NO
This option provides you with a convenient way to have amounts
automatically drawn on your financial institution account and
invested
in your 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 1-800-762-5922. 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 first actual liquidation date.
(Check appropriate box)
___ YES ___ NO
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions
set
forth below. To realize the amount stated below, PFPC Inc. (the
"Agent")
is authorized to redeem sufficient shares from this account at
the then
current net asset value, in accordance with the terms below:
Dollar amount of each withdrawal $
______________beginning________________,
Minimum: $50
Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
First Name Middle Initial Last Name Financial Institution
Name
_________________________________________________________________
______
Street Financial Institution Street
Address
_________________________________________________________________
_____
City State Zip City State
Zip
____________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE
This option allows you to effect exchanges among accounts in your
name
within the Aquilasm 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, 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 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 trusts, corporations 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 1-800-762-5955 and send it to the Agent
together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in
15
days after this form is received in good order by the Fund's
Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 3c and signing the Application, the
investor
is entitled to make each purchase at the public offering price
applicable to a single transaction of the dollar amount checked
above, and agrees to be bound by the terms and conditions
applicable
to Letters of Intent appearing below.
The investor is making no commitment to purchase shares,
but if
the investor's purchases within thirteen months from the date of
the
investor's first purchase do not aggregate $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 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>
[Inside back cover]
MANAGER
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
Diana P. Herrmann
R. Thayne Robson
Cornelius T. Ryan
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Senior Vice President
James M McCullough, Senior Vice President
Barbara S. Walchli Senior Vice President
Kimball L. Young, Senior Vice President
Susan A. Cook, Vice President
Diana P. Herrmann, Vice President
Christine L. Neimeth, Vice President
Jean M. Smith, Vice President
Alan R. Stockman, Vice President
Jessica L. Wiltshire, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG LLP
757 Third Avenue
New York, New York 10017
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
<PAGE>
[Left column-Back cover]
This Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund (the "SAI") has been filed with the
Securities and Exchange Commission. The SAI contains information
about the Fund and its management not included in this
Prospectus. The SAI is incorporated by reference in its entirety
in this Prospectus. Only when you have read both this Prospectus
and the SAI are all material facts about the Fund available to
you.
You can get additional information about the Fund's
investments in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its
last fiscal year. You can get the SAI and the Fund's annual and
semi-annual reports without charge, upon request by calling 800-
762-5922 (toll free).
In addition, you can review and copy information about the
Fund (including the SAI) at the Public Reference Room of the SEC
in Washington, D.C. Information on the operation of the Public
Reference Room is available by calling 1-202-942-8090. Reports
and other information about the Fund are also available on the
EDGAR Database on the SEC's Internet site at http://www.sec.gov.
Copies of this information can be obtained, for a duplicating
fee, by E-mail request to [email protected] or by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
The file number under which the Fund is registered
with the SEC under the Investment Company Act of 1940 is
811-8168.
TABLE OF CONTENTS
The Fund's Objective, Investment Strategies
and Main Risks...................................
Risk/Return Bar Chart and Performance Table .....
Fees and Expenses of the Fund...................
Investment of the Fund's Assets.................
Fund Management.................................
Net Asset Value Per Share........................
Purchases .......................................
Redeeming Your Investment........................
Alternate Purchase Plans.........................
Dividends and Distributors......................
Tax Information..................................
Financial Highlights.............................
Application and Letter of Intent
[Right column-Back cover]
Aquila
[LOGO]
Rocky
Mountain
Equity Fund
PROSPECTUS
One of The
Aquilasm Group Of Funds
PROSPECTUS
To receive a free copy of the Fund's SAI, annual or semi-annual
report, or other information about the Fund, or to make
shareholder inquiries call:
the Fund's Shareholder Servicing Agent at
800-762-5922 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For general inquiries and yield information, call 800-762-5955 or
212-697-6666
This Prospectus should be read and retained for future reference
<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
Prospectus
Class Y Shares May 1, 2000
Class I Shares
Aquila Rocky Mountain Equity Fund (the "Fund") is a mutual fund
whose objective is capital appreciation. It seeks to achieve its
objective through investment in securities (primarily common
stock or other equity securities) of companies having a
significant business presence in the general Rocky Mountain
region of our country.
For purchase, redemption or account inquiries contact the Fund's
Shareholder Servicing Agent:
PFPC Inc.* 400 Bellevue Parkway * Wilmington, DE 19809
800-ROCKY-22 * (800-762-5922) toll free
For general inquiries & yield information
800-ROCKY-55 (800-762-5955) toll free or 212-697-6666
The Securities and Exchange Commission has not approved or
disapproved the Fund's securities or passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
THE FUND'S OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS
"What is the Fund's objective?"
The Fund's investment objective, which is a fundamental policy of
the Fund, is to purchase and hold securities for capital
appreciation.
"What is the Fund's investment strategy?"
We call the general area consisting of Colorado, Arizona,
Idaho, Montana, Nevada, New Mexico, Utah and Wyoming 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. These are companies (i) whose
principal executive offices are located in the Rocky Mountain
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. 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. In addition to common
stocks, equity securities can include preferred stock and
convertible fixed-income securities. In general, the Manager
follows a "value" approach to investing.
"What are the main risks of investing in the Fund?"
Among the risks of investing in shares of the Fund and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Fund.
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
condition 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.
The Fund invests in companies varying widely in market
capitalization, reflecting the different sizes of companies doing
business in the Rocky Mountain Region. 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 Manager believes offer the potential of capital
appreciation due to their overall characteristics. These
companies are comparatively less well known and may have less
trading in their shares than larger companies. 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.
Convertible fixed-income investments are subject to interest
rate and credit risks.
Because the Fund will invest most, and may invest all, of
its assets in Rocky Mountain Companies, it may have less
diversification and may experience greater volatility than funds
without this investment policy. Furthermore, because the Fund's
assets are subject to economic and other conditions affecting the
various states which comprise the Rocky Mountain Region, an
economic down-turn in one or more of those states could adversely
affect the Fund's performance.
Investment in the Fund is not a deposit in any bank and is
not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Aquila Rocky Mountain Equity Fund by
showing changes in the performance of the Fund's Class Y Shares
from year to year over a three-year period and by showing how the
Fund's average annual returns for one year and since inception
compare to a broad measure of market performance. How the Fund
has performed in the past is not necessarily an indication of how
the Fund will perform in the future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1997-1999
<S> <C> <C> <C>
24%
22.98 20.78
20% XXXX XXXX
XXXX XXXX
16% XXXX XXXX
XXXX XXXX
12% XXXX XXXX
XXXX XXXX
8% XXXX XXXX
XXXX XXXX
4% XXXX XXXX
XXXX XXXX
0% XXXX XXXX
XXXX
- -4% -5.08 XXXX
XXXX XXXX
- -8%
1997 1998 1999
Calendar Years
</TABLE>
During the period shown in the bar chart, the highest return for
a quarter was 15.10% (quarter ended June 30, 1999) and the lowest
return for a quarter was -11.58% (quarter ended September 30,
1998).
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the Period Ended 1-Year inception*
December 31, 1999
<S> <C> <C>
Aquila Rocky Mountain Equity Fund
Class Y Shares 20.78% 11.83%
Aquila Rocky Mountain Equity Fund
Class I Shares ** N/A N/A
Russell 2000 Index*** 21.35% 12.09%
<FN>
*From commencement of Class Y Shares on May 1, 1996.
</FN>
<FN>
**Commencement of Class I Shares was on January 31, 1998. To date
no Class I Shares have been sold.
</FN>
<FN>
***The Russell 2000 Index is an unmanaged index of small company
stocks throughout the United States.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AQUILA ROCKY MOUNTAIN EQUITY FUND
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund. No Class I Shares are
currently outstanding.
Class I Class Y
Shares Shares
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases.....
(as a percentage of offering price) None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends and
Distributions
(as a percentage of offering price)....None None
Redemption Fees.........................None None
Exchange Fees...........................None None
Annual Fund Operating Expenses (expenses that are
deducted from the Fund's assets)(1)
Management Fees (2) 1.50% 1.50%
Distribution and/or
Service(12b-1) Fee 0.10%(3) None
All Other Expenses(2) 4.00% 4.15%
Total Annual Fund
Operating Expenses (2) 5.60% 5.65%
<FN>
(1) The Manager has undertaken to waive all its fee until the
Fund attains an asset size of $10 million. The Manager
anticipates that when Fund assets reach $10 million, its fees for
that fiscal year will be waived following a predetermined
formula. Thereafter, it may determine to waive some or all of its
fee. However, as the asset size of the Fund increases, these
waivers would be progressively reduced so that when assets exceed
approximately $25 million the Fund would pay substantially all
fees as they are accrued. Since the Fund's inception, the
Manager, in its sole discretion, has been reimbursing some or all
of the Fund's other operating expenses.</FN)
<FN>
(2) The actual expense ratios for the fiscal year ended December
31, 1999 after giving effect to the waivers, expense
reimbursement, and the expense offset for uninvested cash
balances were incurred at the following annual rates: management
fees, all other expenses, and total fund operating expenses for
Class I Shares would have been 0.00%, 1.15%, and 1.25%,
respectively; for Class Y Shares, these expenses would have been
0.00%, 1.30%, and 1.30%, respectively. Other expenses for the two
classes differ because Class I Shares bear program costs for
financial intermediaries of 0.25%, which includes transfer agent
services, and charges common to both classes of 3.75%; Class Y
Shares bear only the common charges of 3.75% and an allocation
for transfer agent services of 0.40% </FN>
<FN>
(3) Current rate; up to 0.25% can be authorized by the Trustees.
</FN>
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, that you reinvest all
dividends and distributions, and that the Fund's operating
expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class I Shares............$558 $1,664 $2,758 $5,435
Class Y Shares............$563 $1,679 $2,779 $5,470
</TABLE>
<PAGE>
INVESTMENT OF THE FUND'S ASSETS
"Is the Fund right for me?"
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.
"What is the Rocky Mountain Region?"
The general Rocky Mountain region of our country consists of
Colorado, Arizona, Idaho, Montana, Nevada, New Mexico, Utah and
Wyoming.
"What are Rocky Mountain Companies?"
Companies of any size and in any industry with a significant
business presence in the Rocky Mountain Region are called Rocky
Mountain Companies. These are companies (i) whose principal
executive offices are located in the Rocky Mountain 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.
"What are equity securities?"
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.
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 or other equity securities of the same or a different
issuer.
"How are the Fund's investments chosen?"
The Manager will generally seek to invest in established,
financially sound, well-managed Rocky Mountain Companies whose
securities it considers to be selling at reasonable prices
relative to their growth rates and anticipated future values. In
general, the Manager follows a "value" approach to investment
selection; that is, 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 Manager believes are experiencing
better growth relative to comparable investments. The Manager
currently focuses on approximately 300-400 Rocky Mountain
Companies from which it selects investments for the Fund's
portfolio. In selecting investments the Manager anticipates
considering a number of factors. These include but are not
limited to: quality of management, ability of the company to
generate earnings, revenue growth and free cash flow, strength of
the company's balance sheet and the overall economic, monetary,
political and market environment. The investment disciplines that
the Manager employs to help control risk include, but are not
limited to, monitoring valuation levels, earnings momentum and
cash flow. The Manager also emphasizes visits to companies and
frequent discussions with management. The Fund does not engage in
active trading to achieve its investment objective.
In unusual market conditions when the Manager 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. government
securities, corporate bonds or high grade short-term money-market
securities, without geographic or percentage limitation. Only
corporate securities rated "A" or better by a nationally
recognized statistical rating organization will be purchased.
Under these circumstances, the Fund may not achieve its
investment objective.
"What are the other risk factors and special considerations
regarding investment in Rocky Mountain Companies?"
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.
In addition to considerations specifically affecting the
Rocky Mountain Region, other risk factors include the following.
There are two types of risk generally associated with owning
fixed-income securities: market risk and credit risk. Market risk
relates to fluctuations in market value arising from changes in
interest rates. If interest rates rise, the value of fixed-income
securities will normally decline and if interest rates fall, the
value of fixed-income securities will normally increase. All
fixed-income securities, including U.S. government securities,
which are generally considered to be the most creditworthy of all
fixed-income obligations, are subject to interest risk.
Securities with longer maturities generally have a more
pronounced reaction to interest rate changes than shorter-term
securities. Other economic factors may also affect the value of
fixed-income securities. Credit risk relates to the ability of
the issuer to make periodic interest payments as scheduled and
ultimately repay principal at maturity.
Since the practice of many growth-oriented companies in
which the Fund will invest is to reinvest most or all of their
earnings in the development of their business, the Fund does not
expect to receive dividends enabling it to provide investors with
any significant amount of current income. In addition, during at
least the early fiscal years of the Fund, it is anticipated that
all of such income will be applied to payment of Fund operating
expenses, so that none will be available for distribution to
shareholders.
FUND MANAGEMENT
"How is the Fund managed?"
Under an agreement with the Fund, Aquila Management
Corporation (the "Manager"), 380 Madison Avenue, Suite 2300, New
York, NY 10017, founder of the Fund, serves as its investment
adviser and administrator; as such, in addition to providing
administrative services, the Manager supervises the investment
program of the Fund and the composition of its portfolio.
Under its agreement with the Fund, the Manager provides for
investment supervision, including supervising continuously the
investment program of the Fund and the composition of its
portfolio, determining what securities will be purchased or sold
by the Fund, and arranging for the purchase and sale of
securities held in the portfolio of the Fund; and, at its
expense, for pricing of the Fund's portfolio daily. The Manager's
administrative services include providing for the maintenance of
the headquarters of the Fund, overseeing relationships between
the Fund and the service providers to the Fund, either keeping
the accounting records of the Fund or, at its expense and
responsibility, delegating such duties in whole or in part to a
company satisfactory to the Fund, maintaining the Fund's books
and records and providing other administrative services.
During the Fund's fiscal year ended December 31, 1999, the
Fund accrued management fees under its agreement with the Manager
at the annual rate of 1.50% of its average annual net assets. All
of these fees were waived.
Information about the Manager
The Manager is the founder and serves as Manager for three
other funds oriented to the Rocky Mountain Region: Tax-Free Trust
of Arizona, with assets of $370 million, Tax-Free Fund of
Colorado, with assets of $198 million and Tax-Free Fund For Utah,
with assets of $38 million, all as of December 31, 1999. It is
the founder and Manager and/or administrator of the Aquilasm
Group of Funds, which consists of tax-free municipal bond funds
(including those named above), money-market funds and equity
funds. As of March 31, 2000, these funds had aggregate assets of
approximately $3.2 billion. The Manager, which was founded in
1984, is controlled by Mr. Lacy B. Herrmann, directly, through a
trust and through share ownership by his wife.
Barbara Walchli, C.F.A., has acted as portfolio manager for
the Fund since July, 1999, when she joined the Manager. Prior to
becoming the Fund's portfolio manager, Ms. Walchli had 18 years
of analytical investment experience, including 12 years
developing short- and long-term equity strategy, 11 years as
director of equity research and 8 years managing
performance-oriented portfolios and funds. She managed or
co-managed funds totaling $1.7 billion in assets and was
responsible for equity strategy for a group managing $27.5
billion in assets. She also hired and supervised a number of
equity analysts. Ms. Walchli holds an MBA in finance from Arizona
State University and an AB from Smith College. She is a chartered
financial analyst and member of various investment associations.
NET ASSET VALUE PER SHARE
The net asset value of the shares of each of the Fund's
classes of shares is determined as of 4:00 p.m., New York time,
on each day that the New York Stock Exchange is open (a "business
day"), by dividing the value of the Fund's net assets (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Fund's shares is
based on portfolio market value, except that fixed-income
securities maturing in 60 days or less are generally valued at
amortized cost. The price at which a purchase or redemption of
shares is effected is based on the net asset value next
calculated after your purchase or redemption order is received in
proper form. The New York Stock Exchange annually announces the
days on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. However, the Exchange may close on days
not included in that announcement.
PURCHASES
"Are there alternate purchase plans?"
Yes. See "Alternate Purchase Plans" below. This Prospectus
offers two separate classes of shares. All classes represent
interests in the same portfolio of securities.
"Can I purchase shares of the Fund?"
You can purchase shares of the Fund if you live in one of
the states listed below. You should not purchase shares of the
Fund if you do not reside in one of the following states.
Otherwise, the Fund can redeem the shares you purchased. This may
cause you to suffer a loss and may have tax consequences.
On the date of this Prospectus, Class Y Shares are available
only in:
Alaska * Arizona * California * Colorado * District of Columbia *
Florida * Hawaii * Idaho * Kansas * Missouri * Montana *
Nebraska * Nevada * New Jersey * New Mexico * New York * Utah
* Wyoming
Class I Shares are available only in:
District of Columbia * Florida * Kansas * Missouri * Nevada * New
Jersey
"How much money do I need to invest?"
For Class Y Shares:
$1,000. Subsequent investments can be in any amount.
For Class I Shares:
Financial intermediaries can set their own requirements for
initial and subsequent investments.
Your investment must be drawn in United States dollars on a
United States commercial bank, savings bank or credit union or a
United States branch of a foreign commercial bank (each of which
is a "Financial Institution").
"How do I purchase shares?"
You may purchase Class Y Shares:
* through an investment broker or dealer, or a bank or
financial intermediary, that has a sales agreement with the
Distributor, Aquila Distributors, Inc., in which case that
institution will take action on your behalf, and you will not
personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Fund's Agent, PFPC Inc.
The price you will pay is net asset value for both Class Y Shares
and Class I Shares. (See "What price will I pay for the Fund's
shares?")
You may purchase Class I Shares only through a financial
intermediary.
Opening a Class Y Shares Adding to a Class Y Shares
Account Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to payable to
Aquila Rocky Mountain Aquila Rocky Mountain
Equity Fund. Equity Fund.
* Complete the application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Fund's
you wish to authorize. confirmations
or supply the name(s)
of account owner(s),
the account number, and
the name of the Fund.
* Send your check and * Send your check and
completed application account information
to your dealer or to your dealer or
to the Fund's to the Fund's
Agent, PFPC Inc. Agent, PFPC Inc.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a predetermined amount
to be regularly transferred from your account.
* Telephone Investment: You can make single investments of up to
$50,000 by telephone instructions to the Agent.
Before you can transfer funds electronically, the Fund's
Agent must have your completed application authorizing these
features. Or, if you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Fund may modify or terminate
these investment methods or charge a service fee, upon 30 days'
written notice to shareholders.
REDEEMING YOUR INVESTMENT
Redemption of Class Y Shares
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been received in proper form.
There is no minimum period for investment in the Fund,
except for shares recently purchased by check or by Automatic or
Telephone Investment as discussed below.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, DE 19809
By telephone, call:
800-762-5922
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Fund offers expedited
redemption for Class Y Shares.
Expedited Redemption Methods
You may request expedited redemption in two ways:
1. By Telephone. The Agent will take instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified; or
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past 30
days) as the account from which you are redeeming. You may only
redeem by check via telephone request once in any 7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Fund, the Agent, and the Distributor are not
responsible for losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify a caller's identity. The Agent may record calls.
2 By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at 302-791-3055
or by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter, signed by the registered shareholder(s) (no signature
guarantee is required), must indicate:
account name(s)
account number
amount to be redeemed
any payment directions
To have redemption proceeds sent directly to a Financial
Institution account, you must complete the Expedited Redemption
section of the Application or a Ready Access Features Form. You
will be required to provide (1) details about your Financial
Institution account, (2) signature guarantees and (3) possible
additional documentation.
The name(s) of the shareholder(s) on the Financial
Institution account must be identical to those on the Fund's
records of your account.
You may change your designated Financial Institution account
at any time by completing and returning a revised Ready Access
Features Form.
Regular Redemption Method
To redeem by the regular redemption method, send a letter of
instructions to the Fund's Agent, which includes:
account name(s)
account number
dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be redeemed
payment instructions (we normally mail redemption proceeds
to your address as registered with the Fund)
signature(s) of the registered shareholder(s) and
signature guarantee(s), if required, as indicated below.
To be in "proper form," your letter must be signed by the
registered shareholder(s) exactly as the account is registered.
For a joint account, both shareholder signatures are necessary.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other than
the shareholder of record. The Agent may require signature
guarantees if insufficient documentation is on file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the address
of record, except as noted above. In all other cases, signatures
must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
participant in the Securities Transfer Association Medallion
Program ("STAMP"), the Stock Exchanges Medallion Program
("SEMP"), or the New York Stock Exchange, Inc. Medallion
Signature Program ("MSP").
A notary public is not an acceptable signature guarantor.
Redemption of Class I Shares
You may redeem all or any part of your Class I Shares at the
net asset value next determined after receipt in proper form of
your redemption request by your financial intermediary.
Redemption requests for Class I Shares must be made through a
financial intermediary and cannot be made directly. Financial
intermediaries may charge a fee for effecting redemptions. There
is no minimum period for any investment in the Fund. The Fund
does not impose redemption fees or penalties on redemption of
Class I Shares. A redemption may result in a transaction taxable
to you.
"When will I receive the proceeds of my redemption?"
Redemption proceeds for Class Y Shares are normally sent on
the next business day following receipt in proper form of your
redemption request. Except as described below, payments will
normally be sent to your address of record within 7 days.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested
on your Application
or Ready Access Features
Form, wired or
transferred through
the Automated Clearing
House to your Financial
Institution account
Through a broker/
dealer Check or wire, None,
to your broker however, your
/dealer broker/dealer
may charge a
fee.
Although the Fund does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. Upon 30
days' written notice to shareholders the Fund may modify or
terminate the use of the Automated Clearing House to make
redemption payments at any time or charge a service fee, although
no such fee is presently contemplated. If any such changes are
made, the Prospectus will be supplemented to reflect them.
Redemption payments for Class I Shares are made to financial
intermediaries.
The Fund may delay payment for redemption of shares recently
purchased by check (including certified, cashier's or official
bank check) or by Automatic Investment or Telephone Investment up
to 15 days after purchase; however, payment for redemption will
not be delayed after (i) the check or transfer of funds has been
honored, or (ii) the Agent receives satisfactory assurance that
your Financial Institution will honor the check or transfer of
funds. You can eliminate possible delays by paying for purchased
shares with wired funds or Federal Reserve drafts.
The Fund has the right to postpone payment or suspend
redemption rights during certain periods. These periods may occur
(i) when the New York Stock Exchange is closed for other than
weekends and holidays, (ii) when the Securities and Exchange
Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines an emergency exists which
causes disposal of, or determination of the value of, the
portfolio securities to be unreasonable or impracticable, and
(iv) during such other periods as the SEC may permit.
The Fund can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Fund's portfolio securities ("redemption in
kind") in conformity with SEC rules. This method will only be
used if the Board of Trustees determines that payments partially
or wholly in cash would be detrimental to the best interests of
the remaining shareholders.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class Y Shares. Under an
Automatic Withdrawal Plan you can arrange to receive a monthly or
quarterly check in a stated amount, not less than $50.
ALTERNATE PURCHASE PLANS
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.
Class Y Shares Class I Shares
"Institutional Class" "Financial Intermediary
Class"
Initial Sales None None. Financial
Charge Intermediaries may
charge a fee for
purchase of shares.
Contingent None None
Deferred Sales
Charge ("CDSC")
Distribution and None Distribution fee of
Service Fees up to 0.25 of 1% of
average annual net
assets allocable to
Class I Shares,
currently 0.10 of 1%
of such net assets,
and a service fee
of 0.25 of 1% of
such assets.
"What price will I pay for the Fund's shares?"
The offering price for Class Y Shares is the net asset value
per share. You will receive that day's offering price on purchase
orders, including Telephone Investments and investments by mail,
received in proper form prior to 4:00 p.m. New York time. Dealers
have the added flexibility of transmitting orders received prior
to 4:00 p.m. New York time to the Distributor or Agent before the
Distributor's close of business that day (normally 5:00 p.m. New
York time) and still receiving that day's offering price.
Otherwise, orders will be filled at the next determined offering
price. Dealers are required to submit orders promptly. Purchase
orders received on a non-business day, including those for
Automatic Investment, will be executed on the next succeeding
business day. The sale of shares will be suspended (1) during any
period when net asset value determination is suspended or (2)
when the Distributor judges it is in the Fund's best interest to
do so.
The offering price for Class I Shares is the net asset value
per share. The offering price determined on any day applies to
all purchases received by each financial intermediary prior to
4:00 p.m. New York time on any business day. Purchase orders
received by financial intermediaries after that time will be
filled at the next determined offering price.
"What about confirmations and share certificates?"
A statement will be mailed to you confirming each purchase
of Class Y Shares in the Fund. Additionally, your account at the
Agent will be credited in full and fractional shares (rounded to
the nearest 1/1000th of a share). Financial intermediaries will
confirm purchases of Class I Shares. The Fund will not issue
certificates for Class Y Shares or Class I Shares.
"Is there a Distribution Plan or a Services Plan?"
The Fund has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Fund to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Manager, out of its own funds, to make
payment for distribution expenses; and
(iii) protect the Fund against any claim that some of the
expenses which it pays or may pay might be considered to be
sales-related and therefore come within the purview of the Rule.
No payments are made with respect to assets represented by
Class Y Shares.
Under the Plan, the Fund makes payments with respect to
Class I Shares under agreements to certain broker/dealers, or
others who have (i) rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention
ofthe Fund's shares or (ii) assisted in the servicing of
shareholder accounts.
For any fiscal year, payments with respect to Class I Shares
are made at a rate set from time to time by the Board of Trustees
(currently 0.10 of 1%) but not more than 0.25 of 1% of the
average annual net assets represented by the Class I Shares of
the Fund. Such payments can be made only out of the Fund's assets
allocable to the Class I Shares. Because these distribution fees
are paid out of assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more
than paying other types of sales charges.
For any class, these payments are made only from the assets
allocable to that class.
Shareholder Services Plan for Class I Shares
The Fund's Shareholder Services Plan authorizes it to pay a
service fee under agreements to certain qualified recipients who
have agreed to provide personal services to Class I shareholders
or maintain their accounts. For any fiscal year, such fees may
not exceed 0.25 of 1% of the average annual net assets
represented by Class I Shares. Payment is made only out of the
Fund's assets represented by Class I Shares. No payments are made
with respect to assets represented by Class Y Shares.
"Transfer on Death" Registration (Not available for Class I
Shares)
If you own Class Y Shares, the Fund generally permits
"transfer on death" ("TOD") registration of shares, so that on
the death of the shareholder the shares are transferred to a
designated beneficiary or beneficiaries. Ask the Agent or your
broker-dealer for the Transfer on Death Registration Request
Form. With it you will receive a copy of the TOD Rules of the
Aquilasm Group of Funds, which specify how the registration
becomes effective and operates. By opening a TOD account, you
agree to be bound by the TOD Rules.
DIVIDENDS AND DISTRIBUTIONS
"How are dividends and distributions determined?"
The Fund distributes dividends from net investment income,
if any, on an annual basis following the end of its fiscal year
which is December 31st. Because the Fund invests primarily in
equity securities, distributions from the Fund, if any, will
consist mostly of capital gains, which may be long- or short-term
depending upon the length of time the Fund has held the
securities it then sells. 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 and distributions of Class I
Shares will be lower than the per share dividends on the Class Y
Shares as a result of the higher service and distribution fees
applicable to those shares. In addition, the dividends and
distributions of each class can vary because each class will bear
certain class-specific charges.
Dividends and distributions will automatically be reinvested
in full and fractional shares of the Fund of the same class at
net asset value on the record date for the dividend or
distribution, unless you request otherwise.
If you own or purchase Class Y Shares, you may choose to
have all or any part of the payments for dividends or
distributions paid in cash. You can elect to have the cash
portion of your dividends or distributions deposited, without
charge, by electronic funds transfers into your account at a
financial institution, if it is a member of the Automated
Clearing House.
You can make any of these elections on the Application, by a
Ready Access Features Form or by a letter to the Agent. Your
election to receive some or all of your dividends and
distributions in cash will be effective as of the next payment of
dividends after it has been received in proper form by the Agent.
It will continue in effect until the Agent receives written
notification of a change.
All arrangements for the payment of dividends and
distributions with respect to Class I Shares, including
reinvestment of dividends, must be made through financial
intermediaries.
All Class Y shareholders, whether their dividends or
distributions are received in cash or reinvested, will receive a
quarterly statement indicating the current status of their
investment account with the Fund. Financial intermediaries
provide their own statements of Class I Shares accounts.
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Fund
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders, and from capital
gains distributions (if any)."
TAX INFORMATION
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.
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. Distributions from the Fund are also subject to
applicable state income taxes. Consult your tax adviser.
<PAGE>
<PAGE>
The table shown below for Class A Shares is for information
purposes only. Class A Shares are not offered by this Prospectus.
No historical information exists for Class I Shares, none of
which were outstanding during the periods indicated.
AQUILA ROCKY MOUNTAIN EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The financial highlights table is intended to help you understand
the Fund's financial performance for the designated periods of
the Fund's operations. Certain information reflects financial
results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by KPMG
LLP, whose report, along with the Fund's financial statements, is
included in the annual report, is incorporated by reference into
the SAI and is available upon request.
<TABLE>
<CAPTION>
Class A(1) Class Y(2)
Year ended December 31, Year Ended
December 31,
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period .......$16.76 $17.89 $15.05 $16.82 $17.91 $15.07
Income from Investment
Operations:
Net investment
income (loss). (0.04) - 0.01 (0.01) 0.03 0.04
Net gain (loss) on
securities (both
realized and
unrealized) . 3.48 (0.96) 3.44 3.50 (0.95) 3.41
Total from Investment
Operations . 3.44 (0.96) 3.45 3.49 (0.92) 3.45
Less Distributions:
Dividends from net
investment
income - (0.01) - - (0.01) -
Distributions from
capital gains .(0.24) (0.16) (0.61) (0.24) (0.16) (0.61)
Total
Distributions (0.24) (0.17) (0.61) (0.24) (0.17) (0.61)
Net Asset Value,
End of Period . $19.96 $16.76 $17.89 $20.07 $16.82 $17.91
Total Return
(not reflecting
sales charge)(%) 20.56 (5.31) 23.01 20.78 (5.08) 22.98
Net Assets, End of Period
($ thousands) 1,363 1,880 3,144 922 789 795
Ratios/Supplemental Data
Ratio of Expenses to
Average Net
Assets (%) .... .1.55 1.74 1.58 1.33 1.52 1.34
Ratio of Net Investment
Income(Loss) to Average Net
Assets (%) ....(0.27) (0.22) (0.03) (0.09) (0.01) 0.16
Portfolio Turnover
Rate (%)....... 6.45 19.52 10.39 6.45 19.52 10.39
The expense and net investment income ratios without the effect
of the Adviser's and Administrator's voluntary waiver of
fees and the Administrator's voluntary expense reimbursement
were:
Ratio of Expenses
to Average Net Assets(%)
5.86 4.74 6.48 5.60 4.58 5.34
Ratio of Net Investment
Income(Loss) to
Average Net Assets(%)
(4.59) (3.22) (4.93) (4.36) (3.07) (3.84)
The expense ratios after giving effect to the waivers
reimbursement and expense offset for uninvested cash
balances were:
Ratio of Expenses to
Average Net Assets(%) 1.51 1.55 1.50 1.30 1.32 1.27
<CAPTION>
Class A(1) Class Y
Year Ended Period Ended(3)
December 31, 12/31/96
19961995
<C> <C> <C>
$13.13 $11.06 $14.59
(0.02) (0.07) 0.01
2.472.25 1.00
2.452.18 1.01
- (0.01) -
(0.53) (0.10) (0.53)
(0.53) (0.11) (0.53)
$15.05 $13.13 $15.07
$18.68 $19.68 6.94+
2,178 1,737 133
1.552.03 1.30*
(0.19) (0.72) 0.06*
20.32 15.14 20.32+
8.7910.36 8.54*
(7.43) (9.05) (7.18)*
1.501.91 1.25*
<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 May 1, 1996 to December 31, 1996.
</FN>
<FN>
Note: Effective July 28, 1999, Aquila Management Corporation assumed
the role of investment adviser, replacing KPM Investment
Management, Inc.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<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
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.
** Uniform Gifts/Transfers to Minors Act.
Please type or print name(s) exactly as account is to be
registered
1._______________________________________________________________
_
First Name Middle Initial Last Name Social Security
Number
2._______________________________________________________________
_
First Name Middle Initial Last Name Social Security
Number
3._______________________________________________________________
_
Custodian's First Name Middle Initial Last Name
Custodian for
____________________________________________________
Minor's First Name Middle Initial Last Name
_____________________________
Minor's Social Security
No.
Under the _________UGTMA**.
State
4.
_________________________________________________________________
_
(Name of corporation or organization. If a trust, include the
name(s) in which account will be registered and the name and
date of the trust instrument. An account for a pension or profit
sharing plan or trust may be registered in the name of the plan
or trust itself.)
_________________________________________________________________
_____
Tax I.D. Number 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
Make check payable to Aquila Rocky Mountain Equity Fund
Indicate class of shares:
__ Class I Shares
__ Class Y Shares
___Initial Investment $________________ (Minimum $1,000)
B. DISTRIBUTIONS
Income dividends and capital gains distributions are
automatically reinvested in additional shares at net asset value
unless otherwise indicated below.
Income dividends are to be:___% Reinvested ___%Paid in cash*
Capital Gains Distributions are to be: ___% Reinvested ___% Paid
in cash*
* For cash dividends, please choose one of the following
options:
___Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing
the
Financial Institution account where I/we would like you to
deposit
the dividend. (A Financial Institution is a commercial bank,
savings
bank or credit union.)
___Mail check to my/our address listed in Step 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ YES ___ NO
This option provides you with a convenient way to have amounts
automatically drawn on your financial institution account and
invested
in your 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 1-800-762-5922. To establish this program,
please complete Step 4, Sections A & B of this Application. YOU
MUST
ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK.
C. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
Application must be received in good order at least two weeks
prior
to first actual liquidation date.
(Check appropriate box)
___ YES ___ NO
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions
set
forth below. To realize the amount stated below, PFPC Inc. (the
"Agent")
is authorized to redeem sufficient shares from this account at
the then
current net asset value, in accordance with the terms below:
Dollar amount of each withdrawal $
______________beginning________________,
Minimum: $50
Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is
payable
to a Financial Institution for your account, indicate Financial
Institution name, address and your account number.
First Name Middle Initial Last Name Financial Institution
Name
_________________________________________________________________
______
Street Financial Institution Street
Address
_________________________________________________________________
_____
City State Zip City State
Zip
____________________________________
Financial Institution Account Number
D. TELEPHONE EXCHANGE
This option allows you to effect exchanges among accounts in your
name
within the Aquilasm 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, and subject to the
conditions set forth herein, I/we understand and agree to hold
harmless the Agent, each of the Aquila Funds, and their
respective officers, directors, trustees, employees, agents and
affiliates against any liability, damage, expense, claim or loss,
including reasonable costs and attorney's fees, resulting from
acceptance of or acting or failure to act upon this
authorization.
E. EXPEDITED REDEMPTION
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 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 trusts, corporations 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 1-800-762-5955 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 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 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>
<PAGE>
[Inside back cover]
MANAGER
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
Diana P. Herrmann
R. Thayne Robson
Cornelius T. Ryan
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Senior Vice President
James M McCullough, Senior Vice President
Barbara S. Walchli Senior Vice President
Kimball L. Young, Senior Vice President
Susan A. Cook, Vice President
Diana P. Herrmann, Vice President
Christine L. Neimeth, Vice President
Jean M. Smith, Vice President
Alan R. Stockman, Vice President
Jessica L. Wiltshire, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG LLP
757 Third Avenue
New York, New York 10017
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
<PAGE>
[Left column-Back Cover]
This Prospectus concisely states information about the Fund
that you should know before investing. A Statement of Additional
Information about the Fund (the "SAI") has been filed with the
Securities and Exchange Commission. The SAI contains information
about the Fund and its management not included in this
Prospectus. The SAI is incorporated by reference in its entirety
in this Prospectus. Only when you have read both this Prospectus
and the SAI are all material facts about the Fund available to
you.
You can get additional information about the
Fund's investments in the Fund's annual and semi-annual reports
to shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its
last fiscal year. You can get the SAI and the Fund's annual and
semi-annual reports without charge, upon request by calling 800-
762-5922 (toll free).
In addition, you can review and copy
information about the Fund (including the SAI) at the Public
Reference Room of the SEC in Washington, D.C. Information on the
operation of the Public Reference Room is available by calling
1-202-942-8090. Reports and other information about the Fund are
also available on the EDGAR Database on the SEC's Internet site
at http://www.sec.gov. Copies of this information can be
obtained, for a duplicating fee, by E-mail request to
[email protected] or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
The file number under which the Fund is registered
with the SEC under the Investment Company Act of 1940 is
811-8168.
TABLE OF CONTENTS
The Fund's Objective, Investment Strategies
and Main Risks...................................
Risk/Return Bar Chart and Performance Table .....
Fees and Expenses of the Fund...................
Investment of the Fund's Assets.................
Fund Management.................................
Net Asset Value Per Share........................
Purchases .......................................
Redeeming Your Investment........................
Alternate Purchase Plans.........................
Dividends and Distributors......................
Tax Information..................................
Financial Highlights.............................
Application
[Right column-Back Cover]
Aquila
[LOGO]
Rocky
Mountain
Equity Fund
PROSPECTUS
One of The
Aquilasm Group Of Funds
PROSPECTUS
To receive a free copy of the Fund's SAI, annual or semi-annual
report, or other information about the Fund, or to make
shareholder inquiries call:
the Fund's Shareholder Servicing Agent at
800-762-5922 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For general inquiries and yield information, call 800-762-5955 or
212-697-6666
This Prospectus should be read and retained for future reference
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND_PRIVATE __
380 Madison Avenue Suite 2300
New York, NY 10017
800-ROCKY-55 (800-762-5955)
212-697-6666
Statement
of Additional
Information May 1, 2000
This Statement of Additional Information
(the " SAI") is not a Prospectus. There are two Prospectuses for
the Fund dated May 1, 2000: one Prospectus describes
Front-Payment Class Shares ("Class A Shares") and Level-Payment
Class Shares ("Class C Shares") of the Fund and the other
describes Institutional Class Shares ("Class Y Shares") and
Financial Intermediary Class Shares ("Class I Shares") of the
Fund. References in the SAI to "the Prospectus" refer to either
of these Prospectuses. The SAI should be read in conjunction with
the Prospectus for the class of shares in which you are
considering investing. Either or both Prospectuses may be
obtained from the Fund's Shareholder Servicing Agent, PFPC Inc.,
by writing to it at: 400 Bellevue Parkway, Wilmington, DE 19809
or by calling:
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
Financial Statements
The financial statements for the Fund for
the year ended December 31, 1999, which are contained in the
Annual Report for that fiscal year, are hereby incorporated by
reference into the SAI. Those financial statements have been
audited by KPMG LLP, independent auditors, whose report thereon
is incorporated herein by reference. The Annual Report of the
Fund for the fiscal year ended December 31, 1999 can be obtained
without charge by calling any of the toll-free numbers listed
above. The Annual Report will be delivered with the SAI.
TABLE OF CONTENTS
Fund History
Investment Strategies and Risks
Fund Policies
Management of the Fund
Ownership of Securities
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Capital Stock
Purchase, Redemption, and Pricing of Shares
Additional Tax Information
Underwriters
Performance
Appendix A
<PAGE>
AQUILA ROCKY MOUNTAIN EQUITY FUND
Statement of Additional Information
FUND HISTORY
The Fund is an open-end, diversified management investment
company organized in 1994 as a Massachusetts business trust.
INVESTMENT STRATEGIES AND RISKS
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.
Convertible Securities
The Fund may invest up to 25% of its assets
in convertible securities, primarily of Rocky Mountain Companies,
if the Manager 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 Appendix A below 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.
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 Manager
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' fees 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 Manager 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, Capital Cash U.S. Government Securities Trust, Pacific
Capital Cash Assets Trust (Original Shares), Pacific Capital
Tax-Free Cash Assets Trust (Original Shares), Pacific Capital
U.S. Government Securities Cash Assets Trust (Original Shares)
and Churchill Cash Reserves Trust. 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.
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 Manager. 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.
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. Option transactions involve risks and
transaction costs which the Fund would not incur if it did not
engage in option transactions. If the Manager'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
Manager'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.
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
Manager, 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 Manager 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 Manager 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 Manager'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 Manager'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 positions
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.
FUND POLICIES
Investment Restrictions
The Fund has a number of policies concerning what it can and
cannot do. Those that are called fundamental policies cannot be
changed unless the holders of a "majority" (as defined in the
1940 Act) of the Fund's outstanding shares vote to change them.
Under the 1940 Act, the vote of the holders of a "majority" of
the Fund's outstanding shares means the vote of the holders of
the lesser of (a) 67% or more of the Fund's shares present at a
meeting or represented by proxy if the holders of more than 50%
of its shares are so present or represented; or (b) more than 50%
of the Fund's outstanding shares. Those fundamental policies not
set forth in the Prospectus are set forth below:
1. The Fund invests only in certain limited securities.
The Fund cannot buy any securities other than those
discussed under "Investment of the Fund's Assets" in the
Prospectus and in "Investment Strategies and Risks" in the SAI;
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 Manager who individually own 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.
5. 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.
6. 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.
7. 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.
MANAGEMENT OF THE FUND
The Board of Trustees
The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Board of
Trustees has authority over every aspect of the Fund's
operations, including approval of the advisory and sub-advisory
agreements and their annual renewal, the contracts with all other
service providers and payments under the Fund's Distribution Plan
and Shareholder Services Plan.
Trustees and Officers
The Trustees and officers of the Fund, their ages, their
affiliations, if any, with the Manager or the Distributor and
their principal occupations during at least the past five years
are set forth below. Mr. Herrmann is an interested person of the
Fund as that term is defined in the Investment Company Act of
1940 (the "1940 Act") as an officer of the Fund and a director,
officer and shareholder of the Manager and the Distributor. Ms.
Herrmann is an interested person of the Fund as an officer of the
Fund, as an officer, director and shareholder of the Manager and
as a shareholder of the Distributor. Each is also an interested
person as a member of the immediate family of the other. They are
so designated by an asterisk.
In the following material Pacific Capital Cash Assets Trust,
Churchill Cash Reserves Trust, Pacific Capital U.S. Government
Securities Cash Assets Trust, Pacific Capital Tax-Free Cash
Assets Trust, Capital Cash Management Trust and Capital Cash U.S.
Government Securities Trust, each of which is a money-market
fund, are called the "Aquila Money-Market Funds"; 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, Narragansett Insured Tax-Free Income Fund and Tax-Free
Fund For Utah, each of which is a tax-free municipal bond fund,
are called the "Aquila Bond Funds"; and Aquila Cascadia Equity
Fund and Aquila Rocky Mountain Equity Fund (this Fund) are called
the "Aquila Equity Funds."
<TABLE>
<CAPTION>
Name, Position Business Experience
with the Fund,
Address, Age,
<S> <C> <C>
Lacy B. Herrmann* Founder and Chairman of the Board of
Aquila
Chairman of the Management Corporation, the sponsoring
Board of Trustees organization and Manager or Administrator
380 Madison Avenue and/or Adviser or Sub-Adviser to the
New York, New York Aquila Money-Market Funds, the Aquila
Bond
10017 Funds and the Aquila Equity Funds,
Age: 70 and Founder , Chairman of the Board of
Trustees and (currently or until 1998)
President of each since its
establishment, beginning in 1984;
Director of Aquila Distributors, Inc.,
distributor of the above funds, since
1981 and formerly Vice President or
Secretary, 1981-1998; President and a
Director of STCM Management Company,
Inc., sponsor and sub-adviser to
Capital Cash Management Trust; Founder
and Chairman of several other money
market funds; Director or Trustee of
OCC Cash Reserves, Inc. and Quest For
Value Accumulation Trust, and Director
or Trustee of Oppenheimer Quest Value
Fund, Inc., Oppenheimer Quest Global
Value Fund, Inc. and Oppenheimer
Rochester Group of Funds, each of which
is an open-end investment company;
Trustee of Brown University, 1990-1996
and currently Trustee Emeritus;
actively involved for many years in
leadership roles with university,
school and charitable organizations.
Tucker Hart Adams President of The Adams Group,Inc.,
Trustee an economic consulting firm, since
4822 Alteza Drive 1989; Trustee of Tax-Free Fund
Colorado Springs of Colorado since 1989 and of Aquila
Colorado 80917 Rocky Mountain Equity Fund (this Fund)
Age: 62 since 1993; Vice President of United
Banks of
Colorado, 1985-1988; Chief Economist of
United Banks of Colorado, 1981-1988;
director of the Montana Power Company,
of the Colorado Health Facilities
Authority and the University of
Colorado Foundation; formerly director
of University Hospital; currently or
formerly an officer or director of
numerous professional
Arthur K. Carlson Retired; Advisory Director
Trustee of the Renaissance Companies
8702 North Via La Serena (design and construction
Paradise Valley, Arizona companies of commercial,
85253 industrial and upscale residential
Age: 78 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 and of Aquila Rocky Mountain
Equity Fund (this Fund) since 1993;
previously Vice President of Investment
Research at Citibank, New York City,
and prior to that Vice President and
Director of Investment Research of
Irving Trust Company, New York City;
past President of The New York Society
of Security Analysts and currently a
member of the Phoenix Society of
Financial Analysts; formerly Director
of the Financial Analysts Federation;
past Chairman of the Board and past
Director of Mercy Healthcare of
Arizona, Phoenix, Arizona; Director of
Northern Arizona University Foundation
since 1990, present or formerly an
officer and/or director of various
other community and professional
organizations.
Diana P. Herrmann, * President and Chief Operating Officer of
Trustee and the Manager/Administrator since 1997, a
President Director since 1984, Secretary since
1986
380 Madison Avenue and previously its Executive Vice
New York, New York President, Senior Vice President
10017 or Vice President, 1986-1997;
Age: 42 President of various Aquila Bond and
Money-Market Funds since 1998; Assistant
Vice President, Vice President, Senior
Vice President or Executive Vice
President of Aquila Money-Market, Bond
and Equity Funds since 1986; Trustee of
a number of Aquila Money-Market, Bond
and Equity Funds since 1995; Trustee of
Reserve Money-Market Funds, 1999-2000
and of Reserve Private Equity Series,
1998-2000; Assistant Vice President and
formerly Loan Officer of European
American Bank, 1981-1986; daughter of
the Fund's Chairman; Trustee of the
Leopold Schepp Foundation (academic
scholarships) since 1995; actively
involved in mutual fund and trade
associations and in college and other
volunteer organizations.
R. Thayne Robson Director of the Bureau of Economic
Trustee and Business Research, Professor
3548 Westwood Drive, of Management, and Research Professor
Salt Lake City, Utah 84109 of Economics at the University
Age: 70 of Utah since 1978; Trustee of Tax-Free
Fund
for Utah since 1992 and of Aquila Rocky
Mountain Equity Fund (this Fund) since
1993; Director of the Alliance of
Universities for Democracy since 1990;
Trustee of the Salt Lake Convention and
Visitors Bureau since 1984; Member of
Utah Governor's Economic Coordinating
Committee since 1982; Member of the
Association for University Business and
Economic Research since 1985; Director
of ARUP (a medical test laboratory)
since 1988; Director of Western Mortgage
since 1989; Director of the Utah
Economic Development Corporation since
1985; Director of the Salt Lake Downtown
Alliance since 1991; Trustee of
Crossroads Research Institute since
1986.
Cornelius T. Ryan General Partner of Oxford Ventures
Trustee Partners, a group of investment
c/o Oxford Partners venture capital partnerships, since
315 Post Road West 1981 and Managing Partner of Oxford
Westport, Connecticut Bioscience Partners, an affiliated
Age: 68 administrative company, since 1992;
Trustee of Capital Cash Management
Trust since 1976, of Prime Cash Fund
(which is inactive), 1983-1996 and of
Aquila Rocky Mountain Equity Fund
(this Fund) since 1996; President of
AMR International, Inc., a management
training and publishing company, 1978-
1980; President of GTE New Ventures
Corporation, 1974-1978; Vice President,
Corporation Development, of GTE
Corporation, 1974-1978; President and a
founder of Randolph Computer
Corporation, 1965-1974; Director of
Neuberger & Berman Equity Funds, since
1988.
Jerry G. McGrew President of Aquila Distributors,
Senior Vice President Inc. since 1998, Registered
5331 Fayette Street Principal since 1993, Senior Vice
Houston, TX 77056 President, 1997-1998 and Vice
Age: 55 President, 1993-1997; Senior Vice
President of Aquila Rocky Mountain
Equity Fund (this Fund) since 1996;
Senior Vice President of Churchill Tax-
Free Fund of Kentucky since 1994, and
of Tax-Free Fund of Colorado and Tax-
Free Fund For Utah since 1997; Vice
President of Churchill Cash Reserves
Trust since 1995; Registered
Representative of J.J.B. Hilliard, W.L.
Lyons Inc., 1983-1987; Account Manager
with IBM Corporation, 1967-1981;
Gubernatorial appointee, Kentucky
Financial Institutions Board, 1993-
1997; Chairman, Total Quality
Management for Small Business, 1990-
1994; President of Elizabethtown/Hardin
County, Kentucky, Chamber of Commerce,
1989-1991; President of Elizabethtown
Country Club, 1983-1985; Director-at
Large, Houston Alliance for the
Mentally Ill (AMI), since 1998.
James M. McCullough Senior Vice President of
Aquila
Senior Vice President Distributors, and of Aquila
1750 Aspen Court Cascadia Equity Fund, Aquila
Lake Oswego, OR Rocky Mountain Equity Fund
(this
97034 Fund), Tax-Free Fund of
Age: 55 Colorado and Tax-Free Trust of
Oregon since 1999; Director
of Fixed Income Institutional
Sales, CIBC Oppenheimer & Co.
Inc., Seattle, WA, 1995-1999;
Sales Manager, Oregon
Municipal Bonds, Kidder,
Peabody, Inc., (acquired in
1995 by Paine, Webber)
Portland, OR, 1994-1995.
Barbara S. Walchli Senior Vice President of Aquila
Senior Vice Management since 1999, Fund
President Co-manager One Group Large Company
380 Madison Avenue Growth Fund, One Group Income Equity
New York 10017 Fund, Banc One Investment Advisors 1996-
1997; Age: 47 Director of Research, Senior Vice
President,
First Interstate Capital Management,
1995-1996; Senior Analyst, Banc One
Investment Advisors, 1993-1994; Director
of Research Valley National Bank, 1985-
1993; Research Analyst, Valley National
Bank, 1979-1984; Investment Committee,
Arizona Community Foundation, 1986-
current, Past-President Phoenix Society
of Financial Analysts; Member, Institute
of Chartered Financial Analysts,
Association for Investment Management
and Research and the Phoenix Society of
Financial Analysts.
Kimball L. Young Co-Founder of Lewis Young Robertson &
Senior Vice Burningham, Inc., an NASD licensed
President broker/dealer providing public
Age: 53 finance services to Utah local
governments 1995-present. Senior Vice
President of Tax-Free Trust of
Arizona,Tax-Free Fund For Utah , Aquila
Cascadia Equity Fund and Aquila Rocky
Mountain Equity Fund (this Fund) .
Formerly Senior Vice President-Public
Finance, Kemper Securities Inc., Salt
Lake City, Utah.
Susan A. Cook, Registered Representative
Senior Vice of Aquila Distributors,
President Inc. since 1993; Account
6220 E. Thomas Road Executive, SG Cowen & Company,
Scottsdale, Arizona Members of the New York Stock
85251 Exchange, 1988-1991. Institutional
Age: 44 Sales at Robertson, Stephens, and Montgomery
Securities 1981-1986.
Christine L. Neimeth Vice President of Aquila
Cascadia
Vice President Equity Fund, and Tax Free
Trust
2019 Lloyd Center, of Oregon since 1998;
Portland, Oregon 97232 Management Information Systems
Age: 36 consultant, Hillcrest Ski and
Sport, 1997; Institutional
Municipal Bond Salesperson,
Pacific Crest Securities,
1996; Institutional Bond
Broker, Hilliard Farber and
Company 1991-1995; Bond
Trader, Bear Stearns and
Company, 1989-91. Active in
college alumni and volunteer
organizations.
Jean M. Smith, Assistant Treasurer of
Vice President Bradford Trust Company,
410 17th Street 1977-1978; Staff Supervisor
Suite 1715, of Wood Struthers & Winthrop,
Denver, Colorado 80208 an investment advisory firm,1976- 1977;
Age: 55 Client Administrator of Bradford
Trust Company,
1972-1976.
Alan R. Stockman Vice President of Tax- Free Trust of
Vice President Arizona and Aquila Rocky Mountain
6220 E. Thomas Equity Fund (this Fund) since 1999; Bank
One
Road, Scottsdale Commercial Client Services
representative,
Arizona 85251 1997-1999; National Bank of Arizona
Age: 45 (Zions InvestmentSecurities Inc.),
Phoenix,
Arizona 1996-1997; Investment Department
Manager, National Bank of Alaska,
Anchorage, Alaska 1984-1995.
Jessica L. Investor Representative with
Wiltshire Oppenheimer Funds, 1996-1997; Sales
Vice President Representative for Tax-Free Fund of
8 Inverness Drive East Colorado and Aquila Rocky Mountain
Suite 130, Englewood Equity Fund (this Fund), 1993-1996 and
1997
Colorado 80112 to present
Age: 28
Rose F. Marotta Chief Financial Officer of the Aquila
Chief Financial Officer Money-Market, Bond and Equity Funds
380 Madison Avenue since 1991 and Treasurer, 1981-1991;
New York, New York formerly Treasurer of the predecessor of
10017 Capital Cash Management Trust; Treasurer
and Director Age: 75 of STCM Management Company, Inc., since
1974;
Treasurer of InCap Management
Corporation since 1982, of the Manager
since 1984 and of the Distributor 1985-
2000.
Richard F. West Treasurer of the Aquila Money-Market,
Treasurer Bond and Equity Funds and of Aquila
380 Madison Avenue Distributors, Inc. since 1992;
New York, New York Associate Director of Furman Selz
10017 Incorporated, 1991-1992; Vice
Age: 64 President of Scudder, Stevens &
Clark, Inc. and Treasurer of Scudder
Institutional Funds, 1989-1991; Vice
President of Lazard Freres
Institutional Funds Group, Treasurer of
Lazard Freres Group of Investment
Companies and HT Insight Funds, Inc.,
1986-1988; Vice President of Lehman
Management Co., Inc. and Assistant
Treasurer of Lehman Money Market Funds,
1981-1985; Controller of Seligman Group
of Investment Companies, 1960-1980.
Lori A Vindigni Assistant Vice President of Aquila
Assistant Treasurer Management Corporation since 1998,
380 Madison Avenue formerly Fund Accountant for the
New York, New York Aquila Group of Investment Companies
10017 since 1995; Staff Officer and Fund
Age: Accountant of Citibank Global Asset
Management Group of Investment
Companies, 1994-1995; Fund Accounting
Supervisor of Dean Witter Group of
Investment Companies, 1990-1994; BS
Kean College of New Jersey, 1990.
Edward M. W. Hines Partner of Hollyer Brady Smith Troxell
Secretary Barrett Rockett Hines & Mone LLP,
551 Fifth Avenue attorneys, since 1989 and counsel,
New York, New York 1987-1989; Secretary of the Aquila
10176 Money-Market, Bond and Equity Funds since
1982;
Age: 60 Secretary of Trinity Liquid Assets Trust,
1982-
1985 and Trustee of that Trust, 1985-
1986; Secretary of Oxford Cash
Management Fund, 1982-1988.
John M. Herndon Assistant Secretary of the Aquila Money-
Assistant Secretary Market, Bond and Equity Funds since 1995
380 Madison Avenue and Vice President of the Aquila Money-
New York, New York Market Funds since 1990; Vice President
of
10017 the Manager since 1990 ; Investment
Services
Age: 60 Consultant and Bank Services Executive
of Wright Investors'Service, a
registered investment adviser, 1983-
1989; Member of the American Finance
Association, the Western Finance
Association and the Society of
Quantitative Analysts.
</TABLE>
Trustee Compensation
The Fund does not currently pay fees to any
of the Fund's officers or to Trustees affiliated with the
Manager. For its fiscal year ended December 31, 1999, the Fund
paid a total of $85,378 in compensation and reimbursement of
expenses to the Trustees. No other compensation or remuneration
of any type, direct or contingent, was paid by the Fund to its
Trustees.
The Fund is one of the 15 funds in the
Aquilasm Group of Funds, which consist of tax-free municipal bond
funds, money market funds and equity funds. The following table
lists the compensation of all Trustees who received compensation
from the Fund and the compensation they received during the
Fund's fiscal year from other funds in the Aquilasm Group of
Funds. None of such Trustees has any pension or retirement
benefits from the Fund or any of the other funds in the Aquila
group.
Total
Compensation Number of
Aggregate from all boards on
Compensation funds in the which the
Name and from the Aquilasm Group Trustee
Title Fund of Funds now serves
Tucker H.
Adams, $2,159 $11,703 2
Trustee
Arthur K.
Carlson, $2,250 $61,525 7
Trustee
R. Thayne
Robson, $2,781 $6,800 2
Trustee
Cornelius
Ryan, $1,800 $5,350 2
Trustee
Class A Shares may be purchased without a sales charge by
certain the Fund's Trustees and officers. (See "Reduced Sales
Charges for Class A Shares," below.)
OWNERSHIP OF SECURITIES
On April 5, 2000, the following institutional holders held
5% or more of the Fund's outstanding shares. On the basis of
information received from the holders, the Fund's management
believes that all of the shares indicated are held for the
benefit of clients
Name and address Number of shares Percent of class
of the
institutional
holder
Merril Lynch Pierce
Fenner & Smith,
Jacksonville, FL 21,504
Class A Shares 30.0%
BHC Securities,
2005 Market St.,
Philadelphia, PA
(in two accounts)
6,277 50.3%
Class C Shares
KPM Investment
Management, Inc. 45,413 99.0
Omaha, NE Class Y Shares
Additional 5% shareholders
J. Thomas Chandler
Fort Collins, CO 3,850 5.3%
Class A Shares
The Fund's management is not aware of any other person
beneficially owning more than 5% of any class of its outstanding
shares as of such date.
Management Ownership
As of the date of this SAI, all of the Trustees and officers
as a group owned less than 1% of its outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
Information about the Manager and the Distributor
The Manager is founder and Manager and/or administrator to
the Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and equity funds. As of March 31,
2000, these funds had aggregate assets of approximately $3.2
billion. The Manager, which was founded in 1984, is controlled by
Mr. Lacy B. Herrmann, directly, through a trust and through share
ownership by his wife.
Mr. Herrmann and Ms. Herrmann are affiliated with the Fund
as officers and Trustees. Mr. Herrmann controls the Manager, as
described above, and Ms. Herrmann is an officer and a director of
the Manager.
Prior to July 28, 1999, KPM Investment Management, Inc.
("KPM") acted as investment adviser to the Fund, supervising the
investment program of the Fund and the composition of its
portfolio pursuant to an Investment Advisory Agreement (the "KPM
Advisory Agreement") between KPM and the Fund. On July 28, 1999,
the KPM Advisory Agreement was terminated by the parties and the
Manager assumed the duties of investment adviser pursuant to a
Sub-Advisory and Administration Agreement already in effect
between the Manager and the Fund.
The Sub-Advisory and Administration Agreement
Under the Sub-Advisory and Administration Agreement (the
"Agreement") the founder of the Fund, Aquila Management
Corporation, serves the Fund as its Manager -- i.e., its
investment adviser and administrator.
Under the Agreement, at its own expense, the Manager
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 Manager
Subject to the control of the Fund's Board of Trustees, the
Manager provides all administrative services to the Fund; as part
of such duties, the Manager (i) provides office space, personnel,
facilities and equipment for the performance of its investment
advisory duties and 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) (except with respect to
the pricing of the Fund's portfolio, which is specifically
discussed below) either keeps the accounting records of the Fund,
including the computation of net asset value per share and the
dividends 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 Agreement contains provisions governing
the former arrangement in which the principal investment advisory
function was performed by a third party under a separate
Investment Advisory Agreement; because the Manager rather than a
third party now performs the investment advisory function, those
provisions are currently inapplicable. Other provisions in the
Agreement govern the assumption by the Manager of the investment
management function in the event of termination of the separate
Investment Advisory Agreement, which provisions, including a
requirement of full review and approval by the Trustees
(including the non-interested Trustees of the Fund), were
satisfied upon termination of the KPM Advisory Agreement in July
1999, and setting forth the terms and conditions, described
below, of the Manager's ongoing performance as investment
adviser.
Under the Agreement the Manager, having
assumed the investment advisory duties, shall (i) supervise
continuously the investment program of the Fund and the
composition of its portfolio; (ii) determine what securities
shall be purchased or sold by the Fund; (iii) arrange for the
purchase and the sale of securities held in the portfolio of the
Fund; and (iv) at its expense provide for pricing of the Fund's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Fund and, unless
otherwise directed by the Board of Trustees, provide for pricing
of the Fund's portfolio at least quarterly using another such
source satisfactory to the Fund.
The Fund agrees, in the event that the
Manager assumes the duties of managerial investment adviser to
the Fund, to pay the Manager, and the Manager agrees to accept as
full compensation for all services rendered under the Agreement,
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.
The Agreement may be terminated at any time
without penalty by the Manager upon sixty days' written notice to
the Fund; it may be terminated by the Fund at any time without
penalty upon giving the Manager 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 Agreement will otherwise continue
indefinitely. In either case the notice provision may be waived.
The Agreement provides that the Manager
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
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence of the Manager in the
performance of its duties, or from reckless disregard by it of
its obligations and duties under the Agreement. The Fund agrees
to indemnify the Manager to the full extent permitted by the
Declaration of Trust.
The Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund. In general,
the primary consideration in effecting transactions for the Fund
is obtaining the most favorable prices and efficient execution.
This means that the Manager 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 Manager generally seeks reasonably
competitive spreads or commissions, the Fund will not necessarily
be paying the lowest spread or commission available. The Manager
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 Manager may
consider a number of factors in determining which broker-dealers
to use. These factors include, but are not limited to, research
services, the reasonableness of commissions and quality of
services and execution. If, on the foregoing basis, the
transaction in question could be allocated to two or more
dealers, the Manager 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 Manager or its
other clients.
During the fiscal years ended December 31, 1999, 1998 and
1997, all transactions in portfolio securities were transacted on
a best execution basis. The amounts of brokerage paid during each
of the fiscal years ended December 31, 1999, 1998 and 1997 were
$4,000, $6,000 and $ 4,000, respectively. The reason for the
differences is primarily due to an increase in the Fund's assets
over the three-year period.
Advisory and Sub-Advisory/Administration Fees
Under the KPM Advisory Agreement and the Sub-Advisory and
Administration Agreement, the Fund accrued fees to KPM (as
Adviser) and the Manager (as Sub-Adviser and Administrator) that
were 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
rates of those fees were as follows:
Aggregate Annual Rates
Sub-Advisory and
Administration
Fund Net Assets Advisory Fee Fee Total Fees
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%
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 KPM and
the Manager.
After July 28, 1999, when the KPM Advisory Agreement was
terminated and the Manager assumed the investment advisory
function in addition to its administrative duties, the Manager
became entitled to receive fees at the rates set forth under
"Total Fees."
The Manager may waive all or part of its fees during the
early development phase of the Fund.
The Manager has agreed that its fees shall be reduced, but
not below zero, by an amount equal to 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. This
provision, if and when in effect, is implemented monthly so that
at no time is there any unpaid liability under the provision,
subject to readjustment during the year. At the present time none
of the states in which the Fund's shares will be sold imposes any
expense limitation.
During the fiscal years ended December 31, 1999, 1998 and
1997, the Fund accrued fees to KPM and the Manager as follows,
all of which were waived:
<TABLE>
<CAPTION>
KPM Manager Other transactions
<S> <C> <C> <C>
1999 $18,655 $21,320 In addition, the
Manager reimbursed the
Fund for unamortized
deferred organization
expenses of $1,506 and
voluntarily agreed to
reimburse the Fund for
other expenses in the
amount of $75,517.
1998 $24,024 $27,455 In addition, the Manager
agreed to reimburse the
Fund for other expenses
in the amount of $58,939,
of which $54,178 was paid
during the fiscal year
and $4,761 was paid in
January, 1999.
1997 $19,571 $22,367 In addition, the Manager
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.
Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300,
New York, NY 10017 is the Fund's Distributor. 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
The shares of the Distributor are owned 72% by Mr. Herrmann
and other members of his immediate family, 24% by Diana P.
Herrmann and the balance by an officer of the Distributor.
Underwriting Commissions
During the fiscal years ended December 31, 1999, 1998 and
1997, the aggregate dollar amount of sales charges on sales of
shares in the Fund was $3,498, $10,648 and $33,013, respectively,
and the amount retained by the Distributor was $332, $1,407 and
$1,004, respectively.
In connection with sales of Class A Shares, the Distributor
pays a portion of the sales charge on such shares to dealers in
the form of discounts and to brokers in the form of agency
commissions (together, "Commissions"), in amounts that vary with
the size of the sales charge as follows:
Commissions
Sales Charge as as
Percentage of Public Percentage of
Amount of Purchase Offering Price Offering Price
Less than $50,000 4.25% 3.75%
$50,000 but less
than $100,000 4.00% 3.50%
$100,000 but less
than $250,000 3.50% 3.25%
$250,000 but less
than $500,000 2.50% 2.25%
$500,000 but less
than $1,000,000 1.50% 1.25%
Distribution Plan
The Fund's Distribution Plan has four parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II), to distribution payments relating to Class I
Shares (Part III) and to certain defensive provisions (Part IV).
At the date of the SAI, most of the outstanding shares of
the Fund would be considered Qualified Holdings of various
broker-dealers unaffiliated with the Manager or Distributor. The
Distributor will consider shares which are not Qualified Holdings
of such unrelated broker-dealers to be Qualified Holdings of the
Distributor and will authorize Permitted Payments to the
Distributor with respect to such shares whenever Permitted
Payments are being made under the Plan.
Provisions Relating to Class A Shares (Part I)
Part I of the Plan applies only to the Front-Payment Class
Shares ("Class A Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements in connection
with Part I ("Class A Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Front-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Front-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the 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) as to the amount of
Class A Permitted Payments, if any, to each Qualified Recipient
provided that the total Class A Permitted Payments to all
Qualified Recipients do not exceed the amount set forth above.
The Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front-Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Fund may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year-end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Fund, proxy
statements, annual reports, updating prospectuses and other
communications from the Fund to its shareholders; receiving,
tabulating and transmitting to the Fund proxies executed by
shareholders with respect to meetings of shareholders of the
Fund; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part I is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under the Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Manager or
Distributor paid or accrued during such quarter. In addition, if
any such Qualified Recipient is an affiliated person, as that
term is defined in the 1940 Act, of the Fund, Manager or
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the Fund
an accounting, in form and detail satisfactory to the Board of
Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
Part I originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part I of the Plan; and (ii) by a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Front-Payment Class Shares class (or of any
predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level- Payment Class Shares and/or of any other class
whose shares are convertible into Front-Payment Class Shares.
Part I has continued, and will, unless terminated as therein
provided, continue in effect, until the April 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Fund's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part I may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund to which Part I
applies. Part I may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part I as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Fund, the Class A Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Fund's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class A Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level-Payment Shares
Class ("Class C Shares") of the Fund (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Fund, with which the Fund or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Level- Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level- Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Class C Permitted
Payments") to Qualified Recipients, which Class C Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Fund (as adjusted for any part
or parts of a fiscal year during which payments under the Plan
are not accruable or for any fiscal year which is not a full
fiscal year), 0.75 of 1% of the average annual net assets of the
Fund represented by the Level- Payment Class Shares. Such
payments shall be made only out of the Fund's assets allocable to
the Level-Payment Class Shares. The Distributor shall have sole
authority (i) as to the selection of any Qualified Recipient or
Recipients; (ii) not to select any Qualified Recipient; and (iii)
the amount of Class C Permitted Payments, if any, to each
Qualified Recipient provided that the total Class C Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above. The Distributor is authorized, but not directed, to
take into account, in addition to any other factors deemed
relevant by it, the following: (a) the amount of the Qualified
Holdings of the Qualified Recipient; (b) the extent to which the
Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of
Level-Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Fund may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts;
furnishing (either alone or together with other reports sent to a
shareholder by such person) monthly and year-end statements and
confirmations of purchases and redemptions; transmitting, on
behalf of the Fund, proxy statements, annual reports, updating
prospectuses and other communications from the Fund to its
shareholders; receiving, tabulating and transmitting to the Fund
proxies executed by shareholders with respect to meetings of
shareholders of the Fund; and providing such other related
services as the Distributor or a shareholder may request from
time to time; and (c) the possibility that the Qualified Holdings
of the Qualified Recipient would be redeemed in the absence of
its selection or continuance as a Qualified Recipient.
Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees (as defined below) may remove any person as
a Qualified Recipient. Amounts within the above limits accrued
to a Qualified Recipient but not paid during a fiscal year may be
paid thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Fund's Distributor shall
report at least quarterly to the Fund's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under the Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Manager or
Distributor paid or accrued during such quarter. In addition, if
any such Qualified Recipient is an affiliated person, as that
term is defined in the 1940 Act, of the Fund, Manager or
Distributor such person shall agree to furnish to the Distributor
for transmission to the Board of Trustees of the Fund an
accounting, in form and detail satisfactory to the Board of
Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level- Payment Class Shares. Part II has
continued, and will, unless terminated as therein provided,
continue in effect, until the April 30 next succeeding such
effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by
the Fund's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund to which Part II
applies. Part II may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Fund, the Class C Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Fund's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class C Plan Agreements entered into thereafter.
Provisions relating to Class I Shares (Part III)
Part III of the Plan applies only to the Financial
Intermediary Class Shares ("Class I Shares") of the Fund
(regardless of whether such class is so designated or is
redesignated by some other name).
As used in Part III of the Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to any principal underwriter of the Fund, with which the Fund or
the Distributor has entered into written agreements in connection
with Part III ("Class I Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Fund's Class I Shares or
servicing of shareholder accounts with respect to such shares.
"Qualified Holdings" shall mean, as to any Qualified Recipient,
all Class I Shares beneficially owned by such Qualified
Recipient, or beneficially owned by its brokerage customers,
other customers, other contacts, investment advisory clients, or
other clients, if the Qualified Recipient was, in the sole
judgment of the Distributor, instrumental in the purchase and/or
retention of such shares and/or in providing administrative
assistance or other services in relation thereto.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Class I Permitted
Payments") to Qualified Recipients, which Class I Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Fund (as adjusted for any part
or parts of a fiscal year during which payments under the Plan
are not accruable or for any fiscal year which is not a full
fiscal year), 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 the Plan, the
identity of the Qualified Recipient of each payment, and the
purposes for which the amounts were expended; and (ii) all fees
of the Fund to the Manager or Distributor paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Fund, Manager or Distributor such person shall agree to furnish
to the Distributor for transmission to the Board of Trustees of
the Fund an accounting, in form and detail satisfactory to the
Board of Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
Part III originally went into effect when it was approved
(i) by a vote of the Trustees, including the Independent
Trustees, with votes cast in person at a meeting called for the
purpose of voting on Part III of the Plan; and (ii) by a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Class I Shares Class. Part
III has continued, and will, unless terminated as thereinafter
provided, continue in effect, until the April 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Fund's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part III may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund to which Part III
applies. Part III may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part III as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Fund, the Class I Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Fund, the Class I Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Fund's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class I Plan Agreements entered into thereafter.
Defensive Provisions (Part IV)
Another part of the Plan (Part IV) states that if and to the
extent that any of the payments listed below are considered to be
"primarily intended to result in the sale of" shares issued by
the Fund within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Fund or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of
preparation, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Fund's shares; (iv) all legal and accounting fees relating to
the preparation of any such reports, prospectuses, statements of
additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Fund and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Fund's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors or
prospective investors.
The Plan states that while it is in effect, the selection
and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan defines as the Fund's Independent Trustees those
Trustees who are not "interested persons" of the Fund as defined
in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan. The Plan, unless terminated as therein
provided, continues in effect from year to year only so long as
such continuance is specifically approved at least annually by
the Fund's Board of Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of
voting on such continuance. In voting on the implementation or
continuance of the Plan, those Trustees who vote to approve such
implementation or continuance must conclude that there is a
reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Plan may be terminated at any time by vote of a
majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Fund. The Plan may not be
amended to increase materially the amount of payments to be made
without shareholder approval and all amendments must be approved
in the manner set forth above as to continuance of the Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act
as now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part IV shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Fund.
Payments Under the Plan
During the fiscal years ended December 31, 1999, 1999 and
1997, payments were made only under Part I and Part II of the
Plan and no payments were made under Part III or Part IV. All
payments were to Qualified Recipients and made were for
compensation.
During the fiscal years ended December 31, 1999, 1998 and
1997, the Fund paid $4,097, $6,223 and $6262, respectively, under
Part I of the Plan with respect to its Class A Shares, of which
the Distributor received $427, $640 and $685, respectively.
During the fiscal years ended December 31, 1999 and 1998, the
Fund paid $1,283 and $1,150, respectively, under Part II of the
Plan with respect to its Class C Shares, of which the Distributor
retained $786 and $1,503, respectively (including amounts
received under the Shareholder Services Plan, described below).
There were only nominal payments under Part II of the Plan with
respect to Class C Shares in 1997.
Shareholder Services Plan
The Fund has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares and Class I Shares of the Fund of "Service Fees" within
the meaning of the Conduct Rules of the National Association of
Securities Dealers, Inc. The Services Plan applies only to the
Class C Shares and Class I Shares of the Fund (regardless of
whether such class is so designated or is redesignated by some
other name).
Provisions for Level-Payment Class Shares (Part I)
As used in Part I of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Fund, who have, pursuant to written agreements with the Fund
or the Distributor, agreed to provide personal services to
shareholders of Level-Payment Class Shares and/or maintenance of
Level-Payment Class Shares shareholder accounts. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Level-Payment Class Shares beneficially owned by such Qualified
Recipient's customers, clients or other contacts. "Manager" shall
mean Aquila Management Corporation or any successor serving as
sub-adviser or administrator of the Fund.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) may not exceed, for any fiscal year of
the Fund (as adjusted for any part or parts of a fiscal year
during which payments under the Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Fund represented by
the Level-Payment Class Shares. Such payments shall be made only
out of the Fund's assets allocable to the Level-Payment Class
Shares. The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Fees, if any, paid to each Qualified Recipient,
provided that the total Service Fees paid to all Qualified
Recipients may not exceed the amount set forth above and
provided, further, that no Qualified Recipient may receive more
than 0.25 of 1% of the average annual net asset value of shares
sold by such Recipient. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient and (b) the extent
to which the Qualified Recipient has, at its expense, taken steps
in the shareholder servicing area with respect to holders of
Level-Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Fund may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; and
providing such other related services as the Distributor or a
shareholder may request from time to time. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years. Service Fees with respect to Class C Shares
will be paid to the Distributor. During the fiscal years ended
December 31, 1999 and 1998, $428 and $1,534 was paid,
respectively. During the fiscal year ended December 31, 1997 only
nominal payments were made under Part I of the Plan.
Provisions for Financial Intermediary Class Shares (Part II)
As used in Part II of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Fund, who have, pursuant to written agreements with the Fund
or the Distributor, agreed to provide personal services to
shareholders of Financial Intermediary Class Shares, maintenance
of Financial Intermediary Class Shares shareholder accounts
and/or pursuant to specific agreements entering confirmed
purchase orders on behalf of customers or clients. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Financial Intermediary Class Shares beneficially owned by such
Qualified Recipient's customers, clients or other contacts.
"Manager" shall mean Aquila Management Corporation or any
successor serving as sub-adviser or administrator of the Fund.
Subject to the direction and control of the Fund's Board of
Trustees, the Fund may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) may not exceed, for any fiscal year of
the Fund (as adjusted for any part or parts of a fiscal year
during which payments under the Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Fund represented by
the Financial Intermediary Class Shares. Such payments shall be
made only out of the Fund's assets allocable to the Financial
Intermediary Class Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The Distributor
is authorized, but not directed, to take into account, in
addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary
Class Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Fund may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years. No Class I Shares
were outstanding during the years ended December 31, 1999 and
1998.
General Provisions
While the Services Plan is in effect, the Fund's Distributor
shall report at least quarterly to the Fund's Trustees in writing
for their review on the following matters: (i) all Service Fees
paid under the Services Plan, the identity of the Qualified
Recipient of each payment, and the purposes for which the amounts
were expended; and (ii) all fees of the Fund to the Distributor
paid or accrued during such quarter. In addition, if any
Qualified Recipient is an "affiliated person," as that term is
defined in the 1940 Act, of the Fund, Manager or Distributor,
such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees of the Fund an accounting,
in form and detail satisfactory to the Board of Trustees, to
enable the Board of Trustees to make the determinations of the
fairness of the compensation paid to such affiliated person, not
less often than annually
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Fund and had no direct or indirect financial interest in the
operation of the Services Plan or in any agreements related to
the Services Plan (the "Independent Trustees"), with votes cast
in person at a meeting called for the purpose of voting on the
Services Plan. It will continue in effect for a period of more
than one year from its original effective date only so long as
such continuance is specifically approved at least annually as
set forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the 1940 Act as now in
force or hereafter amended.
While the Services Plan is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested
persons" of the Fund, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing therein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
Codes of Ethics
The Fund, the Manager and the Distributor have adopted codes
of ethics pursuant to Rule 17j-1 under the 1940 Act. The codes
permit personnel of these organizations who are subject to the
codes to purchase securities, including the types of securities
in which the Fund invests, but only in compliance with the
provisions of the codes.
Transfer Agent, Custodian and Auditors
The Fund's Shareholder Servicing Agent (transfer agent) is
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
The Fund's Custodian, Bank One Trust Company, N.A., 100 East
Broad Street, Columbus, Ohio 43271, is responsible for holding
the Fund's assets.
The Fund's auditors, KPMG LLP, 757 Third Avenue, New York,
New York, 10017, perform an annual audit of the Fund's financial
statements.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Brokerage allocation and other practices relating to
purchases and sales of the Fund's portfolio securities are set
forth in the description of the Sub-Advisory and Administration
Agreement, above.
CAPITAL STOCK
The Fund has four classes of shares.
* Front-Payment Class Shares ("Class A Shares") are offered
to anyone at net asset value plus a sales charge, paid at the
time of purchase, at the maximum rate of 4.25% of the public
offering price, with lower rates for larger purchases. Class A
Shares are subject to an asset retention service fee under the
Fund's Distribution Plan at the rate of 0.25 of 1% of the average
annual net assets represented by the Class A Shares.
* Level-Payment Class Shares ("Class C Shares") are offered
to anyone at net asset value with no sales charge payable at the
time of purchase but with a level charge for service and
distribution fees for six years after the date of purchase at the
aggregate annual rate of 1% of the average annual net assets of
the Class C Shares. Six years after the date of purchase, Class C
Shares are automatically converted to Class A Shares. If you
redeem Class C Shares before you have held them for 12 months
from the date of purchase you will pay a contingent deferred
sales charge ("CDSC"); this charge is 1%, calculated on the net
asset value of the Class C Shares at the time of purchase or at
redemption, whichever is less. There is no CDSC after Class C
Shares have been held beyond the applicable period. For purposes
of applying the CDSC and determining the time of conversion, the
12-month and six-year holding periods are considered modified by
up to one month depending upon when during a month your purchase
of such shares is made.
Institutional Class Shares ("Class Y Shares") are offered
only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, and are not
offered directly to retail customers. Class Y Shares are offered
at net asset value with no sales charge, no redemption fee, no
contingent deferred sales charge and no distribution fee.
Financial Intermediary Class Shares ("Class I Shares") are
offered and sold only through financial intermediaries with
which Aquila Distributors, Inc. has entered into sales
agreements, and are not offered directly to retail customers.
Class I Shares are offered at net asset value with no sales
charge and no redemption fee or contingent deferred sales charge,
although a financial intermediary may charge a fee for effecting
a purchase or other transaction on behalf of its customers. Class
I Shares may carry a distribution fee of up to 0.25 of 1% of
average annual net assets allocable to Class I Shares, currently
0.10 of 1% of such net assets, and a service fee of 0.25 of 1% of
such assets.
The Fund's four classes of shares differ in their different
sales charge structures and ongoing expenses, which are likely to
be reflected in differing yields and other measures of investment
performance. All four classes represent interests in the same
portfolio of 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.
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders
will vote on the election of Trustees and on other matters
submitted to the vote of shareholders. Shares vote by classes on
any matter specifically affecting one or more classes, such as an
amendment of an applicable part of the Distribution Plan. No
amendment, whether or not affecting the rights of the
shareholders, may be made to the Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding
shares of the Fund, except that the Fund's Board of Trustees may
change the name of the Fund.
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares and to divide or
combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests
in the Fund. Each share represents an equal proportionate
interest in the Fund with each other share of its class; shares
of the respective classes represent proportionate interests in
the Fund in accordance with their respective net asset values.
Upon liquidation of the Fund, shareholders are entitled to share
pro-rata in the net assets of the Fund available for distribution
to shareholders, in accordance with the respective net asset
values of the shares of each of the Fund's classes at that time.
All shares are presently divided into four classes; however, if
they deem it advisable and in the best interests of shareholders,
the Board of Trustees of the Fund may create additional classes
of shares, which may differ from each other as provided in rules
and regulations of the Securities and Exchange Commission or by
exemptive order. The Board of Trustees may, at its own
discretion, create additional series of shares, each of which may
have separate assets and liabilities (in which case any such
series will have a designation including the word "Series").
Shares are fully paid and non-assessable, except as set forth in
the next paragraph; the holders of shares have no pre-emptive or
conversion rights, except that Class C Shares automatically
convert to Class A Shares after being held for six years.
The Fund is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of a trust such as the Fund, may, under certain
circumstances, be held personally liable as partners for the
obligations of the trust. For shareholder protection, however, an
express disclaimer of shareholder liability for acts or
obligations of the Fund is contained in the Declaration of Trust,
which requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the Fund or the Trustees. The Declaration of Trust does, however,
contain an express disclaimer of shareholder liability for acts
or obligations of the Fund. The Declaration of Trust provides for
indemnification out of the Fund's property of any shareholder
held personally liable for the obligations of the Fund. The
Declaration of Trust also provides that the Fund shall, upon
request, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
the relatively remote circumstances in which the Fund itself
would be unable to meet its obligations. In the event the Fund
had two or more Series, and if any such Series were to be unable
to meet the obligations attributable to it (which, as is the case
with the Fund, is relatively remote), the other Series would be
subject to such obligations, with a corresponding increase in the
risk of the shareholder liability mentioned in the prior
sentence.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
The following supplements the information about purchase,
redemption and pricing of shares set forth in the Prospectus.
Sales Charges for Purchases of $1 Million or More of Class A
Shares
You will not pay a sales charge at the time of purchase when
you purchase "CDSC Class A Shares." CDSC Class A Shares are Class
A Shares issued under the following circumstances:
(i) Class A Shares issued in a single purchase of $1
million or more by a single purchaser; and
(ii) all Class A Shares issued to a single purchaser in
a single purchase when the value of the purchase, together with
the value of the purchaser's other CDSC Class A Shares and Class
A Shares on which a sales charge has been paid, equals or exceeds
$1 million:
See "Special Dealer Arrangements" for other circumstances
under which Class A Shares are considered CDSC Class A Shares.
CDSC Class A Shares do not include: (i)Class A Shares purchased
without a sales charge as described under "General" below and
(ii)Class A Shares purchased in transactions of less than $1
million when certain special dealer arrangements are not in
effect under "Certain Investment Companies" set forth under
"Reduced Sales Charges," below.
Broker/Dealer Compensation - Class A Shares
Upon notice to all selected dealers, the Distributor may
distribute up to the full amount of the applicable sales charge
to broker/dealers. Under the Securities Act of 1933,
broker/dealers may be deemed to be underwriters during periods
when they receive all, or substantially all, of the sales charge.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during
the four years after you purchase them, you must pay a special
contingent deferred sales charge upon redemption.
You will pay 1% of the Redemption Value if you redeem within
the first two years after purchase, and 0.50 of 1% of the
Redemption Value if you redeem within the third or fourth year.
The "Redemption Value" of your shares is the lesser of: (i)
the net asset value when you purchased the CDSC Class A Shares
you are redeeming; or (ii) the net asset value at the time of
your redemption.
This special charge also applies to CDSC Class A Shares
purchased without a sales charge pursuant to a Letter of Intent
(see "Reduced Sales Charges for Certain Purchases of Class A
Shares"). This special charge will not apply to shares acquired
through the reinvestment of dividends or distributions on CDSC
Class A Shares or to CDSC Class A Shares held for longer than
four years. When redeeming shares, the Agent will redeem the CDSC
Class A Shares held the longest, unless otherwise instructed. If
you own both CDSC and non-CDSC Class A Shares, the latter will be
redeemed first.
The Fund will treat all CDSC Class A Shares purchases made
during a calendar month as if they were made on the first
business day of that month at the average cost of all purchases
made during that month. Therefore, the four-year holding period
will end on the first business day of the 48th calendar month
after the date of those purchases. Accordingly, the holding
period may, in fact, be one month less than the full 48 depending
on when your actual purchase was made. If you exchange your CDSC
Class A Shares for shares of an Aquila money-market fund (see
"Exchange Privilege"), running of the 48-month holding period for
those exchanged shares will be suspended.
Broker/Dealer Compensation - CDSC Class A Shares
The Distributor currently intends to pay any dealer executing a
purchase of CDSC Class A Shares as follows:
Amount of Purchase Amount Distributed
to
Broker/Dealer as a %
of Purchase Price
$1 millon but less than $2.5 million 1%
$2.5 million but less than $5 million 0.50 of 1%
$5 million or more 0.25 of 1%
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales charge
in accordance with the above schedule when making subsequent
purchases of Class A Shares. A reduced sales charge applies if
the cumulative value (based on purchase cost or current net asset
value, whichever is higher) of Class A Shares previously
purchased with a sales charge, together with Class A Shares of
your subsequent purchase, also with a sales charge, amounts to
$25,000 or more.
Letters of Intent
"Single purchasers" may also qualify for reduced sales
charges, in accordance with the above schedule, after a written
Letter of Intent (included in the Application) is received by the
Distributor. The Letter of Intent confirms that you intend to
purchase, within a thirteen month period, Class A Shares of the
Fund through a single selected dealer or the Distributor. Class A
Shares of the Fund which you previously purchased within 90 days
prior to the Distributor's receipt of your Letter of Intent and
which you still own may also be included in determining the
applicable reduction. For more information, including escrow
provisions, see the Letter of Intent provisions of the
Application.
General
Class A Shares may be purchased without a sales charge by:
* the Fund's Trustees and officers,
* the directors, officers and certain employees, retired
employees and representatives of the Manager and Distributor, and
their parents and/or affiliates,
* selected dealers and brokers and their officers and
employees,
* certain persons connected with firms providing legal,
advertising or public relations assistance,
* certain family members of, and plans for the benefit
of, the foregoing,
* and plans for the benefit of trust or similar clients
of banking institutions over which these institutions have full
investment authority, if the Distributor has an agreement
relating to such purchases.
Except for the last category, purchasers must give written
assurance that the purchase is for investment and that the Class
A Shares will not be resold except through redemption. Since
there may be tax consequences of these purchases, your tax
advisor should be consulted.
Class A Shares may also be issued without a sales charge in
a merger, acquisition or exchange offer made pursuant to a plan
of reorganization to which the Fund is a party.
The Fund permits the sale of its Class A Shares at prices
that reflect the reduction or elimination of the sales charge to
investors who are members of certain qualified groups.
A qualified group is a group or association, or a category
of purchasers who are represented by a fiduciary, professional or
other representative , including a registered broker-dealer that
is acting as a registered investment adviser or certified
financial planner for investors participating in comprehensive
fee programs (but not any other broker-dealer), which
(i) satisfies uniform criteria which enable the Distributor
to realize economies of scale in its costs of distributing
shares;
(ii) gives its endorsement or authorization (if it is a
group or association) to an investment program to facilitate
solicitation of its membership by a broker or dealer; and
(iii) complies with the conditions of purchase that make up
an agreement between the Fund and the group, representative or
broker or dealer.
At the time of purchase, the Distributor must receive
information sufficient to permit verification that the purchase
qualifies for a reduced sales charge, either directly or through
a broker or dealer.
Certain Investment Companies
Class A Shares of the Fund may be purchased without sales
charge (except as stated below under "Special Dealer
Arrangements") from proceeds of a redemption, made within 120
days prior to such purchase, of shares of an investment company
(not a member of the Aquilasm Group of Funds) on which a sales
charge, including a contingent deferred sales charge, has been
paid. Additional information is available from the Distributor.
To qualify, follow these special procedures:
1. Send a completed Application (included with the
Prospectus) and payment for the shares to be purchased directly
to the Distributor, Aquila Distributors, Inc., 380 Madison
Avenue, Suite 2300, New York, NY 10017-2513. Do not send this
material to the address indicated on the Application.
2. Your completed Application must be accompanied by
evidence satisfactory to the Distributor that you, as the
prospective shareholder, have made a 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. Complete and return to the Distributor a Transfer
Request Form, which is available from the Distributor.
The Fund reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements
The Distributor (not the Fund) will pay to any dealer with
which it has made prior arrangements and which effects a purchase
of Class A Shares of the Fund from the proceeds of a qualifying
redemption of the shares of an investment company (not a member
of the Aquilasm Group of Funds) up to 1% of the purchase. The
shareholder, however, will not be subject to any sales charge.
Dealer payments will be made in up to four payments of 0.25
of 1% of the proceeds over a four-year period. The first payment
will be made subsequent to receipt of the proper documentation
detailed above. Future payments, over the remaining years, will
be made at the end of the quarter of the anniversary month that
the purchase of Class A Shares took place, with respect to any
part of the investment that remains in the Fund during the entire
time period. No payments will be made with respect to any shares
redeemed during the four-year period.
Additional Compensation for Broker/Dealers
The Distributor may compensate broker/dealers, above the
normal sales commissions, in connection with sales of any class
of shares. However, broker/dealers may receive levels of
compensation which differ as between classes of share sold.
The Distributor, not the Fund, will pay these additional
expenses. Therefore, the price you pay for shares and the amount
that the Fund receives from your payment will not be affected.
Additional compensation may include full or partial payment
for:
* advertising of the Fund's shares;
* payment of travel expenses, including lodging, for
attendance at sales seminars by qualifying registered
representatives; and/or
* other prizes or financial assistance to broker/dealers
conducting their own seminars or conferences.
Such compensation may be limited to broker/dealers whose
representatives have sold or are expected to sell significant
amounts of the Fund's shares. However, broker/dealers may not use
sales of the Fund's shares to qualify for additional compensation
to the extent such may be prohibited by the laws of any state or
self-regulatory agency, such as the National Association of
Securities Dealers, Inc.
The cost to the Distributor of such promotional activities
and such payments to participating dealers will not exceed the
amount of the sales charges in respect of sales of all classes of
shares of the Fund effected through such participating dealers,
whether retained by the Distributor or reallowed to participating
dealers. Any of the foregoing payments to be made by the
Distributor may be made instead by the Manager out of its own
funds, directly or through the Distributor.
Automatic Withdrawal Plan
You may establish an Automatic Withdrawal Plan if you own or
purchase Class A Shares or Class Y Shares of the Fund having a
net asset value of at least $5,000. The Automatic Withdrawal Plan
is not available for Class C Shares or Class I Shares.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions
must be reinvested in your shareholder account. Redemption of
Class A Shares to make payments under the Automatic Withdrawal
Plan will give rise to a gain or loss for tax purposes. (See the
Automatic Withdrawal Plan provisions of the Application included
with the Prospectus.)
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when
purchases are made. Accordingly, you may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases. While an occasional lump sum investment may be made,
such investment should normally be an amount at least equal to
three times the annual withdrawal or $5,000, whichever is less.
Share Certificates
You may obtain Share certificates for full Class A Shares
only if you make a written request to the Agent. All share
certificates previously issued by the Fund represent Class A
Shares. If you lose the certificates, you may incur delay and
expense when redeeming shares or having the certificates
reissued.
Share certificates will not be issued:
* for fractional Class A Shares;
* if you have selected Automatic Investment or Telephone
Investment for Class A Shares; or
* if you have selected Expedited Redemption. However, if
you specifically request, Class A Share certificates will be
issued with a concurrent automatic suspension of Expedited
Redemption on your account.
Share certificates will not be issued for Class C Shares,
Class Y Shares or Class I Shares.
Reinvestment privilege
If you reinvest proceeds of redemption within 120 days of a
redemption you will not have to pay any additional sales charge
on the reinvestment. You must reinvest in the same class as the
shares redeemed. You may exercise this privilege only once a
year, unless otherwise approved by the Distributor.
The Distributor will refund to you any CDSC deducted at the
time of redemption by adding it to the amount of your
reinvestment. The Class C or CDSC Class A Shares purchased upon
reinvestment will be deemed to have been outstanding from the
date of your original purchase of the redeemed shares, less the
period from redemption to reinvestment.
Reinvestment will not alter the tax consequences of your
original redemption.
Exchange Privilege
There is an exchange privilege as set forth below among this
Fund, certain tax-free municipal bond funds and equity funds
(together with the Fund, the "Bond or Equity Funds") and certain
money-market funds (the "Money-Market Funds"), all of which are
sponsored by Aquila Management Corporation and Aquila
Distributors, Inc., and have the same Manager or Administrator
and Distributor as the Fund. All exchanges are subject to certain
conditions described below. As of the date of the Prospectus, the
Aquila-sponsored Bond or Equity Funds are this Fund, Aquila
Cascadia Equity Fund, Hawaiian Tax-Free Trust, Tax-Free Trust of
Oregon, Tax-Free Trust of Arizona, Churchill Tax-Free Fund of
Kentucky, Tax-Free Fund of Colorado, Tax-Free Fund For Utah and
Narragansett Insured Tax-Free Income Fund; the Aquila
Money-Market Funds are Capital Cash Management Trust, Capital
Cash U.S. Government Securities Trust, Pacific Capital Cash
Assets Trust (Original Shares), Pacific Capital Tax-Free Cash
Assets Trust (Original Shares), Pacific Capital U.S. Government
Securities Cash Assets Trust (Original Shares) and Churchill Cash
Reserves Trust.
Generally, you can exchange shares of a given class of a
Bond or Equity Fund including the Fund for shares of the same
class of any other Bond or Equity Fund, or for shares of any
Money-Market Fund, without the payment of a sales charge or any
other fee, and there is no limit on the number of exchanges you
can make from fund to fund. Such exchangeability is available to
Class I Shares to the extent that other Aquila-sponsored funds
are made available to its customers by a financial intermediary.
All exchanges of Class I Shares must be made through your
financial intermediary.
The following important information should be noted:
(1) CDSCs Upon Redemptions of Shares Acquired Through
Exchanges. If you exchange shares subject to a CDSC, no CDSC will
be imposed at the time of exchange, but the shares you receive in
exchange for them will be subject to the applicable CDSC if you
redeem them before the requisite holding period (extended, if
required) has expired.
If the shares you redeem would have incurred a CDSC if you
had not made any exchanges, then the same CDSC will be imposed
upon the redemption regardless of the exchanges that have taken
place since the original purchase.
(2) Extension of Holding Periods by Owning Money-Market
Funds. Any period of 30 days or more during which Money-Market
Fund shares received on an exchange of CDSC Class A Shares or
Class C Shares are held is not counted in computing the
applicable holding period for CDSC Class A Shares or Class C
Shares.
(3) Originally Purchased Money-Market Fund Shares. Shares
of a Money-Market Fund (and any shares acquired as a result of
reinvestment of dividends and/or distributions on these shares)
acquired directly in a purchase (or in exchange for Money-Market
Fund shares that were themselves directly purchased), rather than
in exchange for shares of a Bond or Equity Fund, may be exchanged
for shares of any class of any Bond or Equity Fund that the
investor is otherwise qualified to purchase, but the shares
received in such an exchange will be subject to the same sales
charge, if any, that they would have been subject to had they
been purchased rather than acquired in exchange for Money-Market
Fund shares. If the shares received in exchange are shares that
would be subject to a CDSC if purchased directly, the holding
period governing the CDSC will run from the date of the exchange,
not from the date of the purchase of Money-Market Fund shares.
This Fund, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into
its shares, if shares of the fund into which exchange is desired
are not available for sale in your state of residence. The Fund
may also modify or terminate this exchange privilege at any time.
In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take
effect on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset
value of the shares surrendered for exchange is at least equal to
the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-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.
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"); no representation is made as
to the deductibility of any such loss should such occur.
Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free
money-market fund) are exempt from regular Federal income tax,
and to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Government Securities Cash Assets Trust
(which invests in U.S. Government obligations) are exempt from
state income taxes. Dividends paid by Aquila Rocky Mountain
Equity Fund and Aquila Cascadia Equity Fund are taxable. If your
state of residence is not the same as that of the issuers of
obligations in which a tax-free municipal bond fund or a tax-free
money-market fund invests, the dividends from that fund may be
subject to income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of such a bond fund or a tax-free money-market fund under
the exchange privilege arrangement.
If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.
Conversion of Class C Shares
Conversion of Class C Shares into Class A Shares will be
effected at relative net asset values on the first business day
of the month following that in which the sixth anniversary of
your purchase of the Class C Shares occurred, except as noted
below. Accordingly, the holding period applicable to your Class C
Shares may be up to one month more than the six years depending
upon when your actual purchase was made during a month. Because
the per share value of Class A Shares may be higher than that of
Class C Shares at the time of conversion, you may receive fewer
Class A Shares than the number of Class C Shares converted. If
you have made one or more exchanges of Class C Shares among the
Aquila-sponsored Bond Funds or Equity Funds under the Exchange
Privilege, the six-year holding period is deemed to have begun on
the date you purchased your original Class C Shares of the Fund
or of another of the Aquila bond or equity funds. The six-year
holding period will be suspended by one month for each period of
thirty days during which you hold shares of a Money-Market Fund
you have received in exchange for Class C Shares under the
Exchange Privilege.
"Transfer on Death" Registration (Not Available for Class I
Shares)
Each of the funds in the Aquilasm Group of Funds now permits
registration of its shares in beneficiary form, subject to the
funds' rules governing Transfer on Death ("TOD") registration, if
the investor resides in a state that has adopted the Uniform
Transfer on Death Security Registration Act (a "TOD State"; for
these purposes, Missouri is deemed to be a TOD State). This form
of registration allows you to provide that, on your death, your
shares are to be transferred to the one or more persons that you
specify as beneficiaries. To register shares of the Fund in TOD
form, complete the special TOD Registration Request Form and
review the Rules Governing TOD Registration; both are available
from the Agent. The Rules, which are subject to amendment upon 60
days' notice to TOD account owners, contain important information
regarding TOD accounts with the Fund; by opening such an account
you agree to be bound by them, and failure to comply with them
may result in your shares' not being transferred to your
designated beneficiaries. If you open a TOD account with the Fund
that is otherwise acceptable but, for whatever reason, neither
the Fund nor the Agent receives a properly completed TOD
Registration Request Form from you prior to your death, the Fund
reserves the right not to honor your TOD designation, in which
case your account will become part of your estate.
You are eligible for TOD registration only if, and as long
as, you reside in a TOD State. If you open a TOD account and your
account address indicates that you do not reside in a TOD State,
your TOD registration will be ineffective and the Fund may, in
its discretion, either open the account as a regular (non-TOD)
account or redeem your shares. Such a redemption may result in a
loss to you and may have tax consequences. Similarly, if you open
a TOD account while residing in a TOD State and later move to a
non-TOD State, your TOD registration will no longer be effective.
In both cases, should you die while residing in a non-TOD State
the Fund reserves the right not to honor your TOD designation. At
the date of this SAI, most states are TOD States.
Computation of Net Asset Value
The net asset value of the shares of each of the Fund's
classes is determined as of 4:00 p.m., New York time, on each day
that the New York Stock Exchange is open, by dividing the value
of the Fund's net assets allocable to each class by the total
number of its shares of such class then outstanding. 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.
Limitation of Redemptions in Kind
The Fund has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1 percent
of the net asset value of the Fund during any 90-day period for
any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Fund will have the option of redeeming the
excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting
the assets into cash. The method of valuing securities used to
make redemptions in kind will be the same as the method of
valuing portfolio securities described under "Net Asset Value Per
Share" in the Prospectus, and such valuation will be made as of
the same time the redemption price is determined.
ADDITIONAL TAX INFORMATION
Certain Exchanges
If you incur a sales commission on a purchase of shares of
one mutual fund (the original fund) and then sell such shares or
exchange them for shares of a different mutual fund without
having held them at least 91 days, you must reduce the tax basis
for the shares sold or exchanged to the extent that the standard
sales commission charged for acquiring shares in the exchange or
later acquiring shares of the original fund or another fund is
reduced because of the shareholder's having owned the original
fund shares. The effect of the rule is to increase your gain or
reduce your loss on the original fund shares. The amount of the
basis reduction on the original fund shares, however, is added on
the investor's basis for the fund shares acquired in the exchange
or later acquired.
Tax Status of the Fund
During its last fiscal year, the Fund qualified as a
"regulated investment company" under the Internal Revenue Code
and intends to continue such qualification. A regulated
investment company is not liable for federal income taxes on
amounts paid by it as dividends and distributions.
The Code, however, contains a number of complex qualifying
tests. Therefore, it is possible, although not likely, that the
Fund might not meet one or more of these tests in any particular
year. If the Fund fails to qualify, it would be treated for tax
purposes as an ordinary corporation. As a consequence, it would
receive no tax deduction for payments made to shareholders and
would be unable to pay dividends and distributions which would
qualify as "capital gains dividends."
Tax Effects of Redemptions
Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid
for the shares. If you are required to pay a contingent deferred
sales charge at the time of redemption, the amount of that charge
will reduce the amount of your gain or increase the amount of
your loss as the case may be. For redemptions made after January
1, 1998, your gain or loss will be long-term if you held the
redeemed shares for over one year and short-term if for a year or
less. Long-term capital gains are currently taxed at a maximum
rate of 20% and short-term gains are currently taxed at ordinary
income tax rates.
Tax Effect of Conversion
When Class C Shares automatically convert to Class A Shares,
approximately six years after purchase, you will recognize no
gain or loss. Your adjusted tax basis in the Class A Shares you
receive upon conversion will equal your adjusted tax basis in the
Class C Shares you held immediately before conversion. Your
holding period for the Class A Shares you receive will include
the period you held the converted Class C Shares.
UNDERWRITERS
Aquila Distributors, Inc. acts as the Fund's principal
underwriter in the continuous public offering of all of the
Fund's classes of shares. The Distributor is not obligated to
sell a specific number of shares. Under the Distribution
Agreement, the Distributor is responsible for the payment of
certain printing and distribution costs relating to prospectuses
and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
(1) (2) (3) (4) (5)
Name of Net Under- Compensation Brokerage Other
Principal writing on Redemptions Commissions Compen-
Underwriter Discounts and sation
and Repurchases
Commissions
Aquila $332 None None None(1)
Distributors
Inc.
(1) Amounts paid to the Distributor under the Fund's Distribution
Plan described in the Prospectus are for compensation.
PERFORMANCE
As noted in the Prospectus, the Fund may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are subject
to rules of the Securities and Exchange Commission ("SEC"). These
rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation
furnished by the Fund be accompanied by certain standardized
performance information computed as required by the SEC. Current
yield and average annual compounded total return quotations used
by the Fund are based on these standardized methods and are
computed separately for each of the Fund's classes of shares.
Each of these and other methods that may be used by the Fund are
described in the following material. Prior to April 30, 1996, the
Fund had outstanding only one class of shares which are currently
designated "Class A Shares." On that date the Fund began to offer
shares of two other classes, Class C Shares and Class Y Shares.
During most of the historical periods listed below, there were no
Class C Shares or Class Y Shares outstanding and the information
below relates solely to Class A Shares unless otherwise
indicated. Class I Shares were first offered on April 30, 1998
and none were outstanding during the periods indicated.
Total Return
Average annual total return is determined by
finding the average annual compounded rates of return over 1-, 5-
and (if applicable) 10-year periods 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 shares
of each of the Fund's classes to the value such an investment
would have if it were completely redeemed at the end of each such
period.
In the case of Class A Shares, the calculation assumes the
maximum sales charge is deducted from the hypothetical initial
$1,000 purchase. 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 classes, it is assumed that on each
reinvestment date during each such period any capital gains are
reinvested at net asset value, and all income dividends are
reinvested at net asset value, without sales charge (because the
Fund does not impose any sales charge on reinvestment of
dividends for any class). The computation further assumes that
the entire hypothetical account was completely redeemed at the
end of each such period.
Investors should note that the maximum sales charge
reflected in the following quotations for Class A Shares is a one
time charge, paid at the time of initial investment. The greatest
impact of this charge is during the early stages of an investment
in the Fund. Actual performance will be affected less by this one
time charge the longer an investment remains in the Fund. Sales
charges at the time of purchase are payable only on purchases of
Class A Shares of the Fund.
Average Annual Compounded Rates of Return:
Class A Shares Class C Shares Class Y Shares
One Year 15.46% 18.62% 20.78%
Five Years 14.81% N/A N/A
Since
inception(1) 11.93% 11.31% 11.83%
(1) Class A Shares: July 22, 1994
Class C Shares: May 1, 1996
Class Y Shares: May 1, 1996
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-, 5- and 10-year periods
or the period since inception, at the end of each such period.
The Fund may quote total rates of return in addition to its
average annual total return for each of its classes of shares.
Such quotations are computed in the same manner as the Fund's
average annual compounded rate, except that such quotations will
be based on the Fund's actual return for a specified period as
opposed to its average return over the periods described above.
Total Return
Class A Shares Class C Shares Class Y Shares
One Year 15.46% 18.62% 20.78%
Five Years 90.01% N/A N/A
Since
inception(1) 84.75% 46.83% 50.77%
(1) Class A Shares: July 22, 1994
Class C Shares: May 1, 1996
Class Y Shares: May 1, 1996
<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.
</TABLE>
