CHURCHILL TAX-FREE FUND OF KENTUCKY

                 Supplement to the prospectus 
      for Class A and Class C shares dated April 1, 1996

The following material is added to "Highlights":

     Class A Shares and Class C Shares of the Fund are only offered for sale
in certain states. (See "How to Invest in the Fund.") If shares of the Fund
are sold outside those states the Fund may be required to redeem them. If
your state of residence is not Kentucky, the dividends from the Fund may be
subject to income taxes of the state in which you reside. Accordingly, you
should consult your tax adviser before acquiring shares of the Fund.

The following material is added to "How to Invest in the Fund":

     At the date of this supplement, Class A Shares and Class C Shares of
the Fund are available only in the following states: Kentucky, Alabama,
Florida, Hawaii, Illinois, Indiana, New Jersey, New York, Pennsylvania,
Ohio and Tennessee. If you do not reside in one of these states you should
not purchase shares of the Fund. If shares are sold outside of these states
the Fund can redeem them. Such a redemption may result in a loss to you and
may have tax consequences. In addition, if your state of residence is not
Kentucky, the dividends from the 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 the Fund.

       The date of this supplement is December 27, 1996

<PAGE>

               Churchill Tax-Free Fund of Kentucky

                 380 Madison Avenue, Suite 2300
                       New York, NY 10017
                  800-USA-KTKY (800-872-5859) 
                          212-697-6666

Prospectus
Class A Shares
Class C Shares                                      April 1, 1996

     The Fund is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Kentucky
and Federal income taxes as is consistent with preservation of
capital by investing in municipal obligations which pay interest
exempt from Kentucky State and Federal income taxes. These
municipal obligations must, at the time of purchase, either be
rated within the four highest credit ratings (considered as
investment grade) assigned by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, or, if unrated, be determined to
be of comparable quality by the Fund's Adviser, Banc One
Investment Advisors Corporation.

     This Prospectus concisely states information about the Fund
that a prospective investor should know before investing. A
Statement of Additional Information about the Fund dated April 1,
1996, (the "Additional Statement") has been filed with the
Securities and Exchange Commission and is available without
charge upon written request to Administrative Data Management
Corp., the Fund's Shareholder Servicing Agent, at the address
given below, or by calling the telephone number(s) given below.
The Additional Statement contains information about the Fund and
its management not included in the Prospectus. The Additional
Statement is incorporated by reference in its entirety in the
Prospectus. Only when you have read both the Prospectus and the
Additional Statement are all material facts about the Fund
available to you.

     Shares of the Fund are not deposits in, obligations of or
guaranteed or endorsed by Banc One Corporation or its bank or
non-bank affiliates or by any other bank. Shares of the Fund are
not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental
agency or government sponsored agency of the Federal Government
or any State. 

     An investment in the Fund involves investment risks,
including possible loss of the principal amount invested.

     For Purchase, Redemption or Account inquiries contact 
 The Fund's Transfer Agent: Administrative Data Management Corp.
           581 Main Street, Woodbridge, NJ 07095-1198
           Call 800-872-5860 toll free or 908-855-5731

For General Inquiries & Yield Information, Call 800-872-5859 toll
free or 212-697-6666

This Prospectus Should Be Read and Retained For Future Reference

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.


<PAGE>

                           HIGHLIGHTS 

     Churchill Tax-Free Fund of Kentucky, founded by Aquila
Management Corporation in 1987 and one of the Aquilasm Group of
Funds, is an open-end mutual fund which invests in tax-free
municipal bonds, the kind of obligations issued by the
Commonwealth of Kentucky, its counties and various other local
authorities to finance such long-term public purpose projects as
schools, universities, housing, transportation, utilities,
hospitals and water and sewer facilities throughout Kentucky.
(See "Introduction.")

     Tax-Free Income - The municipal obligations in which the
Fund invests pay interest which is exempt from regular Federal
income taxes and Commonwealth of Kentucky income and ad valorem
taxes.Dividends paid by the Fund from this income are likewise
free of such taxes. It is, however, possible that in certain
circumstances a small portion of the dividends paid by the Fund
will be subject to income taxes. In addition, the Federal
alternative minimum tax may apply to some investors, but its
impact will be limited since not more than 20% of the Fund's net
assets can be invested in obligations paying interest which is
subject to this tax. The receipt of exempt-interest dividends
from the Fund may result in some portion of social security
payments or railroad retirement benefits being included in
taxable income. Capital gains distributions, if any, are taxable.
(See "Dividend and Tax Information.")

     Investment Grade - The Fund will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard and Poor's Corporation, or are
determined by the Adviser to be of comparable quality. In general
there are nine separate credit ratings, ranging from the highest
to the lowest credit ratings for municipal obligations.
Obligations within the top four ratings are considered
"investment grade," but those in the fourth rating may have
speculative characteristics as well. (See "Investment of the
Fund's Assets.")
     Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund," which includes applicable sales charge
information.) 

     Additional Investments - You may make additional investments
at any time and in any amount, directly, or if in an amount of
$50 or more, through the convenience of having your investment
electronically transferred from your financial institution
account into the Fund by Automatic Investment or Telephone
Investment. (See "How to Invest in the Fund.")

     Alternative Purchase Plans - The Fund provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits individual investors to pay
distribution and certain service charges principally at the time
they purchase shares; the other way permits investors to pay such
costs over a period of time, but without paying anything at time
of purchase, much as goods can be purchased on an installment
plan. For this purpose the Fund offers the following classes of
shares, which differ in their expense levels and sales charges:

     
     * Front-Payment Class Shares ("Class A Shares") are offered
     to anyone at net asset value plus a sales charge, paid at
     the time of purchase, at the maximum rate of 4.0% of the
     public offering price, with lower rates for larger
     purchases. (See "How to Purchase Class A Shares.") Class A
     Shares are subject to an asset retention service fee under
     the Fund's Distribution Plan at the rate of 0.15 of 1% of
     the average annual net assets represented by the Class A
     Shares. (See "Distribution Plan.")

     * Level-Payment Class Shares ("Class C Shares") are offered
     to anyone at net asset value with no sales charge payable at
     the time of purchase but with a level charge for service and
     distribution fees for six years after the date of purchase
     at the aggregate annual rate of 1% of the average annual net
     assets of the Class C Shares. (See "Distribution Plan" and
     "Service Plan.") Six years after the date of purchase, Class
     C Shares are automatically converted to Class A Shares. In
     addition, Class C Shares are subject to a contingent
     deferred sales charge ("CDSC") if redeemed before they have
     been held for 12 months from the date of purchase; this
     charge is 1%, calculated on the net asset value of the Class
     C Shares at the time of purchase or at redemption, whichever
     is less. There is no CDSC after Class C Shares have been
     held beyond the applicable period. (See "Alternative
     Purchase Plans," "Computation of the Holding Periods for
     Class C Shares" and "How to Purchase Class C Shares.")
     
     The Fund also issues Institutional Class Shares ("Class Y
Shares") that are sold only to certain institutional investors.
Class Y Shares are not offered by this Prospectus.

     Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to
you, directly deposited into your financial institution account
or automatically reinvested without sales charge in additional
shares of the Fund at the then-current net asset value. Specific
classes of shares will have different dividend amounts due to
their particular expense levels. (See "Dividend and Tax
Information.")

     Many Different Issues - You have the advantages of a
portfolio which consists of over 160 issues with different
maturities. (See "Investment of the Fund's Assets.")

     Local Portfolio Management - Banc One Investment Advisors
Corporation serves as the Fund's Investment Adviser, providing
experienced local professional management. The Adviser is a
wholly-owned subsidiary of BANC ONE CORPORATION ("Banc One"). As
of December 1, 1995, the Adviser was responsible for management
of over $3 billion of investments in municipal obligations, of
which $1.5 billion were held in mutual funds and $352 million
were obligations of Kentucky issuers. The Adviser services
Kentucky clients at offices in Louisville and Lexington.

     The Fund is obligated to pay investment advisory fees at the
rate of 0.14 of 1% of average annual net assets to its Adviser
(and administration fees to its Administrator, for total fees at
the rate of up to 0.40 of 1% of average annual net assets). Both
of these fees are subject to increase were the Fund to
discontinue certain payments under the Distribution Plan, so that
together these fees would be payable at an aggregate annual rate
of up to 0.50 of 1%. Payments under the Distribution Plan began
on July 1, 1994. (See "Table of Expenses," "Distribution Plan"
and "Management Arrangements.") Some or all of these fees may be
waived by the Adviser and Administrator. (See "Table of Expenses"
and "Management Arrangements".)

     Redemptions - Liquidity - You may redeem any amount of your
account on any business day at the next determined net asset
value by telephone, FAX or mail request, with proceeds being sent
to a predesignated financial institution, if you have elected
Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or
will be mailed. For these and other redemption procedures see
"How to Redeem Your Investment." There are no penalties or
redemption fees for redemption of Class A Shares. However, there
is a contingent deferred sales charge with respect to certain
Class A Shares which have been purchased in amounts of $1 million
or more (see "Purchases of $1 Million or More"). If you redeem
Class C Shares before you have held them for 12 months from the
date of purchase you will pay a Contingent Deferred Sales Charge
("CDSC") at the rate of 1%. (See "Alternative Purchase Plans" --
"Class C Shares.")

     Certain Stabilizing Measures - The Fund will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")

     Exchanges - You may exchange Class A or Class C Shares of
the Fund into corresponding classes of shares of other Aquila-
sponsored tax-free municipal bond mutual funds or an equity fund.
You may also exchange them into shares of the Aquila-sponsored
money market funds. The exchange prices will be the respective
net asset values of the shares. (See "Exchange Privilege.") 

     Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Fund's portfolio securities, which fluctuate with market
conditions including prevailing interest rates. Accordingly, the
proceeds of redemptions may be more or less than your original
cost. (See "Factors Which May Affect the Value of the Fund's
Investments and Their Yields.") The Fund's assets, being
primarily or entirely Kentucky issues, are subject to economic
and other conditions affecting Kentucky. (See "Risks and Special
Considerations Regarding Investment in Kentucky Obligations.")
Moreover, the Fund is classified as a "non-diversified"
investment company, because it may choose to invest in the
obligations of a relatively limited number of issuers. (See
"Investment of the Fund's Assets.") The Fund may also, to a
limited degree, buy and sell futures contracts and options on
futures contracts, although since inception the Fund has not done
so and has no present intention to do so. There may be risks
associated with these practices. (See "Certain Stabilizing
Measures.")

     Statements and Reports - You will receive statements of your
account monthly as well as each time you add to your account or
take money out. Additionally, you will receive a Semi-Annual
Report and an audited Annual Report.


<PAGE>


<TABLE>
<CAPTION>

                      CHURCHILL TAX-FREE FUND OF KENTUCKY
                               TABLE OF EXPENSES

<S>                                                      <C>        <C>
                                                         Class A    Class C
Shareholder Transaction Expenses                         Shares     Shares

   Maximum Sales Charge Imposed on Purchases              4.00%      None
     (as a percentage of the offering price)
   Maximum Sales Charge Imposed on Reinvested Dividends   None       None
   Deferred Sales Charge                                  None(1)    1.00%(2)
   Redemption Fees                                        None       None
   Exchange Fee                                           None       None

Annual Fund Operating Expenses (3)
  (as a percentage of average net assets)

     Investment Advisory Fee                              0.14%      0.14%
     12b-1 Fee                                            0.15%      0.75%
     All other expenses (4)                               0.51%      0.76%
       Administration Fee                            0.26%     0.26%
       Service Fee                                   None      0.25%
       Other Expenses (4)                            0.25%     0.25%
     Total Fund Operating Expenses (4)                    0.80%      1.65%

Example (5)
You would pay the following expenses on a $1,000 investment, assuming 
a 5% annual return and redemption at the end of each time period:

<CAPTION>

                              One       Three     Five      Ten
                              Year      Years     Years     Years
<S>                           <C>       <C>       <C>       <C>
Class A Shares                $48       $65       $83       $135

Class C Shares
  With complete redemption
  at end of period            $27       $52       $90       $152 (6)
  With no redemption          $17       $52       $90       $152 (6)


<FN>
(1) Certain shares purchased in transactions of $1 million or more 
without a sales charge may be subject to a contingent deferred sales 
charge of up to 1% upon redemption during the first four years after 
purchase.  See "Purchases of $1 Million or More" on page 17.
</FN>

<FN>
(2) A contingent deferred sales charge of 1% is imposed on the redemption 
proceeds of the shares (or on the original price, whichever is lower) if 
redeemed during the first 12 months after purchase.
</FN>

<FN>
(3) Estimated based upon amounts incurred by the Fund during its most 
recent fiscal year, restated to reflect current arrangements.  During 
that period, only Class A Shares were outstanding.
</FN>

<FN>
(4) Does not reflect a 0.01% expense offset in custodian fees received 
for uninvested cash balances.  Reflecting this offset, other expenses, 
all other expenses, and total Fund operating expenses for Class A Shares 
were 0.24%, 0.50% and 0.79%, respectively; for Class C Shares, these 
expenses would have been 0.24%, 0.75% and 1.64%, respectively.
</FN>

<FN>
(5) The expense example is based upon the above shareholder transaction
expenses (in the case of Class A Shares, this includes a sales charge 
of $40 for a $1,000 investment) and annual Fund operating expenses.  It 
is also based upon amounts at the beginning of each year which includes 
the prior year's assumed results.  A year's results consist of an 
assumed 5% annual return less total operating expenses; the expense 
ratio was applied to an assumed average balance (the year's starting 
investment plus one-half the year's results). Each figure represents 
the cumulative expenses so determined for the period specified.
</FN>

<FN>
(6) Six years after the date of purchase, Class C Shares are 
automatically converted to Class A Shares. 
</FN>

</TABLE>


THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST 
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE 
SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL
MUTUAL 
FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING
THE 
ABOVE EXAMPLE. THE EXAMPLE ALSO REFLECTS THE MAXIMUM SALES CHARGE.

(SEE "HOW TO INVEST IN THE FUND").

The purpose of the above table is to assist the investor in understanding 
the various costs that an investor in the Fund will bear directly or 
indirectly. The assumed 5% annual return should not be interpreted as a 
prediction of an actual return, which may be higher or lower.


<PAGE>


<TABLE>
<CAPTION>

The following historical financial information applies only to shares 
of the Fund which have been designated Class A Shares, upon adoption 
of the class structure described in the Prospectus.  Similar 
information does not exist for Class C Shares.


               CHURCHILL TAX-FREE FUND OF KENTUCKY
                    FINANCIAL HIGHLIGHTS
          FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

     The following table of Financial Highlights as it relates to the 
five years ended December 31, 1995 has been audited by KPMG Peat Marwick 
LLP, independent auditors, whose report thereon is included in the 
Fund's financial statements contained in its Annual Report, which are 
incorporated by reference into the Additional Statement. The information 
provided in the table should be read in conjunction with the financial 
statements and related notes. The Fund's Annual Report contains 
additional information about the Fund's performance and is available 
upon request without charge. On October 16, 1989, Aquila Management 
Corporation, originally the Fund's Sub-Adviser and Administrator, 
became Administrator only. Effective September 11, 1995, Banc One 
Investment Advisors Corporation became the Fund's Investment Adviser, 
replacing PNC Bank, Kentucky, Inc. ("See Management Arrangements").

                                        Year Ended December 31,
                           1995         1994         1993         1992


<S>                        <C>          <C>          <C>          <C>
Net Asset Value,
Beginning of Period        $9.97        $10.93       $10.49       $10.39
Income from Investment
Operations:
  Net investment
  income...............    0.60         0.60         0.62         0.66
  Net gain (loss) on
  securities (both
  realized and
  unrealized)..........    0.74         (0.96)        0.47         0.19
  Total from Investment
  Operations...........    1.34         (0.36)        1.09         0.85
Less Distributions:
  Dividends from
  net investment
  income...............    (0.60)       (0.60)       (0.62)       (0.66)
  Distributions from
  capital gains........       -           -          (0.03)       (0.09)
  Total Distributions..    (0.60)       (0.60)       (0.65)       (0.75)
Net Asset Value,
End of Period              $10.71       $9.97       $10.93       $10.49
Total Return (not
(reflecting
sales load)............    13.75%       (3.31)%      10.50%        8.48%
Ratios/Supplemental Data
  Net Assets, End of 
  Period (in thousands)    $230,270     $232,656    $258,632      $192,600
  Ratio of Expenses
  to Average Net
  Assets...............    0.79%        0.72%        0.59%         0.42%
  Ratio of Net Investment
  Income to Average Net
  Assets...............    5.57%        5.81%        5.67%         6.21%
  Portfolio Turnover
  Rate.................    17.09%       35.25%       31.29%        50.33%

Net investment income per share and the ratios of income and expenses 
to average net assets without the Adviser's and Administrator's voluntary 
waiver of fees, the Administrator's voluntary expense reimbursement and 
the expense offset in custodian fees for uninvested cash balances would 
have been:

Net Investment
Income.................    $0.60        $0.60         $0.60         $0.63
Ratio of Expenses
to Average Net
Assets.................    0.80%        0.73%         0.73%          0.68%
Ratio of Net Investment
Income to Average
Net Assets.............    5.74%        5.80%         5.52%          5.95%

<CAPTION>
 1991        1990          1989          1988          1987*
 <C>         <C>           <C>           <C>           <C>

 $10.00      $10.06        $9.53         $9.26         $9.60
   0.66        0.65         0.68          0.65          0.25
   0.41      (0.03)         0.53          0.26         (0.32)
   1.07        0.62         1.21          0.91         (0.07)
 (0.66)      (0.68)        (0.68)        (0.64)        (0.27)
 (0.02)         -            -             -             -
 (0.68)      (0.68)        (0.68)        (0.64)        (0.27)
 $10.39      $10.00        $10.06        $9.53         $9.26
 10.97%       6.64%        13.09%        10.49%        (0.65)%(1)
$114,798     $66,076      $35,652       $19,007        $5,767
  0.27%        0.10%        0.08%         0.10%        1.08%(2)
  6.53%        6.60%        6.94%         6.87%        5.39%(2)
 16.69%        7.67%        3.63%        10.51%        62.83%
 $0.60         $0.59        $0.57         $0.58        $0.16
  0.84%        0.76%        1.09%         1.21%        3.82%(2)
  5.96%        5.94%        5.92%         5.79%        2.66%(2)


<FN>
(1)Not annualized.
</FN>

<FN>
(2)Annualized.
</FN>

<FN>
*For the period from May 21, 1987 (commencement of operations) to 
December 31, 1987.
</FN>
</TABLE>


<PAGE>

                          INTRODUCTION

     The Fund's shares are designed to be a suitable investment
for investors who seek income exempt from Kentucky State and
regular Federal income taxes.

     You may invest in shares of the Fund as an alternative to
direct investments in Kentucky Obligations, as defined below,
which may include obligations of certain non-Kentucky issuers.
The Fund offers you the opportunity to keep assets fully invested
in a vehicle that provides a professionally managed portfolio of
Kentucky Obligations which may, but not necessarily will, be more
diversified, higher yielding or more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Kentucky Obligations. Through the convenience of a
single security consisting of shares of the Fund, you are also
relieved of the inconvenience associated with direct investments
of fixed denominations, including the selecting, purchasing,
handling, monitoring call provisions and safekeeping of Kentucky
Obligations.

     Kentucky Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes;
bond anticipation notes; construction loan notes; and floating
and variable rate demand notes. Municipal obligations include
municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment. The
purposes for which municipal obligations such as bonds are issued
include the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing,
mass transportation, streets and water and sewer works. Other
public purposes for which municipal obligations may be issued
include the refunding of outstanding obligations, the obtaining
of funds for general operating expenses and the obtaining of
funds to lend to other public institutions and facilities.

                 INVESTMENT OF THE FUND'S ASSETS

     In seeking its objective of providing as high a level of
current income which is exempt from both Kentucky State and
regular Federal income taxes as is consistent with the
preservation of capital, the Fund will invest in Kentucky
Obligations (as defined below). There is no assurance that the
Fund will achieve its objective, which is a fundamental policy of
the Fund. (See "Investment Restrictions.")

     As used in the Prospectus and the Additional Statement, the
term "Kentucky Obligations" means obligations, including those of
certain non-Kentucky issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate
counsel, is exempt from regular Federal income taxes and Kentucky
income taxes. Although exempt from regular Federal income tax,
interest paid on certain types of Kentucky Obligations, and
dividends which the Fund might pay from this interest are
preference items as to the Federal alternative minimum tax; for
further information, see "Dividend and Tax Information." As a
fundamental policy, at least 80% of the Fund's net assets will be
invested in Kentucky Obligations the income paid upon which will
not be subject to the alternative minimum tax; accordingly, the
Fund can invest up to 20% of its net assets in obligations which
are subject to the Federal alternative minimum tax. The Fund may
refrain entirely from purchasing these types of Kentucky
Obligations. (See "Dividend and Tax Information.")

     The non-Kentucky bonds or other obligations the interest on
which is exempt under present law from regular Federal and
Kentucky income taxes are the bonds or other obligations issued
by or under the authority of Guam, the Northern Mariana Islands,
Puerto Rico and the Virgin Islands. The Fund will not purchase
Kentucky Obligations of non-Kentucky issuers unless Kentucky
Obligations of Kentucky issuers of the desired quality, maturity
and interest rate are not available. As a Kentucky-oriented fund,
at least 65% of the Fund's total assets will be invested in
Kentucky Obligations of Kentucky issuers. The Fund invests only
in Kentucky Obligations and, possibly, in Futures and options on
Futures (see below) for protective (hedging) purposes.

     In general, there are nine separate credit ratings, ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Fund will have a portfolio of quality
oriented (investment grade) securities, the Kentucky Obligations
which the Fund will purchase must, at the time of purchase,
either (i) be rated within the four highest credit ratings
assigned by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations
so rated by Banc One Investment Advisors Corporation (the
"Adviser"), subject to the direction and control of the Fund's
Board of Trustees. Municipal obligations rated in the fourth
highest credit rating are considered by such rating agencies to
be of medium quality and thus may present investment risks not
present in more highly rated obligations. Such bonds lack
outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. If after purchase the rating of
any rated Kentucky Obligation is downgraded such that it could
not then be purchased by the Fund, or, in the case of an unrated
Kentucky Obligation, if the Adviser determines that the unrated
obligation is no longer of comparable quality to those rated
obligations which the Fund may purchase, it is the current policy
of the Fund to cause any such obligation to be sold as promptly
thereafter as the Adviser in its discretion determines to be
consistent with the Fund's objectives; such obligation remains in
the Fund's portfolio until it is sold. In addition, because a
downgrade often results in a reduction in the market price of a
downgraded obligation, sale of such an obligation may result in a
loss. See Appendix A to the Additional Statement for further
information as to these ratings. The Fund can purchase industrial
development bonds only if they meet the definition of Kentucky
Obligations, i.e., the interest on them is exempt from Kentucky
State and regular Federal income taxes.

     The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). The Fund also intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code
(the "Code"). One of the tests for such qualification under the
Code is, in general, that at the end of each fiscal quarter of
the Fund, at least 50% of its assets must consist of (i) cash;
and (ii) securities which, as to any one issuer, do not exceed 5%
of the value of the Fund's assets. If the Fund had elected to
register under the 1940 Act as a "diversified" investment
company, it would have to meet the same test as to 75% of its
assets. The Fund may therefore not have as much diversification
among securities, and thus diversification of risk, as if it had
made this election under the 1940 Act. In general, the more the
Fund invests in the securities of specific issuers, the more the
Fund is exposed to risks associated with investments in those
issuers. The Fund's assets, being primarily or entirely Kentucky
issues, are accordingly subject to economic and other conditions
affecting Kentucky. (See "Risk Factors and Special Considerations
Regarding Investment in Kentucky Obligations.")

Certain Stabilizing Measures

     The Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash
and cash equivalents in attempting to protect against declines in
the value of its investments and other market risks. There can,
however, be no assurance that these will be successful. Although
the Fund has no current intention of using futures and options,
to the limited degree described below, these may be used to
attempt to hedge against changes in the market price of the
Fund's Kentucky Obligations caused by interest rate fluctuations.
Futures and options could also provide a hedge against increases
in the cost of securities the Fund intends to purchase.

     Although it does not currently do so, and since inception
has not done so, the Fund may buy and sell futures contracts
relating to indices on municipal bonds ("Municipal Bond Index
Futures") and to U.S. government securities ("U.S. Government
Securities Futures"); both kinds of futures contracts are
"Futures." The Fund may also write and purchase put and call
options on Futures. As a matter of fundamental policy the Fund
will not buy or sell a Future or an option on a Future if
thereafter more than 10% of its net assets would be in initial or
variation margin on such Futures and options on them, and in
premiums on such options. Under an applicable regulatory rule,
the Fund will not enter into Futures or options for which the
aggregate initial margins and premiums paid for options exceed 5%
of the fair market value of the Fund's assets. (See the
Additional Statement.) Under normal market conditions, the Fund
cannot purchase or sell Municipal Bond Index Futures, U.S.
Government Securities Futures, or options on Futures if
thereafter more than 20% of its total assets would consist of
cash, margin deposits on such Futures and margin deposits and
premiums on such options, except for temporary defensive
purposes, i.e., in anticipation of a decline or possible decline
in the value of Kentucky Obligations.

     The primary risks associated with the use of Futures and
options are: (i) imperfect correlation between the change in the
market value of the securities held in the Fund's portfolio and
the prices of Futures or options purchased or sold by the Fund;
(ii) incorrect forecasts by the Adviser concerning interest rates
which may result in the hedge being ineffective; and (iii)
possible lack of a liquid secondary market for a Future or
option; the resulting inability to close a Futures or options
position could adversely affect the Fund's hedging ability.  For
a hedge to be completely effective, the price change of the
hedging instrument should equal the price change of the security
being hedged. The risk of imperfect correlation of these price
changes is increased as the composition of the Fund's portfolio
is divergent from the debt securities underlying the hedging
instrument. To date, the Adviser has had no experience in the use
of Futures or options on them.

     The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits"
established by commodity exchanges which restrict the amount of
change in the contract price allowed during a single trading day.
Thus, once a daily limit is reached, no further trades may be
entered into beyond the limit, thereby preventing the liquidation
of open positions. Prices have in the past reached the daily
limit on a number of consecutive trading days. For further
information about Futures and options, see the Additional
Statement.

     When and if the Fund determines to use Futures or options,
the Prospectus will be supplemented.

Floating and Variable Rate Demand Notes

     Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one
year, but permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding one year, in each
case upon not more than 30-days' notice. The issuer of such notes
normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the
note plus accrued interest upon a specified number of days'
notice to the noteholders. The interest rate on a floating rate
demand note is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is
adjusted automatically at specified intervals.

Participation Interests

     The Fund may purchase from financial institutions
participation interests in Kentucky Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Fund an undivided
interest in the underlying Kentucky Obligations in the proportion
that the Fund's participation interest bears to the total amount
of the underlying Kentucky Obligations. All such participation
interests must meet the Fund's credit requirements. See
"Limitation to 10% as to Certain Investments."

When-Issued and Delayed Delivery Purchases

     The Fund may buy Kentucky Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring
them. The Kentucky Obligations so purchased are subject to market
fluctuation and no interest accrues to the Fund until delivery
and payment take place; their value at the delivery date may be
less than the purchase price. The Fund cannot enter into
when-issued commitments exceeding in the aggregate 15% of the
market value of the Fund's total assets, less liabilities other
than the obligations created by when-issued commitments. If the
Fund chooses to dispose of the right to acquire a when-issued
obligation prior to its acquisition, it could, as with the
disposition of any other portfolio holding, incur a gain or loss
due to market fluctuation; any such gain would be a taxable
short-term gain. The Fund places an amount of assets equal in
value to the amount due on the settlement date for the
when-issued or delayed delivery securities being purchased in a
segregated account with the Custodian, which is marked to market
every business day. See the Additional Statement for further
information.

Limitation to 10% as to Certain Investments

     The Fund cannot purchase Kentucky Obligations that are not
readily marketable if thereafter more than 10% of its net assets
would consist of such investments. However, this 10% limit does
not include any Kentucky Obligations as to which the Fund can
exercise the right to demand payment in full within seven days
and as to which there is a secondary market. Floating and
variable rate demand notes and participation interests (including
municipal lease/purchase obligations) are considered illiquid
unless determined by the Board of Trustees to be readily
marketable. See the Additional Statement.

Current Policy as to Certain Obligations

     The Fund will not invest more than 25% of its total assets
in (i) Kentucky Obligations the interest on which is paid from
revenues of similar type projects or (ii) industrial development
bonds, unless the Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.

Factors Which May Affect the Value of the Fund's 
Investments and Their Yields

     The value of the Kentucky Obligations in which the Fund
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Fund buys Kentucky Obligations, the value of these
obligations will normally go down; if these rates go down, the
value of these obligations will normally go up. Changes in value
and yield based on changes in prevailing interest rates may have
different effects on short-term Kentucky Obligations than on
long-term obligations. Long-term obligations (which often have
higher yields) may fluctuate in value more than short-term ones.
For this reason, the Fund may, to achieve a defensive position,
shorten the average maturity of its portfolio.

Risk Factors and Special Considerations Regarding 
Investment in Kentucky Obligations

     The following is a discussion of the general factors that
might influence the ability of Kentucky issuers to repay
principal and interest when due on the Kentucky Obligations
contained in the portfolio of the Fund. Such information is
derived from sources that are generally available to investors
and is believed by the Fund to be accurate, but has not been
independently verified and may not be complete.

     The Commonwealth of Kentucky ranks first among the States in
the production of coal. Tobacco is the dominant agricultural
product, and Kentucky ranks second among states in the total cash
value of tobacco raised. There is a significant diversification
in the manufacturing mix including tobacco processing plants,
distilleries and durable goods production including automobiles,
heavy machinery, computer appliances and office equipment.
Toyota, a major Japanese automobile manufacturer, has constructed
a large facility in Georgetown, Kentucky. The horse breeding and
racing industry plays an important role both as a significant
industry as well as encouraging tourist business in the state.

     Economic problems include a continuing high unemployment
rate in the non-urbanized areas of the State. The Coal Severance
Tax is a significant revenue producer for the state and its
political subdivisions, and any substantial decrease in the
amount of coal or other minerals produced could result in revenue
shortfalls. Additionally, any federal legislation affecting
adversely the tobacco and/or cigarette industry would have a
negative impact on Kentucky's economy. Although revenue
obligations of the state or its political subdivisions may be
payable from a specific project, there can be no assurances that
further economic difficulties and the resulting impact on state
and local government finances will not adversely affect the
market value of the bonds issued by Kentucky municipalities or
political subdivisions or the ability of the respective entities
to pay debt service. Major legislative initiatives in the area of
education reform and medicaid expenses are having an impact on
the Commonwealth's financial profile.

     The Commonwealth of Kentucky relies upon sales and use tax,
individual income tax, property tax, corporate income tax,
insurance premium tax, alcohol beverage tax, corporate license
tax, cigarette tax, and horse racing tax for its revenue. The
cities, counties and other local governments are essentially
limited to property taxes, occupational license taxes, utility
taxes, transit and restaurant meals taxes and various license
fees for their revenue. Obligations of non-Kentucky issuers are
subject to the risks of general economic and other factors
affecting those issuers.

     Because of constitutional limitations, the Commonwealth of
Kentucky cannot enter into a financial obligation of more than
two years' duration, and no other municipal issuer within the
Commonwealth can enter into a financial obligation of more than
one year's duration. As a consequence, the payment and security
arrangements applicable to Kentucky revenue bonds differ
significantly from those generally applicable to municipal
revenue bonds in other States. See the Additional Statement.

                     INVESTMENT RESTRICTIONS

     The Fund has a number of policies about what it can and
cannot do. Certain of these policies, identified in the
Prospectus and Additional Statement as "fundamental policies,"
cannot be changed unless the holders of a "majority," as defined
in the 1940 Act, of the Fund's outstanding shares vote to change
them. (See the Additional Statement for a definition of such a
majority.) All other policies can be changed from time to time by
the Board of Trustees without shareholder approval. Some of the
more important of the Fund's fundamental policies, not otherwise
identified in the Prospectus, are set forth below; others are
listed in the Additional Statement.

1. The Fund invests only in certain limited securities.

     The Fund cannot buy any securities other than the Kentucky
Obligations meeting the standards stated under "Investment of the
Fund's Assets"; the Fund can also purchase and sell Futures and
options on them within the limits there discussed.

2. The Fund has industry investment requirements.

     The Fund cannot buy the obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; the Fund will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.

3. The Fund cannot make loans.

     The Fund can buy those Kentucky Obligations which it is
permitted to buy (see "Investment of the Fund's Assets"); this is
investing, not making a loan. The Fund cannot lend its portfolio
securities.

4. The Fund can borrow only in limited amounts for special
purposes.

     The Fund can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage
or pledge its assets only in connection with such borrowing and
only up to the lesser of the amounts borrowed or 5% of the value
of its total assets. However, this shall not prohibit margin
arrangements in connection with the purchase or sale of Municipal
Bond Index Futures, U.S. Government Securities Futures or options
on them, or the payment of premiums on those options. 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 Kentucky Obligations, Futures or
options on Futures while it has any outstanding borrowings which
exceed 5% of the value of its total assets.

                    NET ASSET VALUE PER SHARE

     The Fund's net asset value and offering price per share of
each class are determined as of 4:00 p.m. New York time on each
day that the New York Stock Exchange is open (a "business day").
The net asset value per share is determined by dividing the value
of the net assets of the Fund (i.e., the value of the assets less
liabilities) by the total number of shares outstanding.
Determination of the value of the Fund's assets is subject to the
direction and control of the Fund's Board of Trustees. In general
it is based on market value, except that Kentucky Obligations
maturing in 60 days or less are generally valued at amortized
cost; see the Additional Statement for further information.

                   ALTERNATIVE PURCHASE PLANS

     In this Prospectus, the Fund provides individual investors
with the option of two alternative ways to purchase shares,
through two separate classes of shares. All classes represent
interests in the same portfolio of Kentucky Obligations. The
primary distinction among the classes of shares offered to
individuals lies in their sales charge structures and ongoing
expenses, as described below. You should choose the class that
best suits your own circumstances and needs.

     If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By
purchasing Class C Shares, you will pay a sales charge over a
period of six years after purchase but without paying anything at
time of purchase, much as goods can be purchased on an
installment plan. You are subject to a conditional deferred sales
charge, described below, but only if you redeem your Class C
Shares before they have been held 12 months from your purchase.
(See "Computation of Holding Periods for Class C Shares.") 

     Class A Shares, "Front-Payment Class Shares," are offered to
     anyone at net asset value plus a sales charge, paid at the
     time of purchase, at the maximum rate of 4.0% of the public
     offering price, with lower rates for larger purchases. Under
     the Fund's Distribution Plan, Class A Shares are subject to
     a fee of 0.15 of 1% of the average annual net assets of the
     Class A Shares. When you purchase Class A Shares, the amount
     of your investment is reduced by the applicable sales
     charge. Certain Class A Shares purchased in transactions of
     $1 million or more are subject to a contingent deferred
     sales charge. (See "Purchases of $1 Million or More of Class
     A Shares.")

     Class C Shares, "Level-Payment Class Shares," are offered to
     anyone at net asset value with no sales charge payable at
     purchase but with a level charge for distribution fees and
     service fees for six years after the date of purchase at the
     aggregate annual rate of 1% of the average annual net assets
     of the Class C Shares. (See "Distribution Plan" and
     "Shareholder Services Plan.") Six years after the date of
     purchase, Class C Shares, including Class C Shares acquired
     in exchange for other Class C Shares under the Exchange
     Privilege (see "Exchange Privilege"), are automatically
     converted to Class A Shares. In addition, if you redeem
     Class C Shares before you have held them for 12 months from
     the date of purchase you will pay a contingent deferred
     sales charge ("CDSC")  at the rate of 1%, calculated on the
     net asset value of the Class C Shares redeemed at the time
     of purchase or of redemption, which ever is less. The amount
     of any CDSC will be paid to the Distributor. The CDSC does
     not apply to shares acquired through the reinvestment of
     dividends on Class C Shares or to any Class C Shares held
     for more than 12 months after purchase. In the Prospectus,
     12-month and six-year holding periods are considered
     modified by up to one month depending upon when during a
     month your purchase of such shares is made. (See
     "Computation of Holding Periods for Class C Shares" and "How
     to Purchase Class C Shares.") 

     In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions,
second of any Class C Shares you have held for more than 12
months from the date of purchase and finally of those Class C
Shares as to which the CDSC is payable which you have held the
longest. This will result in your paying the lowest possible
CDSC.

Computation of Holding Periods for Class C Shares

     For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that
month at the average cost of all purchases made during that
month. The 12-month CDSC holding period will end on the first
business day of the 12th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your Class C Shares may be up to one
month less than the full 12 months depending upon when your
actual purchase was made during a month. Running of the 12-month
CDSC holding period will be suspended for one month for each
period of thirty days during which you have held shares of a
money market fund you have received in exchange for Class C
Shares under the Exchange Privilege. (See "Exchange Privilege.") 

     Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions paid in additional Class C Shares. The Class
C Shares so converted will no longer be subject to the higher
expenses borne by the Class C Shares. The conversion will be
effected at relative net asset values on the first business day
of the month following that in which the sixth anniversary of
your purchase of the Class C Shares occurred, except as noted
below. Accordingly, the holding period applicable to your Class C
Shares may be up to one month more than the six years depending
upon when your actual purchase was made during a month. Because
the per share value of Class A Shares may be higher than that of
Class C Shares at the time of conversion, you may receive fewer
Class A Shares than the number of Class C Shares converted. If
you have made one or more exchanges of Class C Shares among the
Aquila-sponsored tax-free municipal bond funds or equity funds
under the Exchange Privilege, the six-year holding period is
deemed to have begun on the date you purchased your original
Class C Shares of the Fund or of another of the Aquila Bond or
Equity funds. The six-year holding period will be suspended by
one month for each period of thirty days during which you hold
shares of a money market fund you have received in exchange for
Class C Shares under the Exchange Privilege. (See "Exchange
Privilege.")

     The following chart summarizes the principal differences
between Class A Shares and Class C Shares

<TABLE>
<CAPTION>

                         Class A                  Class C

<S>                      <C>                      <C>
Initial Sales            Maximum of 4%            None
Charge                   of the Public
                         Offering Price



Contingent               None (except             Maximum CDSC
Deferred                 for certain              of 1% if shares
Sales Charge             purchases over           redeemed before
                         $1 Million)              12 months; 0% 
                                                  after 12 months


Distribution and         0.15 of 1%               Distribution fee
Service Fees                                      of 0.75 of 1% and
                                                  a service fee of
                                                  0.25 of 1% for a 
                                                  total of 1%, 
                                                  payable for six
                                                  years

Other Information        Initial Sales            Shares convert
                         Charge waived            to Class A Shares
                         or reduced in            after six years
                         some cases
</TABLE>


Factors to Consider in Choosing Classes of Shares

     This discussion relates to the major differences between
Class A Shares and Class C Shares. It is recommended that any
investment in the Fund be considered long-term in nature.

     Over time, the cumulative total cost of the 1% annual
service and distribution fees on the Class C Shares will equal or
exceed the total cost of the initial 4% maximum initial sales
charges and 0.15 of 1% annual fee payable for Class A Shares. For
example, if equal amounts were paid at the same time for Class A
Shares (where the amount invested is reduced by the amount of the
sales charge) and for Class C Shares (which carry no sales charge
at the time of purchase) and the net asset value per share
remained constant over time, the total of such costs for Class C
Shares would equal the total of such costs for Class A Shares
after approximately four and two-thirds years. This example
assumes no redemptions and disregards the time value of money.
Purchasers of Class C Shares have all of their investment dollars
invested from the time of purchase, without having their
investment reduced at the outset by the initial sales charge
payable for Class A Shares. If you invest in Class A Shares you
will pay the entire sales charge at the time of purchase.
Accordingly, if you expect to redeem your shares shortly after
purchase, you should consider the total cost of such an
investment in Class A Shares compared with a similar investment
in Class C Shares. The example under "Table of Expenses" shows
the effect of Fund expenses for both Classes if a hypothetical
investment in each of the Classes is held for 1, 3, 5 and 10
years. (See the Table of Expenses.)

     Dividends and other distributions paid by the Fund with
respect to shares of each class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
Class C Shares will be lower than those paid on Class A because
Class C Shares bear higher distribution and service fees and will
have a higher expense ratio. In addition, the dividends of each
class can vary because each class will bear certain
class-specific charges. For example, each class will bear the
costs of printing and mailing annual reports to its own
shareholders.

                    HOW TO INVEST IN THE FUND

     The Fund's shares may be purchased through any investment
broker or dealer (a "selected dealer") which has a sales
agreement with Aquila Distributors, Inc. (the "Distributor") or
through the Distributor. There are two ways to make an initial
investment: (i) order the shares through your investment broker
or dealer, if it is a selected dealer; or (ii) mail the
Application with payment to Administrative Data Management Corp.
(the "Agent") at the address on the Application. The applicable
sales charge will apply in either instance. Subsequent
investments are also subject to the applicable sales charges. You
are urged to complete an Application and send it to the Agent so
that expedited shareholder services can be established at the
time of your investment. Unless your initial investment is
specified to be made in Class C Shares, it will be made in Class
A Shares. 

     The minimum initial investment for Class A Shares and Class
C Shares is $1,000, except as otherwise stated in the Prospectus
or Additional Statement. You may also make an initial investment
of at least $50 by establishing an Automatic Investment Program
for Automatic investments of at least $50 per month and paying at
least $50. (See below and "Automatic Investment Program" in the
Application.) Such investment must be drawn in United States
dollars on a United States commercial or savings bank, credit
union or a United States branch of a foreign commercial bank
(each of which is a "Financial Institution"). You may make
subsequent investments in the same class of shares in any amount
(unless you have an Automatic Withdrawal Plan). Your subsequent
investment may be made through a selected dealer or by forwarding
payment to the Agent, with the name(s) of account owner(s), the
account number, the name of the Fund and the Class of Shares to
be purchased. With subsequent investments, please send the
pre-printed stub attached to the Fund's confirmations.  

     Subsequent investments of $50 or more in shares of the same
class as your initial investment can be made by electronic funds
transfer from your demand account at a Financial Institution. To
use electronic funds transfer for your purchases, your Financial
Institution must be a member of the Automated Clearing House and
the Agent must have received your completed Application
designating this feature, or, after your account has been opened,
a Ready Access Features form available from the Distributor or
the Agent. A pre-determined amount can be regularly transferred
for investment ("Automatic Investment"), or single investments
can be made upon receipt by the Agent of telephone instructions
from anyone ("Telephone Investment"). The maximum amount of each
Telephone Investment is $50,000. Upon 30 days' written notice to
shareholders, the Fund may modify or terminate these investment
methods at any time or charge a service fee, although no such fee
is currently contemplated.

     The offering price is the net asset value per share for
Class C Shares and the net asset value per share plus the
applicable sales charge for Class A Shares. The offering price
determined on any day applies to all purchase orders received by
the Agent from selected dealers that day, except that orders
received by it after 4:00 p.m. New York time will receive that
day's offering price only if such orders were received by
selected dealers from customers prior to such time and
transmitted to the Distributor prior to its close of business
that day (normally 5:00 p.m. New York time); if not so
transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Fund shares for any day it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net
asset value is suspended and may be suspended by the Distributor
when the Distributor judges it in the Fund's best interest to do
so.

How to Purchase Class A Shares 
(Front-Payment Class Shares)

     The following table shows the amount of the sales charges to
a "single purchaser" (defined below) together with the dealer
discounts paid to dealers and the agency commissions paid to
brokers (collectively called the "commissions"):

<TABLE>
<CAPTION>
                         Sales          Sales          Commis-
                         Charge         Charge         sions
                         as             as             as
                         Percentage     Approximate    Percentage
                         of Public      Percentage     of 
Amount of                Offering       of Amount      Offering
Purchase                 Price          Invested       Price

<S>                      <C>            <C>            <C>
Less than $25,000......  4.00%          4.17%          3.50%
$25,000 but less
   than $50,000........  3.75%          3.90%          3.25%
$50,000 but less
   than $100,000.......  3.50%          3.63%          3.00%
$100,000 but less
   than $250,000.......  3.00%          3.09%          2.50%
$250,000 but less
   than $500,000.......  2.50%          2.56%          2.25%
$500,000 but less
   than $1,000,000.....  1.00%          1.01%          1.00%

For purchases of $1 million or more see "Purchases of $1 Million
or More," below.

</TABLE>


For purchases of $1 million or more see "Purchases of $1 Million
or More," below.

     The table of sales charges is applicable to purchases of
Class A Shares by a "single purchaser," i.e.: (a) an individual;
(b) an individual together with his or her spouse and their
children under the age of 21 purchasing shares for his or their
own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; and (d)
a tax-exempt organization enumerated in Section 501(c)(3) or (13)
of the Code.

     Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the
entire sales charge is reallowed, such selected dealers may be
deemed to be underwriters as that term is defined in the
Securities Act of 1933.

Purchases of $1 Million or More

     Class A Shares issued in purchases of $1 million or more by
a single purchaser are called "CDSC Class A Shares." CDSC Class A
Shares also include certain Class A Shares issued in purchases of
$1 million or more under the program captioned "Certain
Investment Companies - Special Dealer Arrangements," below. (CDSC
Class A Shares do not include (i) Class A Shares purchased
without sales charge pursuant to the terms described under
"General," below and (ii) Class A Shares purchased in
transactions of less than $1 million and when certain special
dealer arrangements are not in effect under "Certain Investment
Companies" set forth under "Reduced Sales Charges," below.) 

     When you purchase CDSC Class A Shares you will not pay a
sales charge at the time of purchase, and the Distributor will
pay to any dealer effecting such a purchase an amount equal to 1%
of the sales price of the shares purchased for purchases of $1
million but less than $2.5 million, 0.50 of 1% for purchases of
$2.5 million but less than $5 million, and 0.25 of 1% for
purchases of $5 million or more, if the CDSC Class A Shares
remain outstanding for a period of at least one year. A pro-rata
portion of this fee will be payable for each day the CDSC Class A
Shares are outstanding in the first one-year period following
issuance of such shares. The fee payable for each calendar
quarter will be made within fifteen days of the end of that
quarter. 

     If you redeem all or part of your CDSC Class A Shares during
the four years after your purchase of such shares, at the time of
redemption you will be required to pay to the Distributor a
special contingent deferred sales charge based on the lesser of
(i) the net asset value of your redeemed CDSC Class A Shares at
the time of purchase or (ii) the net asset value of your redeemed
CDSC Class A Shares at the time of redemption (the "Redemption
Value"). The special charge will be an amount equal to 1% of the
Redemption Value if the redemption occurs within the first two
years after purchase, and 0.50 of 1% of the Redemption Value if
the redemption occurs within the third or fourth year after
purchase. The special charge will apply to redemptions of CDSC
Class A Shares purchased without a sales charge pursuant to a
Letter of Intent, as described below under "Reduced Sales
Charges." The special charge does not apply to shares acquired
through the reinvestment of dividends on CDSC Class A Shares or
to any CDSC Class A Shares held for more than four years after
purchase. In determining whether the special charge is
applicable, it will be assumed that the CDSC Class A Shares you
have held the longest are the first CDSC Class A Shares to be
redeemed, unless you instruct the Agent otherwise. It will also
be assumed that if you have both CDSC Class A Shares and non-CDSC
Class A Shares the non-CDSC Class A Shares will be redeemed
first. 

     For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar
month will be deemed to have been made on the first business day
of that month at the average cost of all purchases made during
that month. The four-year holding period will end on the first
business day of the 48th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your CDSC Class A Shares may be up
to one month less than the full 48 months depending upon when
your actual purchase was made during a month. Running of the
48-month CDSC holding period will be suspended for one month for
each period of thirty days during which you have held shares of a
money market fund you have received in exchange for CDSC Class A
Shares under the Exchange Privilege. (See "Exchange Privilege.") 

Reduced Sales Charges for Certain Purchases 
of Class A Shares

     Right of Accumulation: If you are a "single purchaser" you
may benefit from a reduction of the sales charge in accordance
with the above schedule for subsequent purchases of Class A
Shares if the cumulative value (at cost or current net asset
value, whichever is higher) of Class A Shares you have previously
purchased with a sales charge, together with Class A Shares of
your subsequent purchase with such a charge, amounts to $25,000
or more.

     Letters of Intent: The foregoing schedule of reduced sales
charges will also be available to "single purchasers" who enter
into a written Letter of Intent (included in the Application)
providing for the purchase, within a thirteen-month period, of
Class A Shares of the Fund through a single selected dealer or
through the Distributor. Class A Shares of the Fund which you
previously purchased during a 90-day period prior to the date of
receipt by the Distributor of your Letter of Intent and which you
still own may also be included in determining the applicable
reduction. For further details, including escrow provisions, see
the Letter of Intent provisions of the Application.

     General: Class A Shares may be purchased at the next
determined net asset value by the Fund's Trustees and officers,
by the directors, officers and certain employees, retired
employees and representatives of the Adviser and its parent and
affiliates, the Administrator and the Distributor, by selected
dealers and brokers and their officers and employees, by certain
persons connected with firms providing legal, advertising or
public relations assistance, by certain family members of, and
plans for the benefit of, the foregoing, and for the benefit of
trust or similar clients of banking institutions over which these
institutions have full investment authority if the Distributor
has entered into an agreement relating to such purchases. Except
for the last category, purchasers must give written assurance
that the purchase is for investment and that the Class A Shares
will not be resold except through redemption. There may be tax
consequences of these purchases. Such purchasers should consult
their own tax counsel. Class A Shares may also be issued at net
asset value in a merger, acquisition or exchange offer made
pursuant to a plan of reorganization to which the Fund is a
party.

     The Fund permits the sale of its Class A Shares at prices
that reflect the reduction or elimination of the sales charge to
investors who are members of certain qualified groups meeting the
following requirements. A qualified group (i) is a group or
association, or a category of purchasers who are represented by a
fiduciary, professional or other representative (other than a
registered broker-dealer), which (ii) satisfies uniform criteria
which enable the Distributor to realize economies of scale in its
costs of distributing shares; (iii) gives its endorsement or
authorization (if it is a group or association) to an investment
program to facilitate solicitation of its membership by a broker
or dealer; and (iv) complies with the conditions of purchase that
are set forth in any agreement entered into between the Fund and
the group, representative or broker or dealer. At the time of
purchase you must furnish the Distributor with information
sufficient to permit verification that the purchase qualifies for
a reduced sales charge, either directly or through a broker or
dealer.

     Certain Investment Companies: Class A Shares of the Fund may
be purchased at net asset value without sales charge (except as
set forth below under "Special Dealer Arrangements") to the
extent that the aggregate net asset value of such Class A Shares
does not exceed the proceeds from a redemption (a "Qualified
Redemption"), made within 120 days prior to such purchase, of
shares of another investment company on which a sales charge,
including a contingent deferred sales charge, has been paid.
Additional information is available from the Distributor.

     To qualify, the following special procedures must be
followed:

     1. A completed Application (included in the Prospectus) and
     payment for the shares to be purchased must be sent to the
     Distributor, Aquila Distributors, Inc., 380 Madison Avenue,
     Suite 2300, New York, NY 10017 and should not be sent to the
     Shareholder Servicing Agent of the Fund, Administrative Data
     Management Corp. (This instruction replaces the mailing
     address contained on the Application.)

     2. The Application must be accompanied by evidence
     satisfactory to the Distributor that the prospective
     shareholder has made a Qualified Redemption in an amount at
     least equal to the net asset value of the Class A Shares to
     be purchased. Satisfactory evidence includes a confirmation
     of the date and the amount of the redemption from the
     investment company, its transfer agent or the investor's
     broker or dealer, or a copy of the investor's account
     statement with the investment company reflecting the
     redemption transaction.

     3. You must complete and return to the Distributor a
     Transfer Request Form, which is available from the
     Distributor.
     
     The Fund reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.

     Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Fund)
will pay to any dealer effecting a purchase of Class A Shares of
the Fund using the proceeds of a Qualified Redemption the lesser
of 1% of such proceeds or the same amounts described under
"Purchases of $1 Million or More," above on the same terms and
conditions. Class A Shares of the Fund issued in such a
transaction will be CDSC Class A Shares and if you thereafter
redeem all or part of such shares during the four-year period
from the date of purchase you will be subject to the special
contingent deferred sales charge described under "Purchases of $1
Million or More" above, on the same terms and conditions.
Whenever the Special Dealer Arrangements are in effect the
Prospectus will be supplemented.

How to Purchase Class C Shares 
(Level-Payment Class Shares)

     Level-Payment Class Shares (Class C Shares) are offered at
net asset value with no sales charge payable at purchase. A level
charge is imposed for service and distribution fees for the first
six years after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Fund represented by
the Class C Shares. In addition, Class C Shares are subject to a
contingent deferred sales charge ("CDSC") if redeemed before you
have held them for 12 months from the date of purchase at the
rate of 1%, calculated on the net asset value of the Class C
Shares at the time of purchase or of redemption, whichever is
less. There is no CDSC after Class C Shares have been held beyond
the applicable period. The CDSC does not apply to shares acquired
through the reinvestment of dividends on Class C Shares. 

     The Distributor will pay to any dealer effecting a purchase
of Class C Shares an amount equal to 1% of the sales price of the
Class C Shares purchased. 

Additional Compensation for Dealers

     The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Fund. Additional compensation may
include payment or partial payment for advertising of the Fund's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Fund
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.

     Brokers and Dealers may receive different levels of
compensation for selling different classes of shares.

Systematic Payroll Investments

     If your employer has established with the Fund a Systematic
Payroll Investment Plan ("Payroll Plan") you may arrange for
systematic investments into the Fund through a Payroll Plan.
Investments can be made in either Class A Shares or Class C
Shares. In order to participate in a Payroll Plan, you should
make arrangements with your own employer's payroll department,
and you must complete and sign any special application forms
which may be required by your employer. You must also complete
the Application included in the Prospectus. Once your application
is received and put into effect, under a Payroll Plan the
employer will make a deduction from payroll checks in an amount
you determine, and will remit the proceeds to the Fund. An
investment in the Fund will be made for you at the offering
price, which includes applicable sales charges determined as
described above, when the Fund receives the funds from your
employer. The Fund will send a confirmation of each transaction
to you. To change the amount of or to terminate your
participation in the Payroll Plan (which could take up to ten
days), you must notify your employer.

Confirmations and Share Certificates 

     All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share). 

     No share certificates will be issued for Class C Shares.
Share certificates for Class A Shares will be issued only if you
so request in writing to the Agent. All share certificates
previously issued by the Fund represent Class A Shares. No
certificates will be issued for fractional Class A shares or if
you have elected Automatic Investment or Telephone Investment for
Class A Shares (see "How to Invest in the Fund" above) or
Expedited Redemption (see "How to Redeem Your Investment" below).
If certificates for Class A Shares are issued at your request,
Expedited Redemption Methods described below will not be
available. In addition, you may incur delay and expense if you
lose the certificates. 

     The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.

Distribution Plan

     The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended
to result in the sale of its shares except pursuant to a written
plan adopted under the Rule. The Plan has three parts.

     Under the Plan, the Fund is authorized to make payments with
respect to Class A Shares ("Class A Permitted Payments") to
Qualified Recipients, which Permitted Payments shall be made
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), 0.15 of 1% of the
average annual net assets represented by the Class A Shares of
the Fund. Such payments shall be made only out of the Fund's
assets allocable to the Class A Shares. "Qualified Recipients"
means broker-dealers or others selected by the Distributor,
including but not limited to any principal underwriter of the
Fund, with which the Distributor has entered into written
agreements and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Fund's Class A Shares or servicing of accounts of
shareholders owning Class A Shares.

     Permitted Payments under the Plan commenced July 1, 1994.
Until April 1, 1996, all outstanding shares of the Fund were what
are currently designated Class A Shares. During the fiscal year
ended December 31, 1995, $358,097 was paid to Qualified
Recipients under the Plan as then in effect, of which $3,716 was
retained by the Distributor. (See the Additional Statement for a
description of the Distribution Plan.)

     Whenever the Fund makes Class A Permitted Payments, the
aggregate annual rate of the advisory fee and administration fee
otherwise payable by the Fund will be reduced from 0.50 of 1% to
0.40 of 1% of the Fund's average annual net assets. (See
"Management Arrangements.")

     Under another part of the Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Class C Permitted
Payments") to Qualified Recipients. Class C Permitted Payments
shall be made through the Distributor or shareholder servicing
agent as disbursing agent, and may not exceed, for any fiscal
year of the Fund (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or
for any fiscal year which is not a full fiscal year), 0.75 of 1%
of the average annual net assets represented by the Class C
Shares of the Fund. Such payments shall be made only out of the
Fund's assets allocable to the Class C Shares. "Class C Qualified
Recipients" means broker-dealers or others selected by the
Distributor, including but not limited to any principal
underwriter of the Fund, with which the Distributor has entered
into written agreements and which have rendered assistance
(whether direct, administrative, or both) in the distribution
and/or retention of the Fund's Class C Shares or servicing of
accounts of shareholders owning Class C Shares. Payments with
respect to Class C Shares during the first year after purchase
are paid to the Distributor and thereafter to other Qualified
Recipients. 

     Another part of the Plan is designed to protect against any
claim against or involving the Fund that some of the expenses
which might be considered to be sales-related which the Fund pays
or may pay come within the purview of the Rule. The Fund believes
that except for Permitted Payments it is not financing any such
activity and does not consider any payment enumerated in this
part of the Plan as so financing any such activity. However, it
might be claimed that some of the expenses the Fund pays come
within the purview of the Rule. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Fund shares, these payments are
authorized under the Plan. In addition, if the Administrator, out
of its own funds, makes payment for distribution expenses such
payments are authorized. See the Additional Statement.

Shareholder Services Plan for Class C Shares

     Under a Shareholder Services Plan, the Fund is authorized to
make payments with respect to Class C Shares ("Service Fees") to
Qualified Recipients. Service Fees shall be paid through the
Distributor or shareholder servicing agent as disbursing agent,
and may not exceed, for any fiscal year of the Fund (as adjusted
for any part or parts of a fiscal year during which payments
under the Plan are not accruable or for any fiscal year which is
not a full fiscal year), 0.25 of 1% of the average annual net
assets represented by the Class C Shares of the Fund. Such
payments shall be made only out of the Fund's assets represented
by the Class C Shares. "Service Fee Qualified Recipients" means
broker-dealers or others selected by the Distributor, including
but not limited to any principal underwriter of the Fund, with
which the Distributor has entered into written agreements and
which have agreed to provide personal services to holders of
Class C Shares and/or maintenance of Class C shareholder
accounts. See the Additional Statement. Service Fees with respect
to Class C Shares will be paid to the Distributor.

                  HOW TO REDEEM YOUR INVESTMENT

     You may redeem all or any part of your shares at the net
asset value next determined after acceptance of your redemption
request at the Agent (subject to any applicable contingent
deferred sales charge for redemptions of Class C Shares and CDSC
Class A Shares). For redemptions of Class C Shares and CDSC Class
A Shares, at the time of redemption a sufficient number of
additional shares will be redeemed to pay for any applicable
contingent deferred sales charge. Redemptions can be made by the
various methods described below. There is no minimum period for 
any investment in the Fund, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. Except for CDSC Class A Shares (see "Purchases
of $1 Million or More") there are no redemption fees or
withdrawal penalties for Class A Shares. Class C Shares are
subject to a contingent deferred sales charge if redeemed before
they have been held 12 months from the date of purchase. (See
"Alternative Purchase Plans.") A redemption may result in a
transaction taxable to you. If you own both Class A Shares and
Class C Shares and do not specify which you wish to redeem, it
will be assumed that you wish to redeem Class A Shares.

     For your convenience the Fund offers expedited redemption
for all classes of shares to provide you with a high level of
liquidity for your investment.

Expedited Redemption Methods
(Non-Certificate Shares)

     You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.

     
     1. By Telephone. The Agent will accept instructions by
     telephone from anyone to redeem shares and make payments 

          a) to a Financial Institution account you have
          predesignated or 

          b) by check in the amount of $50,000 or less, mailed to
          you, if your shares are registered in your name at the
          Fund and the check is sent to your address of record,
          provided that there has not been a change of your
          address of record during the 30 days preceding your
          redemption request. You can make only one request for
          telephone redemption by check in any 7-day period. 
     
     See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.

     To redeem an investment by this method, telephone:

             800-872-5860 toll free or 908-855-5731

     Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.

     2. By FAX or Mail.  You may also request redemption payments
     to a predesignated Financial Institution account by a letter
     of instruction sent to: Administrative Data Management
     Corp., Attn: Aquilasm Group of Funds, by FAX at 908-855-5730
     or by mail at 581 Main Street, Woodbridge, NJ 07095-1198,
     indicating account name(s), account number, amount to be
     redeemed, and any payment directions, signed by the
     registered holder(s). Signature guarantees are not required.
     See "Redemption Payments," below for payment methods.
     
     If you wish to use the above procedures you should so elect
on the Expedited Redemption section of the Application or the
Ready Access Features form and provide the required information
concerning your Financial Institution account number. The
Financial Institution account must be in the exclusive name(s) of
the shareholder(s) as registered with the Fund. You may change
the designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.

Regular Redemption Method 
(Certificate and Non-Certificate Shares)

     1. Certificate Shares. Certificates representing Class A
     Shares to be redeemed should be sent in blank (unsigned) to
     the Fund's  Shareholder Servicing Agent: Administrative Data
     Management Corp., Attn: Aquilasm Group of Funds, 581 Main
     Street, Woodbridge, NJ 07095-1198, with payment
     instructions. A stock assignment form signed by the
     registered shareholder(s) exactly as the account is
     registered must also be sent to the Shareholder Servicing
     Agent.
     
     For your own protection, it is essential that certificates
be mailed separately from signed redemption documentation.
Because of possible mail problems, it is also recommended that
certificates be sent by registered mail, return receipt
requested.

     For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required
if sufficient documentation is not on file with the Agent.
Additional documentation may be required where shares are held by
certain types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. In all other cases, signatures must be guaranteed by
a member of a national securities exchange, a U.S. bank or trust
company, a state-chartered savings bank, a federally chartered
savings and loan association, a foreign bank having a U.S.
correspondent bank, a participant in the Securities Transfer
Association Medallion Program (STAMP), the Stock Exchanges
Medallion Program (SEMP) or the New York Stock Exchange, Inc.
Medallion Signature Program (MSP). A notary public is not an
acceptable signature guarantor.

     2. Non-Certificate Shares. If you own non-certificate shares
     registered on the books of the Fund, and you have not
     elected Expedited Redemption to a predesignated Financial
     Institution account, you must use the Regular Redemption
     Method. Under this redemption method you should send a
     letter of instruction to: Administrative Data Management
     Corp., Attn: Aquilasm Group of Funds, 581 Main Street,
     Woodbridge, NJ 07095-1198, containing:

               Account Name(s);

               Account Number;

               Dollar amount or number of shares to be redeemed
               or a  statement that all shares held in the
               account are to be  redeemed;

               Payment instructions (normally redemption proceeds
               will  be mailed to your address as registered with
               the Fund);

               Signature(s) of the registered shareholder(s); and

               Signature guarantee(s), if required, as indicated
               above.

Redemption Payments

     Redemption payments will ordinarily be mailed to you at your
address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Fund may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. The Fund has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate the use of the Automated Clearing House
to make redemption payments at any time or charge a service fee,
although no such fee is presently contemplated. If any such
changes are made, the Prospectus will be supplemented to reflect
them. If you use a broker or dealer to arrange for a redemption,
it may charge you a fee for this service.

     The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven
days after acceptance of such a redemption request. However, the
right of redemption may be suspended or the date of payment
postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on
such Exchange is restricted as determined by the Securities and
Exchange Commission by rule or regulation; (ii) during periods in
which an emergency, as determined by the Securities and Exchange
Commission, exists which causes disposal of, or valuation of the
net asset value of, the portfolio securities to be unreasonable
or impracticable; or (iii) for such other periods as the
Securities and Exchange Commission may permit. Payment for
redemption of shares recently purchased by check (irrespective of
whether the check is a regular check or a certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment may be delayed up to 15 days or until (i) the purchase
check or Automatic Investment or Telephone Investment has been
honored or (ii) the Agent has received assurances by telephone or
in writing from the Financial Institution on which the purchase
check was drawn, or from which the funds for Automatic Investment
or Telephone Investment were transferred, satisfactory to the
Agent and the Fund, that the purchase check or Automatic
Investment or Telephone Investment will be honored. Possible
delays in payment of redemption proceeds can be eliminated by
using wire payments or Federal Reserve drafts to pay for
purchases.

     If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. See the Additional Statement for details.

     The Fund has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such
shares is less than $500 as a result of shareholder redemptions
or failure to meet the minimum investment level under an
Automatic Purchase Program. If the Board elects to do this,
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.

Reinvestment Privilege

     You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days of
a redemption of shares in shares of the Fund of the same Class as
the shares redeemed at the net asset value next determined after
the Agent receives your reinvestment order. In the case of Class
C Shares or CDSC Class A Shares on which a contingent deferred
sales charges was deducted at the time of redemption, the
Distributor will refund to you the amount of such sales charge,
which will be added to the amount of the reinvestment. The Class
C Shares or CDSC Class A Shares issued on reinvestment will be
deemed to have been outstanding from the date of your original
purchase of the redeemed shares, less the period from redemption
to reinvestment. The reinvestment privilege for any class may be
exercised only once a year, unless otherwise approved by the
Distributor. If you have realized a gain on the redemption of
your shares, the redemption transaction is taxable, and
reinvestment will not alter any capital gains tax payable. If
there has been a loss on the redemption, some or all of the loss
may be tax deductible, depending on the amount reinvested and the
length of time between the redemption and the reinvestment. You
should consult your own tax advisor on this matter.

                    AUTOMATIC WITHDRAWAL PLAN

     You may establish an Automatic Withdrawal Plan if you own or
purchase shares Class A Shares of the Fund having a net asset
value of at least $5,000. The Automatic Withdrawal plan is not
available for Class C Shares.

     Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than $50.
If such a plan is established, all dividends and distributions
must be reinvested in your shareholder account. Redemption of
Class A Shares to make payments under the Automatic Withdrawal
Plan will give rise to a gain or loss for tax purposes. See the
Automatic Withdrawal Plan provisions of the Application included
in the Prospectus, the Additional Statement under "Automatic
Withdrawal Plan," and "Dividend and Tax Information" below.

     Purchase of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when
purchases are made. Accordingly, a Planholder may not maintain an
Automatic Withdrawal Plan while simultaneously making regular
purchases. While an occasional lump sum investment may be made,
such investment should normally be an amount at least equal to
three times the annual withdrawal or $5,000, whichever is less.

                     MANAGEMENT ARRANGEMENTS

The Board of Trustees

     The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.

The Advisory Agreement

     Banc One Investment Advisors Corporation (the "Adviser")
supervises the investment program of the Fund and the composition
of its portfolio.

     The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment,
supervisory and certain administrative services. The Advisory
Agreement states that the Adviser shall, at its expense, provide
to the Fund all office space and facilities, equipment and
clerical personnel necessary for the carrying out of the
Adviser's duties under the Advisory Agreement. The Adviser will,
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.

     Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Adviser.
Under the Advisory Agreement, the Fund bears the cost of
preparing and setting in type its prospectuses, statements of
additional information, and reports to shareholders and the costs
of printing or otherwise producing and distributing those copies
of such prospectuses, statements of additional information and
reports as are sent to its shareholders. Under the Advisory
Agreement, all costs and expenses not expressly assumed by the
Adviser or by the Administrator under the Administration
Agreement or by the Fund's Distributor (principal underwriter)
are paid by the Fund. The Advisory Agreement lists examples of
such expenses borne by the Fund, the major categories of such
expenses being: legal and audit expenses, custodian and transfer
agent or shareholder servicing agent fees and expenses, stock
issuance and redemption costs, certain printing costs,
registration costs of the Fund and its shares under Federal and
State securities laws, interest, taxes and brokerage commissions,
and non-recurring expenses, including litigation.

     Under the Advisory Agreement, the Fund pays a fee payable
monthly and computed on the net asset value of the Fund as of the
close of business each business day at the annual rate of 0.17 of
1% of such net asset value provided, however, that for any day
that the Fund pays or accrues a fee under the Distribution Plan
of the Fund based upon the assets of the Fund (other than a fee
allocable by class to certain shares of the Fund), the management
fee shall be payable at the annual rate of 0.14 of 1% of such net
asset value. (Since the Administrator also receives a fee from
the Fund under the Administration Agreement, the total investment
advisory and administration fees which the Fund pays are at the
annual rate of 0.50 of 1% of such net assets, or, for any day
that the Fund pays or accrues a fee under the Distribution Plan
of the Fund based upon the assets of the Fund, at 0.40 of 1%  of
such net asset value; see below.) Payments under the Distribution
Plan began on July 1, 1994 and the advisory and administration
fees are currently being accrued at the lower rate. Prior to
September 11, 1995, different advisory and administration
arrangements were in effect. See the Additional Statement for a
description of such arrangements. The Adviser and the
Administrator may, in order to attempt to achieve a competitive
yield on the shares of the Fund, each waive all or part of any
such fee.

     The Adviser agrees that the above fee shall be reduced, but
not below zero, by an amount equal to its pro-rata portion
(hereafter described) of the amount, if any, by which the total
expenses of the Fund in any fiscal year, exclusive of taxes,
interest and brokerage fees, shall exceed the lesser of (i) 2.5%
of the first $30 million of average annual net assets of the Fund
plus 2% of the next $70 million of such assets and 1.5% of such
assets in excess of $100 million, or (ii) 25% of the Fund's total
annual investment income. The pro-rata portion, as between the
Administrator and Adviser, is based on the aggregate of the fee
of the Adviser and the fee of the Administrator (exclusive of
amounts paid or to be paid out by the Administrator, if any, for
the applicable period pursuant to the Fund's Distribution Plan.)

     The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Adviser is
authorized to consider sales of shares of the Fund or of any
other investment company or companies having the same investment
adviser, sub-adviser, administrator or principal underwriter as
the Fund.

     The Fund's Custodian is an affiliate of the Adviser. It is
expected that another banking subsidiary of the Adviser's parent,
Banc One Corporation, will provide a credit facility to the Fund.

The Administration Agreement

     Under an Administration Agreement (the "Administration
Agreement"), Aquila Management Corporation as Administrator, at
its own expense, provides office space, personnel, facilities and
equipment for the performance of its functions thereunder and as
is necessary in connection with the maintenance of the
headquarters of the Fund and pays all compensation of the Fund's
Trustees, officers and employees who are affiliated persons of
the Administrator.

     Under the Administration Agreement, subject to the control
of the Fund's Board of Trustees, the Administrator provides all
administrative services to the Fund other than those relating to
its investment portfolio. Such administrative services include
but are not limited to maintaining books and records of the Fund,
either keeping the accounting records of the Fund, including the
computation of the net asset value per share and the dividends
(however, the daily pricing of the Fund's portfolio is the
responsibility of the Adviser under the Advisory Agreement) or,
at its expense and responsibility, delegating these accounting
duties in whole or in part to a company satisfactory to the Fund,
and overseeing all relationships between the Fund and its
transfer agent, custodian, legal counsel, auditors and principal
underwriter, including the negotiation of agreements in relation
thereto, the supervision and coordination of the performance of
such agreements, and the overseeing of all administrative matters
which are necessary or desirable for effective operation of the
Fund and for the sale, servicing, or redemption of the Fund's
shares. See the Additional Statement for a further description of
functions listed in the Administration Agreement as part of such
duties.

     Under the Administration Agreement, the Fund pays a fee
payable monthly and computed on the net asset value of the Fund
at the end of each business day at the annual rate of 0.33 of 1%
of such net asset value, provided, however, that for any day that
the Fund pays or accrues a fee under the Distribution Plan of the
Fund based upon the assets of the Fund (other than a fee
allocable by class to certain shares of the Fund), the annual fee
will be payable at the annual rate of 0.26 of 1% of such net
asset value. Payments under the Distribution Plan began on July
1, 1994 and administration fees are currently being accrued at
the lower rate. See the Additional Statement for a description of
the Fund's former management fees. The Administrator has agreed
that the above fee shall be reduced, but not below zero, by an
amount equal to its pro-rata portion (defined as in the Advisory
Agreement) of the amount, if any, by which the total expenses of
the Fund in any fiscal year, exclusive of taxes, interest and
brokerage fees, shall exceed the lesser of (i) 2.5% of the first
$30 million of average annual net assets of the Fund plus 2% of
the next $70 million of such assets and 1.5% of such assets in
excess of $100 million, or (ii) 25% of the Fund's total annual
investment income.

Information about the Adviser,
the Administrator and the Distributor

     Banc One Investment Advisors Corporation (the "Adviser") is
a wholly-owned subsidiary of BANC ONE CORPORATION ("Banc One").
Banc One currently has affiliate banking organizations in
Kentucky, Arizona, Colorado, Illinois, Indiana, Ohio, Oklahoma,
Texas, Utah, West Virginia and Wisconsin. On a consolidated
basis, Banc One had assets of over $90.5 billion as of December
31, 1995. As of December 31, 1995, the Adviser was responsible
for management of over $3 billion of investments in municipal
obligations, of which $1.5 billion were held in mutual funds and
of which $352 million were obligations of Kentucky issuers. The
Adviser services Kentucky clients at offices in Louisville and
Lexington. As it has been in the past, since the beginning of the
Fund's operations in 1987, the Fund's investments will continue
to be managed so that it will have a portfolio of
quality-oriented (investment grade) securities.

     The Fund's portfolio is managed locally in Kentucky by Mr.
Thomas S. Albright, Vice President and Senior Portfolio Manager,
at the Adviser's Louisville office. He has served in this
capacity since September, 1995, when the Adviser became adviser
to the Fund. From 1981 to 1995 he was employed by Liberty
National Bank, the Adviser's local predecessor, where he was
responsible for management of its investment portfolio. He also
served as President of Liberty investment services, Inc., that
bank's full service brokerage subsidiary. Mr. Albright is a
member of the Adviser's Fixed Income Fund Sub-Committee. Mr.
Albright attended the University of Louisville.

     See the Additional Statement as to the legality, under the
Glass-Steagall Act, of the Adviser's acting as the Fund's
investment adviser. In general, under that Act, the Adviser will
not, among other things, be involved in the promotion or
distribution of shares of the Fund.

     The Fund's Administrator is founder and administrator to the
Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and an equity fund. As of December
31 1995, these funds had aggregate assets of approximately $2.7
billion, of which approximately $1.9 billion consisted of assets
of tax-free municipal bond funds. The Administrator, which was
founded in 1984, is controlled by Mr. Lacy B. Herrmann (directly,
through a trust and through share ownership by his wife). See the
Additional Statement for information on Mr. Herrmann. 

     The Distributor currently handles the distribution of the
shares of thirteen funds (five money market funds, seven tax-free
municipal bond funds and an equity fund) including the Fund.
Under the Distribution Agreement, the Distributor is responsible
for the payment of certain printing and distribution costs
relating to prospectuses and reports as well as the costs of
supplemental sales literature, advertising and other promotional
activities.

     At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned by Mr. Herrmann, will be owned by certain
directors and/or officers of the Administrator and/or the
Distributor including Mr. Herrmann. In anticipation of this
transaction, the Board of Trustees, including a majority of the
independent Trustees, has approved a new Distribution Agreement
for the Fund with no material change from the currently effective
Distribution Agreement.

     From January 1, 1995 through September 10, 1995, the Fund
paid or accrued $336,044 in advisory fees to its former adviser
under a former advisory agreement. From September 11, 1995
through December 31, 1995, the Fund paid or accrued $102,734 in
advisory fees to the Adviser. During the year ended December 31,
1995, fees of $515,895 were paid or accrued to the Administrator
under a former administration agreement in effect until September
10, 1995 and under the Administration Agreement in effect
thereafter.

                  DIVIDEND AND TAX INFORMATION

Dividends and Distributions

     The Fund will declare all of its net income, as defined
below, as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Net income for dividend purposes includes all interest income
accrued by the Fund since the previous dividend declaration,
including accretion of any original issue discount, less expenses
paid or accrued. As such net income will vary, the Fund's
dividends will also vary. Dividends and other distributions paid
by the Fund with respect to Class A Shares and Class C Shares are
calculated at the same time and in the same manner. The per share
dividends of Class C Shares will be lower than the per share
dividends on the Class A Shares as a result of the higher service
and distribution fees applicable to those shares. In addition,
the dividends of each class can vary because each class will bear
certain class-specific charges.

     It is the Fund's present policy to pay dividends so that
they will be received or credited by approximately the first day
of each month. Shareholders may elect to have dividends deposited
without charge by electronic funds transfers into an account at a
Financial Institution which is a member of the Automated Clearing
House by completing a Ready Access Features form.

     Redeemed shares continue to earn dividends through and
including the day which is the earlier of (i) the day before the
day on which the redemption proceeds are mailed, wired or
transferred by the facilities of the Automated Clearing House by
the Agent or paid by the Agent to a selected dealer; or (ii) the
day which is the third day on which the New York Stock Exchange
is open after the day on which the net asset value of the
redeemed shares has been determined. (See "How To Redeem Your
Investment.")

     Net investment income includes amounts of income from the
Kentucky Obligations in the Fund's portfolio which are allocated
as "exempt-interest dividends." "Exempt-interest dividends" are
exempt from regular Federal income tax. The allocation of
"exempt-interest dividends" will be made by the use of one
designated percentage applied uniformly to all income dividends
declared during the Fund's tax year. Such  designation will
normally be made in the first month after the end of each of the
Fund's fiscal years as to income dividends paid in the prior
year. It is possible that in certain circumstances, a small
portion of the dividends paid by the Fund will be subject to
income taxes. During the Fund's fiscal year ended December 31,
1995, 93.76% of the Fund's dividends were "exempt-interest
dividends." For the calendar year 1995, 6.24% of the total
dividends paid were taxable. (These amounts relate to dividends
on Class A shares; no Class C Shares were outstanding during that
period.) The percentage of income designated as tax-exempt for
any particular dividend may be different from the percentage of
the Fund's income that was tax-exempt during the period covered
by the dividend.

     Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be
paid out after that date; the Fund may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Fund may be required to impose
backup withholding at a rate of 31% upon payment of redemptions
to shareholders, and from short- and long-term gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends," if shareholders do not
comply with provisions of the law relating to the furnishing of
taxpayer identification numbers and reporting of dividends.

     Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate application prior to a given
ex-dividend date, dividends and distributions will be
automatically reinvested in full and fractional shares of the
Fund at net asset value on the record date for the dividend or
distribution or other date fixed by the Board of Trustees. An
election to receive cash will continue in effect until written
notification of a change is received by the Agent. All
shareholders, whether their dividends are received in cash or are
being reinvested, will receive a monthly account summary
indicating the current status of their investment. There is no
fixed dividend rate. Corporate shareholders of the Fund are not
entitled to any deduction for dividends received from the Fund.

Tax Information

     The Fund qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as
dividends and distributions. However, the Code contains a number
of complex tests relating to such qualification and it is
possible although not likely that the Fund might not meet one or
more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary
corporation, would receive no tax deduction for payments made to
shareholders and would be unable to pay dividends or
distributions which would qualify as "exempt-interest dividends"
or "capital gains dividends," as discussed below.

     The Fund intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income
earned by the Fund on Kentucky Obligations will be excludable
from gross income of the shareholders for regular Federal income
tax purposes. Capital gains dividends are not included in
exempt-interest dividends. Although "exempt-interest dividends"
are not taxed, each taxpayer must report the total amount of
tax-exempt interest (including exempt-interest dividends from the
Fund) received or acquired during the year.

     The Omnibus Budget Reconciliation Act of 1993 requires that
either gains realized by the Fund on the sale of municipal
obligations acquired after April 30, 1993 at a price which is
less than face or redemption value be included as ordinary income
to the extent such gains do not exceed such discount or that the
discount be amortized and included ratably in taxable income. 
There is an exception to the foregoing treatment if the amount of
the discount is less than 0.25% of face or redemption value
multiplied by the number of years from acquisition to maturity. 
The Fund will report such ordinary income in the years of sale or
redemption rather than amortize the discount and report it
ratably. To the extent the resultant ordinary taxable income is
distributed to shareholders, it will be taxable to them as
ordinary income.

     Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates)
are reportable by shareholders as long-term capital gains. This
is the case whether the shareholder takes the distribution in
cash or elects to have the distribution reinvested in Fund shares
and regardless of the length of time the shareholder has held his
or her shares. Capital gains are taxed at the same rates as
ordinary income, except that for individuals, trusts and estates
the maximum tax rate on capital gains distributions is 28% even
if the applicable rate on ordinary income for such taxpayers is
higher than 28%.

     Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Fund are
not distributed but carried forward by the Fund to offset gains
in later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.

     The Fund's gains or losses on sales of Kentucky Obligations
will be long-term or short-term depending upon the length of time
the Fund has held such obligations. Capital gains and losses of
the Fund will also include gains and losses on Futures and
options, if any, including gains and losses actually realized on
sales and exchanges and gains and losses deemed to be realized.
Those deemed to be realized are on Futures and options held by
the Fund at year-end, which are "marked to the market," that is,
deemed sold for fair market value. Net gains or losses realized
and deemed realized on Futures and options will be reportable by
the Fund as long-term to the extent of 60% of the gains or losses
and short-term to the extent of 40% regardless of the actual
holding period of such investments.

     Information as to the tax status of the Fund's dividends and
distributions will be mailed to shareholders annually.

     Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Fund may not be
deducted for regular Federal tax purposes. In addition, under
rules used by the Internal Revenue Service for determining when
borrowed funds are deemed used for the purpose of purchasing or
carrying particular assets, the purchase of shares of the Fund
may be considered to have been made with borrowed funds even
though the borrowed funds are not directly traceable to the
purchase of shares. The receipt of exempt-interest dividends from
the Fund by an individual shareholder may result in some portion
of any social security payments or railroad retirement benefits
received by the shareholder or the shareholder's spouse being
included in taxable income.

     Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds
or private activity bonds should consult their own tax advisers
before purchasing shares.

     While interest from all Kentucky Obligations is tax-exempt
for purposes of computing the shareholder's regular tax, interest
from so-called private activity bonds issued after August 7,
1986, constitutes a tax preference for both individuals and
corporations and thus will enter into a computation of the
alternative minimum tax. Whether or not that computation will
result in a tax will depend on the entire content of the
taxpayer's return. The Fund will not invest in the types of
Kentucky Obligations which would give rise to interest that would
be subject to alternative minimum taxation if more than 20% of
its net assets would be so invested, and may refrain from
investing in that type of bond completely. The 20% limit is a
fundamental policy of the Fund. 

     Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current
earnings, this adjustment will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax.

     As of the date of the Prospectus, Congress is considering a
number of changes affecting taxation. It is not possible to
predict which, if any, of such changes will become law. 

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 conditional deferred
sales charge at the time of redemption, the amount of that charge
will reduce the amount of your gain or increase the amount of
your loss as the case may be. The gain or loss will be long-term
if you held the redeemed shares for over a year, and short-term,
if for a year or less. However, if shares held for six months or
less are redeemed and you have a loss, two special rules apply:
the loss is reduced by the amount of exempt-interest dividends,
if any, which you received on the redeemed shares, and any loss
over and above the amount of such exempt-interest dividends is
treated as a long-term loss to the extent you have received
capital gains dividends on the redeemed shares.

Tax Effect of Conversion

     Class C Shares will automatically convert to Class A Shares
approximately six years after purchase. No gain or loss will be
recognized by the Fund or its shareholders upon such conversions;
each shareholder's adjusted tax basis in the Class A Shares
received upon conversion will equal the shareholder's adjusted
tax basis in the Class C Shares held immediately before the
conversion; and each shareholder's holding period for the Class A
Shares received upon conversion will include the period for which
the shareholder held as capital assets the converted Class C
Shares immediately before conversion.

Kentucky Tax Information

     Since the Fund may, except as indicated below, purchase only
Kentucky Obligations (which, as defined, means obligations,
including those of non-Kentucky issuers, of any maturity which
pay interest which, in the opinion of counsel, is exempt from
regular Federal income taxes and Kentucky income taxes) all of
the exempt-interest dividends paid by the Fund will be excludable
from the shareholder's gross income for Kentucky income tax
purposes. The Fund may also pay "short-term gains distributions"
and "long-term gains distributions," each as discussed under
"Dividends and Distributions" above. Under Kentucky income tax
law, short-term gains distributions are not exempt from Kentucky
income tax. Kentucky taxes long-term gains distributions at its
ordinary individual and corporate rates. The only investment
which the Fund may make other than in Kentucky Obligations is in
Futures and options on them. Any gains on Futures and options
(including gains imputed under the Code) paid as part or all of a
short-term gains distribution or a long-term gains distribution
will be taxed as indicated above. Under the laws of Kentucky
relating to ad valorem taxation of property, the shareholders
rather than the Fund are considered the owners of the Fund's
assets. Each shareholder will be deemed to be the owner of a
pro-rata portion of the Fund. According to the Kentucky Revenue
Cabinet, to the extent that such portion consists of Kentucky
Obligations, it will be exempt from property taxes, but it will
be subject to property taxes on intangibles to the extent it
consists of cash on hand, cash in out-of-state banks, Futures,
options and other nonexempt assets.

                       EXCHANGE PRIVILEGE

     There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and an equity 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 Administrator and Distributor as the Fund. All exchanges
are subject to certain conditions described below. As of the date
of the Prospectus, the Aquila Bond or Equity Funds are this Fund,
Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust,
Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, 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, Pacific Capital Cash Assets Trust
(Original Shares), Pacific Capital Tax-Free Cash Assets Trust
(Original Shares), Pacific Capital U.S. Treasuries Cash Assets
Trust (Original Shares) and Churchill Cash Reserves Trust.

     Class A Shares of the Fund can be exchanged only into Class
A Shares of any Bond or Equity Fund or into shares of the
Money-Market Funds. Class C Shares can be exchanged only into
Class C Shares of any Bond or Equity Fund that offers Class C
Shares or into shares of the Money-Market Funds. At the date of
the Prospectus, it is expected that all of the Bond and Equity
Funds will offer Class C Shares by April 30, 1996.

Class A Shares Exchange Privilege

     Under the Class A Shares exchange privilege, once any
applicable sales charge has been paid on Class A Shares of any
Bond or Equity Fund, those shares (and any shares acquired as a
result of reinvestment of dividends and/or distributions) may be
exchanged any number of times between Money-Market Funds and Bond
or Equity Funds without the payment of any additional sales
charge. 

     CDSC Class A Shares of the Fund (see "Purchases of $1
Million or More" and "Special Dealer Arrangements") can be
exchanged for CDSC Class A Shares of a Bond or Equity Fund or
into a Money-Market Fund. The CDSC Class A Shares will not be
subject to a contingent deferred sales charge at the time of
exchange, but the contingent deferred sales charge will be
payable upon a redemption which occurs before the expiration of
the applicable holding period of any CDSC Class A Shares or any
shares of a Money-Market Fund received on exchange for CDSC Class
A Shares. (The contingent deferred sales charge does not apply to
any shares acquired as a result of reinvestment of dividends
and/or distributions.) For purposes of computing the time period
for the applicable contingent deferred sales charge, the length
of time of ownership of CDSC Class A Shares will be determined by
the time of original purchase and not by the time of the
exchange. Any period of 30 days or more during which any
Money-Market shares received on an exchange of CDSC Class A
Shares are held is not counted in computing the period of
ownership of CDSC Class A Shares. (See "Alternative Purchase
Plans.")

Class C Shares Exchange Privilege

     Under the Class C Shares exchange privilege, Class C Shares
(and any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times
between Money-Market Funds and for Class C Shares of Bond or
Equity Funds. Class C Shares will not be subject to a contingent
deferred sales charge at the time of exchange, but the contingent
deferred sales charge will be payable upon redemption which
occurs before the expiration of the applicable holding period of
any Class C Shares or any shares of a Money-Market Fund received
on exchange for Class C Shares. (The contingent deferred sales
charge does not apply to any shares acquired as a result of
reinvestment of dividends and/or distributions.) For purposes of
computing the time period for the applicable contingent deferred
sales charge or for the conversion of Class C Shares into Class A
Shares, the length of time of ownership of Class C shares will be
determined by time of original purchase and not by the time of
the exchange. Any period of 30 days or more during which any
Money-Market shares received on an exchange of Class C Shares are
held is not counted in computing the period of ownership of Class
C Shares. (See "Alternative Purchase Plans.") 

Eligible Shares

     The "Class A Eligible Shares" of any Bond or Equity Fund are
those Class A Shares which were (a) acquired by direct purchase
with payment of any applicable sales charge, or which were
received in exchange for shares of another Bond or Equity Fund on
which any applicable sales charge was paid; (b) acquired by
exchange for shares of a Money-Market Fund with payment of the
applicable sales charge; (c) acquired in one or more exchanges
between shares of a Money-Market Fund and a Bond or Equity Fund
so long as the shares of the Bond or Equity Fund were originally
purchased as set forth in (a) or (b); (d) acquired on conversion
of Class C Shares or (e) acquired as a result of reinvestment of
dividends and/or distributions on otherwise Class A Eligible
Shares.

     The "CDSC Class A Eligible Shares" of any Bond or Equity
Fund are those CDSC Class A Shares which were (a) acquired by
direct purchase in the amount of $1 million or more without a
sales charge or in certain purchases when Special Dealer
Arrangements are in effect or which were received in exchange for
CDSC Class A Shares of another Bond or Equity Fund acquired under
the same conditions; (b) acquired by exchange for shares of a
Money-Market Fund under the same conditions; (c) acquired in one
or more exchanges between shares of a Money-Market Fund and a
Bond or Equity Fund so long as the shares of the Bond or Equity
Fund were originally purchased as set forth in (a) or (b); or (d)
acquired as a result of reinvestment of dividends and/or
distributions on otherwise CDSC Class A Eligible Shares.

     The "Class C Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange from a Money-Market Fund, or which were received in
exchange for shares of Class C Shares of another Bond or Equity
Fund; or (b) acquired as a result of reinvestment of dividends
and/or distributions on otherwise Class C Eligible Shares.

     If you own Class A or Class C Eligible Shares of any Bond or
Equity Fund, you may exchange them for shares of any Money Market
Fund or the Class A or Class C Shares, respectively, of any other
Bond or Equity Fund without payment of any sales charge or CDSC.
The shares received will continue to be Class A or Class C
Eligible shares. 

     If you own shares of a Money-Market Fund which you have
acquired by exchange for Class A Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for Class A Shares of any Bond or
Equity Fund without payment of any sales charge.

     If you own shares of a Money-Market Fund which you have
acquired by exchange for CDSC Class A Eligible Shares of any Bond
or Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for CDSC Class A shares of any
Bond or Equity Fund but you will be required to pay the
applicable contingent deferred sales charge if you redeem such
shares before you have held CDSC Class A Shares for four years.
You will also be required to pay the applicable contingent
deferred sales charge if you redeem such shares of a Money-Market
Fund before you have held CDSC Class A Shares for four years. The
running of the four-year period is suspended during the period
you hold shares of a Money-Market Fund received in exchange for
CDSC Class A Shares.

     If you own shares of a Money-Market Fund which you have
acquired by exchange for Class C Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for Class C Shares of any Bond or
Equity Fund, but you will be required to pay the applicable
contingent deferred sales charge if you redeem such Class C
shares before you have held Class C Shares for 12 months. You
will also be required to pay the applicable contingent deferred
sales charge if you redeem such shares of a Money-Market Fund
before you have held Class C Shares for 12 months. The running of
the 12-month CDSC period and the six-year conversion period for
Class C Shares is suspended during the period you hold shares of
a Money-Market Fund received in exchange for Class C Shares.(See
"Alternative Purchase Plans.")

     Shares of a Money-Market Fund may be exchanged for shares of
another Money-Market Fund or for Class A Shares or Class C Shares
of a Bond or Equity Fund; however, if the shares of a
Money-Market Fund were not acquired by exchange of Eligible
Shares of a Bond or Equity Fund or of shares of a Money-Market
Fund acquired in such an exchange, they may be exchanged for
Class A Shares of a Bond or Equity Fund only upon payment of the
applicable sales charge.  

     This Fund, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into
its shares, if shares of the fund into which exchange is desired
are not available for sale in your state of residence.  The Fund
may also modify or terminate this exchange privilege at any time.
In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take
effect on less than 60 days' written notice to shareholders.

     All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset
value of the shares surrendered for exchange are at least equal
to the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.

     The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone: 

             800-872-5860 toll free or 908-855-5731

     Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.

     Exchanges will be effected at the relative exchange prices
of the shares being exchanged next determined after receipt by
the Agent of your exchange request. The exchange prices will be
the respective net asset values of the shares, unless a sales
charge is to be deducted in connection with an exchange of
shares, in which case the exchange price of shares of a Bond or
Equity Fund will be their public offering price. Prices for
exchanges are determined in the same manner as for purchases of
the Fund's shares. See "How to Invest in the Fund."

     An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period
(see the Additional Statement); no representation is made as to
the deductibility of any such loss should such occur.

     Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free
Money-Market Fund) are exempt from regular Federal income tax,
and to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Treasuries Cash Assets Trust (which invests
in U.S. Treasury obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund are taxable.
If your state of residence is not the same as that of the issuers
of obligations in which a tax-free municipal Bond Fund or a
tax-free Money-Market Fund invests, the dividends from that fund
may be subject to income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of such a Bond Fund or a tax-free Money-Market Fund under
the exchange privilege arrangement.

     If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.

                       GENERAL INFORMATION

Performance

     Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance including current yield, taxable equivalent yield,
various expressions of total return, current distribution rate
and taxable equivalent distribution rate.

     Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes applicable sales charge) for 1- and 5-year periods and
for a period since the inception of the Fund, to the extent
applicable, through the end of such periods, assuming
reinvestment (without sales charge) of all distributions. The
Fund may also furnish total return quotations for other periods
or based on investments at various applicable sales charge levels
or at net asset value. For such purposes total return equals the
total of all income and capital gains paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a
percentage of the purchase price. See the Additional Statement.

     Current yield reflects the income per share earned by each
of the Fund's portfolio investments; it is calculated by (i)
dividing the Fund's net investment income per share during a
recent 30-day period by (ii) the maximum public offering price on
the last day of that period and by (iii) annualizing the result.
Taxable equivalent yield shows the yield from a taxable
investment that would be required to produce an after-tax yield
equivalent to that of the Fund, which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of
the Fund's yield (calculated as indicated) by one minus a stated
income tax rate and by adding the product to the taxable portion
(if any) of the Fund's yield. See the Additional Statement.

     Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities
and Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will
be paid to the Fund's shareholders. Dividends or distributions
paid to shareholders are reflected in the current distribution
rate or taxable equivalent distribution rate which may be quoted
to shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Fund
during a recent 30-day period by (ii) the current maximum
offering price and by (iii) annualizing the result. A taxable
equivalent distribution rate shows the taxable distribution rate
that would be required to produce an after-tax distribution rate
equivalent to the Fund's distribution rate (calculated as
indicated above). The current distribution rate, unlike yield
figures, is not limited to investment performance, but takes into
account expenses as well; it also differs from the current yield
computation because it could include distributions to
shareholders from sources, if any, other than dividends and
interest, such as short-term capital gains or return of capital.
If distribution rates are quoted in advertising, they will be
accompanied by calculations of current yield in accordance with
the formula of the Securities and Exchange Commission.

     In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Fund's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum
sales charge on the purchase of shares, but not on reinvestment
of income dividends. The investment results of the Fund, like all
other investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent what an
investment may earn in the future or what the Fund's yield, tax
equivalent yield, distribution rate, taxable equivalent
distribution rate or total return may be in any future period.
The annual report of the Fund contains additional performance
information that will be made available upon request and without
charge.

Description of the Fund and its Shares

     Churchill Tax-Free Trust (the "Trust"), a non-diversified
open-end investment company was formed on March 30, 1987, as a
Massachusetts business trust. Its name was changed from
"Churchill Tax-Free Fund of Kentucky" to "Churchill Tax-Free
Trust" in June, 1988. The Fund is the original and only active
portfolio (series) of the Trust. The Fund is an open-end,
non-diversified management investment company. (See "Investment
of the Fund's Assets" for further information about the Fund's
status as "non-diversified.") The Declaration of Trust permits
the Trustees to issue 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 three classes; however, if they deem it advisable
and in the best interests of shareholders, the Board of Trustees
of the Fund may create additional classes of shares (subject to
rules and regulations of the Securities and Exchange Commission
or by exemptive order) or the Board of Trustees may, at its own
discretion, create additional series of shares, each of which may
have separate assets and liabilities (in which case any such
series will have a designation including the word "Series"). See
the Additional Statement for further information about possible
additional series. Shares are fully paid and non-assessable,
except as set forth under the caption "General Information" in
the Additional Statement; the holders of shares have no
pre-emptive or conversion rights.

     In addition to Class A and Class C Shares, which are offered
by this Prospectus, the Fund also has Institutional Class Shares
("Class Y Shares"), which are offered only to institutions acting
for investors in a fiduciary, advisory, agency, custodial or
similar capacity and are not offered directly to retail
customers. Class Y Shares are offered by means of a separate
prospectus, which can be obtained by calling the Fund at
800-872-5859.

     The primary distinction among the Fund's three classes of
shares lies in their different sales charge structures and
ongoing expenses, which are likely to be reflected in differing
yields and other measures of investment performance. All three
classes represent interests in the same portfolio of Kentucky
Obligations and have the same rights, except that each class
bears the separate expenses, if any, of its Distribution Plan and
has exclusive voting rights with respect to its Plan.

     Of the shares of the Fund outstanding on March 25, 1996, BHC
Securities, Inc., 2005 Market Street, Philadelphia, PA held of
record 1,764,132 shares (8.2%), all of which were Class A Shares.
The Fund's management is not aware of any person beneficially
owning more than 5% of its outstanding shares as of such date. On
the basis of information received from the holder, the Fund's
management believes that all of the shares indicated are held for
the benefit of clients of that institution.

Voting Rights

     At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders
will vote on the election of Trustees and on other matters
submitted to the vote of shareholders. Shares vote by classes on
any matter specifically affecting one or more classes, such as an
amendment of an applicable part of the Distribution Plan. No
amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding
shares of the Fund, except that the Fund's Board of Trustees may
change the name of the Fund. The Fund may be terminated (i) upon
the sale of its assets to another issuer, or (ii) upon
liquidation and distribution of the assets of the Fund, in either
case if such action is approved by the vote of the holders of a
majority of the outstanding shares of the Fund. If not so
terminated, the Fund will continue indefinitely.


<PAGE>

           
              APPLICATION FOR CHURCHILL TAX-FREE FUND OF KENTUCKY
                      FOR CLASS A OR CLASS C SHARES ONLY
                PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
                      ADM, ATTN: AQUILA SM GROUP OF FUNDS
                  581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
                             Tel.# 1-800-872-5860

STEP 1
A. ACCOUNT REGISTRATION

___Individual Use line 1
___Joint Account*   Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
*  Joint Accounts will be Joint Tenants with rights of survivorship 
   unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.

Please type or print name exactly as account is to be registered
1.________________________________________________________________
  First Name   Middle Initial   Last Name   Social Security Number 
2.________________________________________________________________
  First Name   Middle Initial   Last Name   Social Security Number 
3.________________________________________________________________
  Custodian's First Name      Middle Initial          Last Name 
Custodian for ____________________________________________________
                   Minor's First Name   Middle Initial   Last Name  
Under the ___________UGTMA** _____________________________________
         Name of State       Minors Social Security Number 
4. ____________________________________________________
   ____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of 
Trustees in which account will be registered and the name and date of the 
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may 
be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
        Tax I.D. Number    Authorized Individual          Title 

B. MAILING ADDRESS AND TELEPHONE NUMBER

____________________________________________________
  Street or PO Box                           City 
_______________________________(______)______________
  State           Zip          Daytime Phone Number

Occupation:________________________Employer:________________________

Employer's Address:__________________________________________________
                   Street Address:               City  State  Zip 

Citizen or resident of: ___  U.S. ___ Other  Check here ___ if you are a 
non-U.S. Citizen or resident and not subject to back-up withholding (See 
certification in Step 4, Section B, below.)

C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)

_______________________   _____________________________
Dealer Name                           Branch Number
_______________________   _____________________________
Street Address                   Rep. Number/Name
_______________________   (_______)_____________________
  City    State    Zip     Area Code        Telephone


STEP 2 
PURCHASES OF SHARES

A. INITIAL INVESTMENT

Indicate method of payment (For either method, make check 
payment to: CHURCHILL TAX-FREE FUND OF KENTUCKY)

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 Investments of at least $50 per month, you must complete 
Step 3, Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED 
DEPOSIT SLIP OR VOIDED CHECK.

B. DISTRIBUTIONS

All income dividends and capital gains distributions are automatically 
reinvested in additional shares at Net Asset Value unless otherwise 
indicated below.

Dividends are to be:___ Reinvested  ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
    * For cash dividends, please choose one of the following options:

___ Deposit directly into my/our Financial Institution account. 
    ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing the
    Financial Institution account where I/we would like you to deposit 
    the dividend. (A Financial Institution is a commercial bank, savings 
    bank or credit union.)

___ Mail check to my/our address listed in Step 1.


STEP 3
SPECIAL FEATURES

A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No

    This option provides you with a convenient way to have amounts 
automatically drawn on your Financial Institution account and invested 
in your Churchill Tax-Free Fund of Kentucky Account. To establish this 
program, please complete Step 4, Sections A & B of this Application.

I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day  or ___ 16th day of the month (or 
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)

B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No

    This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling 
the Fund toll-free at 1-800-872-5860. To establish this program, please 
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)

C. LETTER OF INTENT

APPLICABLE TO CLASS A SHARES ONLY.
See Terms of Letter of Intent and Escrow at the end of this application
___ Yes ___ No

I/We intend to invest in Class A Shares of the Fund during the 13-month
period from the date of my/our first purchase pursuant to this Letter 
(which purchase cannot be more than 90 days prior to the date of this 
Letter), an aggregate amount (excluding any reinvestment of dividends 
or distributions) of at least $25,000 which, together with my/our 
present holdings of Fund shares (at public offering price on date of 
this Letter), will equal or exceed the minimum amount checked below:

___  $25,000   ___  $50,000    ___ $100,000   ___ $250,000
___  $500,000  ___  $1,000,000 ___ $2,500,000 ___ $5,000,000 

D. AUTOMATIC WITHDRAWAL PLAN

(Minimum investment $5,000)
APPLICABLE TO CLASS A SHARES ONLY.

Application must be received in good order at least 2 weeks prior to 1st
actual liquidation date.
(Check appropriate box)
___ Yes ___ No

    Please establish an Automatic Withdrawal Plan for this account, 
subject to the terms of the Automatic Withdrawal Plan Provisions set 
forth below. To realize the amount stated below, Administrative Data 
Management Corp. (the Agent) is authorized to redeem sufficient shares 
from this account at the then current Net Asset Value, in accordance 
with the terms below:

Dollar Amount of each withdrawal $ ______________beginning________________ .
                                   Minimum: $50             Month/Year
Payments to be made: ___ Monthly or ___ Quarterly

    Checks should be made payable as indicated below. If check is 
payable to a Financial Institution for your account, indicate Financial 
Institution name, address and your account number.
_______________________________     ______________________________________
First Name Middle Initial Last Name   Financial Institution Name
_______________________________     ______________________________________
  Street                             Financial Institution Street Address
_______________________________     ______________________________________
 City   State Zip                   City   State Zip    
                
                                     ____________________________________
                                     Financial Institution Account Number

E. TELEPHONE EXCHANGE
 (Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquila SM Group of Funds by telephone.

    The Agent is authorized to accept and act upon my/our or any other 
persons telephone instructions to execute the exchange of shares of one 
Aquila-sponsored fund for shares of another Aquila-sponsored fund with 
identical shareholder registration in the manner described in the 
Prospectus. Except for gross negligence in acting upon such telephone 
instructions to execute an exchange, and subject to the conditions set 
forth herein, I/we understand and agree to hold harmless the Agent, each 
of the Aquila Funds, and their respective officers, directors, trustees, 
employees, agents and affiliates against any liability, damage, expense, 
claim or loss, including reasonable costs and attorneys fees, resulting 
from acceptance of, or acting or failure to act upon, this Authorization.

F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No

The proceeds will be deposited to your Financial Institution 
account listed.

    Cash proceeds in any amount from the redemption of shares will be 
mailed or wired, whenever possible, upon request, if in an amount of 
$1,000 or more to my/our account at a Financial Institution. The 
Financial Institution account must be in the same name(s) as this 
Fund account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________   ____________________________________
  Account Registration            Financial Institution Account Number
_______________________________   ____________________________________
  Financial Institution Name      Financial Institution Transit/Routing 
                                                                Number
_______________________________   ____________________________________
  Street                            City   State Zip      


STEP 4 Section A
DEPOSITORS AUTHORIZATION TO HONOR DEBITS

IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.

I/We authorize the Financial Institution listed below to charge to 
my/our account any drafts or debits drawn on my/our account initiated 
by the Agent, Administrative Data Management Corp., and to pay such 
sums in accordance therewith, provided my/our account has sufficient 
funds to cover such drafts or debits. I/We further agree that your 
treatment of such orders will be the same as if I/we personally signed 
or initiated the drafts or debits. 

I/We understand that this authority will remain in effect until you 
receive my/our written instructions to cancel this service. I/We also 
agree that if any such drafts or debits are dishonored, for any reason, 
you shall have no liabilities.

Financial Institution Account Number _______________________________________

Name and Address where my/our account is maintained

Name of Financial Institution______________________________________________

Street Address_____________________________________________________________

City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account 
is registered

______________________________________________
        (Please Print)
X_____________________________________________  __________________
        (Signature)                                    (Date)

______________________________________________
        (Please Print)
X_____________________________________________  __________________
        (Signature)                                    (Date)

                        INDEMNIFICATION AGREEMENT

To: Financial Institution Named Above

So that you may comply with your depositor's request, Aquila 
Distributors, Inc. (the "Distributor") agrees:

1 Electronic Funds Transfer debit and credit items transmitted 
  pursuant to the above authorization shall be subject to the 
  provisions of the Operating Rules of the National Automated 
  Clearing House Association.

2 To indemnify and hold you harmless from any loss you may suffer 
  in connection with the execution and issuance of any electronic 
  debit in the normal course of business initiated by  the Agent 
  (except any loss due to your payment of any amount drawn against
  insufficient or uncollected funds), provided that you promptly 
  notify us in writing of any claim against you with respect to 
  the same, and further provided that you will not settle or
  pay or agree to settle or pay any such claim without the written 
  permission of the Distributor.

3 To indemnify you for any loss including your reasonable costs and 
  expenses in the event that you dishonor, with or without cause, 
  any such electronic debit.

STEP 4 
Section B

SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED

- The undersigned warrants that he/she has full authority and is of 
  legal age to purchase shares of the Fund and has received and 
  read a current Prospectus of the Fund and agrees to its terms.

- I/We authorize the Fund and its agents to act upon these 
  instructions for the features that have been checked.

- I/We acknowledge that in connection with an Automatic Investment or 
  Telephone Investment, if my/our account at the Financial Institution 
  has insufficient funds, the Fund and its agents may cancel the 
  purchase transaction and are authorized to liquidate other shares or 
  fractions thereof held in my/our Fund account to make up any 
  deficiency resulting from any decline in the net asset value of 
  shares so purchased and any dividends paid on those shares. I/We 
  authorize the Fund and its agents to correct any transfer error by 
  a debit or credit to my/our Financial Institution account and/or 
  Fund account and to charge the account for any related charges. 
  I/We acknowledge that shares purchased either through Automatic 
  Investment or Telephone Investment are subject to applicable sales 
  charges.

- The Fund, the Agent and the Distributor and their Trustees, directors, 
  employees and agents will not be liable for acting upon instructions
  believed to be genuine, and will not be responsible for any losses
  resulting from unauthorized telephone transactions if the Agent follows
  reasonable procedures designed to verify the identity of the caller. 
  The Agent will request some or all of the following information: 
  account name and number; name(s) and social security number registered 
  to the account and personal identification; the Agent may also record 
  calls. Shareholders should verify the accuracy of confirmation 
  statements immediately upon receipt. Under penalties of perjury, the
  undersigned whose Social Security (Tax I.D.) Number is shown above 
  certifies (i) that Number is my correct taxpayer identification number 
  and (ii) currently I am not under IRS notification that I am subject 
  to backup withholding (line out (ii) if under notification). If no such
  Number is shown, the undersigned further certifies, under penalties of
  perjury, that either (a) no such Number has been issued, and a Number 
  has been or will soon be applied for; if a Number is not provided to 
  you within sixty days, the undersigned understands that all payments
  (including liquidations) are subject to 31% withholding under federal 
  tax law, until a Number is provided and the undersigned may be subject 
  to a $50 I.R.S. penalty; or (b) that the undersigned is not a citizen 
  or resident of the U.S.; and either does not expect to be in the
  U.S. for 183 days during each calendar year and does not conduct a
  business in the U.S. which would receive any gain from the Fund, or is
  exempt under an income tax treaty.

NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. 
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________     ____________________________     _________
Individual (or Custodian)      Joint Registrant, if any            Date
__________________________     ____________________________     _________
Corporate Officer, Partner,    Title                               Date
Trustee, etc.    

* For Trust, Corporations or Associations, this form must be accompanied by 
proof of authority to sign, such as a certified copy of the corporate 
resolution or a certificate of incumbency under the trust instrument.


SPECIAL INFORMATION

- Certain features (Automatic Investment, Telephone Investment, 
  Expedited Redemption and Direct Deposit of Dividends) are effective 
  15 days after this form is received in good order by the Fund's Agent.

- You may cancel any feature at any time, effective 3 days after the 
  Agent receives written notice from you.

- Either the Fund or the Agent may cancel any  feature, without prior 
  notice, if in its judgment your use of any  feature involves unusual 
  effort or difficulty in the administration of your account.

- The Fund reserves the right to alter, amend or terminate any or all  
  features or to charge a service fee upon 30 days written notice to 
  shareholders except if additional notice is specifically required by 
  the terms of the Prospectus.

BANKING INFORMATION

- If your Financial Institution account changes, you must complete a 
  Ready Access features form which may be obtained from Aquila 
  Distributors at 1-800-872-5859 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 2c and signing the Application, the investor 
is entitled to make each purchase at the public offering price 
applicable to a single transaction of the dollar amount checked 
above, and agrees to be bound by the terms and conditions applicable 
to Letters of Intent appearing below.

      The investor is making no commitment to purchase shares, but if 
the investor's purchases within thirteen months from the date of the 
investor's first purchase do not aggregate $25,000, or, if such 
purchases added to the investor's present holdings do not aggregate 
the minimum amount specified above, the investor will pay the increased 
amount of sales charge prescribed in the terms of escrow below.

      The commission to the dealer or broker, if any, named herein 
shall be at the rate applicable to the minimum amount of the investor's 
specified intended purchases checked above. If the investor's actual 
purchases do not reach this minimum amount, the commissions previously 
paid to the dealer will be adjusted to the rate applicable to the 
investor's total purchases. If the investor's purchases exceed the 
dollar amount of the investor's intended purchases and pass the next 
commission break-point, the investor shall receive the lower sales 
charge, provided that the dealer returns to the Distributor the excess 
of commissions previously allowed or paid to him over that which would 
be applicable to the amount of the investor's total purchases.

      The investor's dealer or broker shall refer to this Letter of 
Intent in placing any future purchase orders for the investor 
while this Letter is in effect.

      The escrow shall operate as follows:

1. Out of the initial purchase (or subsequent purchases if necessary), 
   3% of the dollar amount specified in the Letter of Intent (computed 
   to the nearest full share) shall be held in escrow in shares of the 
   Fund by the Agent. All dividends and any capital distributions on 
   the escrowed shares will be credited to the investor's account.
  
2. If the total minimum investment specified under the Letter is 
   completed within a thirteen-month period, the escrowed shares will 
   be promptly released to the investor. However, shares disposed of 
   prior to completion of the purchase requirement under the Letter 
   will be deducted from the amount required to complete the 
   investment commitment.

3. If the total purchases pursuant to the Letter are less than the amount
   specified in the Letter as the intended aggregate purchases, the 
   investor must remit to the Distributor an amount equal to the 
   difference between the dollar amount of sales charges actually paid 
   and the amount of sales charges which would have been paid if the 
   total amount purchased had been made at a single time. If such 
   difference in sales charges is not paid within twenty days after 
   receipt of a request from the Distributor or the dealer, the 
   Distributor will, within sixty days after the expiration of the 
   Letter, redeem the number of escrowed shares necessary to realize 
   such difference in sales charges. Full shares and any cash proceeds 
   for a fractional share remaining after such redemption will be 
   released to the investor. The escrow of shares will not be released 
   until any additional sales charge due has been paid as stated in 
   this section.
   
4. By checking Box 2c and signing the Application, the investor 
   irrevocably constitutes and appoints the Agent or the Distributor 
   as his attorney to surrender for redemption any or all escrowed 
   shares on the books of the Fund.

AUTOMATIC WITHDRAWAL PLAN PROVISIONS

By requesting an Automatic Withdrawal Plan, the applicant agrees 
to the terms and conditions applicable to such plans, as stated below.

1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") 
   as agent for the person (the "Planholder") who executed the Plan
   authorization.

2. Certificates will not be issued for shares of the Fund purchased for 
   and held under the Plan, but the Agent will credit all such shares 
   to the Planholder on the records of the Fund. Any share certificates 
   now held by the Planholder may be surrendered unendorsed to the Agent 
   with the application so that the shares represented by the certificate 
   may be held under the Plan.

3. Dividends and distributions will be reinvested in shares of the Fund 
   at Net Asset Value without a sales charge.

4. Redemptions of shares in connection with disbursement payments will 
   be made at the Net Asset Value per share in effect at the close of 
   business on the last business day of the month or quarter.

5. The amount and the interval of disbursement payments and the address 
   to which checks are to be mailed may be changed, at any time, by the 
   Planholder on written notification to the Agent. The Planholder should
   allow at least two weeks time in mailing such notification before the
   requested change can be put in effect.

6. The Planholder may, at any time, instruct the Agent by written notice 
   (in proper form in accordance with the requirements of the then 
   current Prospectus of the Fund) to redeem all, or any part of, the 
   shares held under the Plan. In such case the Agent will redeem the 
   number of shares requested at the Net Asset Value per share in effect 
   in accordance with the Fund's usual redemption procedures and will 
   mail a check for the proceeds of such redemption to the Planholder.

7. The Plan may, at any time, be terminated by the Planholder on written
   notice to the Agent, or by the Agent upon receiving directions to that 
   effect from the Fund. The Agent will also terminate the Plan upon 
   receipt of evidence satisfactory to it of the death or legal 
   incapacity of the Planholder. Upon termination of the Plan by the 
   Agent or the Fund, shares remaining unredeemed will be held in an 
   uncertificated account in the name of the Planholder, and the account 
   will continue as a dividend-reinvestment, uncertificated account 
   unless and until proper instructions are received from the Planholder, 
   his executor or guardian, or as otherwise appropriate.

8. The Agent shall incur no liability to the Planholder for any action 
   taken or omitted by the Agent in good faith.

9. In the event that the Agent shall cease to act as transfer agent for 
   the Fund, the Planholder will be deemed to have appointed any successor
   transfer agent to act as his agent in administering the Plan.

10.Purchases of additional shares concurrently with withdrawals are
   undesirable because of sales charges when purchases are made. 
   Accordingly, a Planholder may not maintain this Plan while 
   simultaneously making regular purchases. While an occasional lump 
   sum investment may be made, such investment should normally be an 
   amount equivalent to three times the annual withdrawal or $5,000, 
   whichever is less.


<PAGE>


INVESTMENT ADVISER
Banc One Investment Advisors Corporation
416 West Jefferson Street
Louisville, Kentucky 40202

ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017

BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Thomas A. Christopher     Douglas Dean
Diana P. Herrmann         Ann R. Leven
Theodore T. Mason         Anne J. Mills
William J. Nightingale    James R. Ramsey

OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Senior Vice President
L. Michele Crutcher, Assistant Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary

DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017

TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198

CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271

INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154

COUNSEL
Hollyer Brady Smith Troxell 
  Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176

TABLE OF CONTENTS
Highlights.......................................2        
Table of Expenses................................5      
Financial Highlights.............................6        
Introduction.....................................7        
Investment Of The Fund's Assets..................7        
Investment Restrictions.........................12       
Net Asset Value Per Share.......................12 
Alternative Purchase Plans......................13       
How To Invest In The Fund.......................15        
How To Redeem Your Investment...................22       
Automatic Withdrawal Plan.......................25       
Management Arrangements.........................26       
Dividend And Tax Information....................29       
Exchange Privilege..............................33       
General Information.............................36       
Application and Letter of Intent


AQUILA
[LOGO]
CHURCHILL
TAX-FREE FUND
OF
KENTUCKY

A tax-free
income investment

[LOGO]

PROSPECTUS

One Of The
Aquilasm Group Of Funds

<PAGE>

              CHURCHILL TAX-FREE FUND OF KENTUCKY

                 Supplement to the prospectus 
            for Class Y shares dated April 1, 1996

The following material is added to "Highlights":

     Class Y Shares of the Fund are only offered for sale in certain states.
(See "How to Invest in the Fund.") If Class Y Shares of the Fund are sold
outside those states, except to certain institutional investors, the Fund
may be required to redeem them. If your state of residence is not Kentucky,
the dividends from the Fund may be subject to income taxes of the state in
which you reside. Accordingly, you should consult your tax adviser before
acquiring shares of the Fund.

The following material is added to "How to Invest in the Fund":

     At the date of this supplement, Class Y Shares of the Fund are
available only in Kentucky. If you do not reside in Kentucky you should not
purchase shares of the Fund. If shares are sold outside of Kentucky, except
to certain institutional investors, the Fund can redeem them. Such a
redemption may result in a loss to you and may have tax consequences. In
addition, if your state of residence is not Kentucky, the dividends from
the 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 the Fund.

       The date of this supplement is December 27, 1996

<PAGE>

               Churchill Tax-Free Fund of Kentucky

                 380 Madison Avenue, Suite 2300
                       New York, NY 10017
                  800-USA-KTKY (800-872-5859) 
                          212-697-6666

Prospectus
Institutional Class Shares
Class Y Shares                                      April 1, 1996

     The Fund is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Kentucky
and Federal income taxes as is consistent with preservation of
capital by investing in municipal obligations which pay interest
exempt from Kentucky State and Federal income taxes. These
municipal obligations must, at the time of purchase, either be
rated within the four highest credit ratings (considered as
investment grade) assigned by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, or, if unrated, be determined to
be of comparable quality by the Fund's Adviser, Banc One
Investment Advisors Corporation.

     There are three classes of shares of the Fund: Institutional
Class Shares ("Class Y Shares") are offered only to institutions
acting for investors in a fiduciary, advisory, agency, custodial
or similar capacity, and are not offered directly to retail
customers. Class Y Shares are offered at net asset value with no
sales charge, no redemption fee, no contingent deferred sales
charge and no distribution fee. (See "How to Purchase Class Y
Shares.") The other classes, Front-Payment Class Shares ("Class A
Shares") and Level-Payment Class Shares ("Class C Shares") are
not offered by this Prospectus. See "General Information -
Description of Classes." 

     This Prospectus concisely states information about the Fund
that a prospective investor should know before investing. A
Statement of Additional Information about the Fund dated April 1,
1996, (the "Additional Statement") has been filed with the
Securities and Exchange Commission and is available without
charge upon written request to Administrative Data Management
Corp., the Fund's Shareholder Servicing Agent, at the address
given below, or by calling the telephone number(s) given below.
The Additional Statement contains information about the Fund and
its management not included in the Prospectus. The Additional
Statement is incorporated by reference in its entirety in the
Prospectus. Only when you have read both the Prospectus and the
Additional Statement are all material facts about the Fund
available to you.

     Shares of the Fund are not deposits in, obligations of or
guaranteed or endorsed by Banc One Corporation or its bank or
non-bank affiliates or by any other bank. Shares of the Fund are
not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other governmental
agency or government sponsored agency of the Federal Government
or any State. 

     An investment in the Fund involves investment risks,
including possible loss of the principal amount invested.

     For Purchase, Redemption or Account inquiries contact 
 The Fund's Transfer Agent: Administrative Data Management Corp.
           581 Main Street, Woodbridge, NJ 07095-1198
           Call 800-872-5860 toll free or 908-855-5731

           For General Inquiries & Yield Information, 
           Call 800-872-5859 toll free or 212-697-6666

This Prospectus Should Be Read and Retained For Future Reference

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.


<PAGE>

                           HIGHLIGHTS 

     Churchill Tax-Free Fund of Kentucky, founded by Aquila
Management Corporation in 1987 and one of the Aquilasm Group of
Funds, is an open-end mutual fund which invests in tax-free
municipal bonds, the kind of obligations issued by the
Commonwealth of Kentucky, its counties and various other local
authorities to finance such long-term public purpose projects as
schools, universities, housing, transportation, utilities,
hospitals and water and sewer facilities throughout Kentucky.
(See "Introduction.")

     Tax-Free Income - The municipal obligations in which the
Fund invests pay interest which is exempt from regular Federal
income taxes and Commonwealth of Kentucky income and ad valorem
taxes.  Dividends paid by the Fund from this income are likewise
free of such taxes. It is, however, possible that in certain
circumstances a small portion of the dividends paid by the Fund
will be subject to income taxes. In addition, the Federal
alternative minimum tax may apply to some investors, but its
impact will be limited since not more than 20% of the Fund's net
assets can be invested in obligations paying interest which is
subject to this tax. The receipt of exempt-interest dividends
from the Fund may result in some portion of social security
payments or railroad retirement benefits being included in
taxable income. Capital gains distributions, if any, are taxable.
(See "Dividend and Tax Information.")

     Investment Grade - The Fund will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard and Poor's Corporation, or are
determined by the Adviser to be of comparable quality. In general
there are nine separate credit ratings, ranging from the highest
to the lowest credit ratings for municipal obligations.
Obligations within the top four ratings are considered
"investment grade," but those in the fourth rating may have
speculative characteristics as well. (See "Investment of the
Fund's Assets.")

     Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. See the
Application, which is in the back of the Prospectus. (See "How to
Invest in the Fund," which includes applicable sales charge
information.) 

     Additional Investments - You may make additional investments
at any time and in any amount, directly, or if in an amount of
$50 or more, through the convenience of having your investment
electronically transferred from your financial institution
account into the Fund by Automatic Investment or Telephone
Investment. (See "How to Invest in the Fund.")

     Alternative Purchase Plans - The Fund provides alternative
ways to invest. (See "Description of the Fund and its Shares.")
For this purpose the Fund offers classes of shares, which differ
in their expense levels and sales charges:

          Institutional Class Shares ("Class Y Shares") are
          offered by this Prospectus. Class Y Shares are offered
          only to institutions acting for investors in a
          fiduciary, advisory, agency, custodial or similar
          capacity, and are not offered directly to retail
          customers. Class Y Shares are offered at net asset
          value with no sales charge, no redemption fee, no
          contingent deferred sales charge and no distribution
          fee. (See "How to Purchase Class Y Shares.") 

     The other classes, Front-Payment Class Shares ("Class A
Shares") and Level-Payment Class Shares ("Class C Shares") are
not offered by this Prospectus. See "General Information -
Description of Classes." 

     Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to
you, directly deposited into your financial institution account
or automatically reinvested without sales charge in additional
shares of the Fund at the then-current net asset value. Specific
classes of shares will have different dividend amounts due to
their particular expense levels. (See "Dividend and Tax
Information.")

     Many Different Issues - You have the advantages of a
portfolio which consists of over 160 issues with different
maturities. (See "Investment of the Fund's Assets.")

     Local Portfolio Management - Banc One Investment Advisors
Corporation serves as the Fund's Investment Adviser, providing
experienced local professional management. The Adviser is a
wholly-owned subsidiary of BANC ONE CORPORATION ("Banc One"). As
of December 31, 1995, the Adviser was responsible for management
of over $3 billion of investments in municipal obligations, of
which $1.5 billion were held in mutual funds and of which $352
million were obligations of Kentucky issuers. The Adviser
services Kentucky clients at offices in Louisville and Lexington.

     The Fund is obligated to pay investment advisory fees at the
rate of 0.14 of 1% of average annual net assets to its Adviser
(and administration fees to its Administrator, for total fees at
the rate of up to 0.40 of 1% of average annual net assets).
Payments under the Distribution Plan began on July 1, 1994. (See
"Table of Expenses," "Distribution Plan" and "Management
Arrangements.") Some or all of these fees may be waived by the
Adviser and Administrator. (See "Table of Expenses" and
"Management Arrangements".)

     Redemptions - Liquidity - You may redeem any amount of your
Class Y Shares account on any business day at the next determined
net asset value by telephone, FAX or mail request, with proceeds
being sent to a predesignated financial institution, if you have
elected Expedited Redemption. Proceeds will be wired or
transferred through the facilities of the Automated Clearing
House, wherever possible, upon request, if in an amount of $1,000
or more, or will be mailed. For these and other redemption
procedures see "How to Redeem Your Investment."  There are no
redemption fees for redemption of Class Y shares.

     Certain Stabilizing Measures - The Fund will employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")

     Exchanges - You may exchange Class Y Shares of the Fund into
Class Y Shares of other Aquila-sponsored tax-free municipal bond
mutual funds, or an equity fund. You may also exchange them into
shares of the Aquila sponsored money market funds. The exchange
prices will be the respective net asset values of the shares.
(See "Exchange Privilege.") 

     Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Fund's portfolio securities, which fluctuate with market
conditions including prevailing interest rates. Accordingly, the
proceeds of redemptions may be more or less than your original
cost. (See "Factors Which May Affect the Value of the Fund's
Investments and Their Yields.") The Fund's assets, being
primarily or entirely Kentucky issues, are subject to economic
and other conditions affecting Kentucky. (See "Risks and Special
Considerations Regarding Investment in Kentucky Obligations.")
Moreover, the Fund is classified as a "non-diversified"
investment company, because it may choose to invest in the
obligations of a relatively limited number of issuers. (See
"Investment of the Fund's Assets.") The Fund may also, to a
limited degree, buy and sell futures contracts and options on
futures contracts, although since inception the Fund has not done
so and has no present intention to do so. There may be risks
associated with these practices. (See "Certain Stabilizing
Measures.")

     Statements and Reports - You will receive statements of your
account monthly as well as each time you add to your account or
take money out. Additionally, you will receive a Semi-Annual
Report and an audited Annual Report.


<PAGE>

<TABLE>
<CAPTION>

                      CHURCHILL TAX-FREE FUND OF KENTUCKY
                               TABLE OF EXPENSES

                                                          Class Y
Shareholder Transaction Expenses                          Shares
   <S>                                                    <C>
   Maximum Sales Charge Imposed on Purchases              None 
     (as a percentage of the offering price)
   Maximum Sales Charge Imposed on Reinvested Dividends   None
   Deferred Sales Charge                                  None
   Redemption Fees                                        None
   Exchange Fee                                           None

Annual Fund Operating Expenses (1)
  (as a percentage of average net assets)

   Investment Advisory Fee                                0.14%
   All other expenses (2)                                 0.51%
     Administration Fee                              0.26%     
     Other Expenses (2)                              0.25%     
   Total Fund Operating Expenses (2)                      0.65%     

Example (3)
You would pay the following expenses on a $1,000 investment, assuming 
a 5% annual return and redemption at the end of each time period:

       1 Year       3 Years       5 Years       10 Years 
         $7           21            36             81


<FN>
(1) Estimated based upon actual expenses incurred by the Fund during 
its most recent fiscal year, restated to reflect current arrangements. 
During that period, only Class A Shares were outstanding.
</FN>

<FN>
(2) Does not reflect a 0.01% expense offset in custodian fees received 
for uninvested cash balances.  Reflecting this offset, other expenses, 
all other expenses, and total Fund operating expenses for Class Y 
Shares would have been 0.24%, 0.50% and 0.64%, respectively.
</FN>

<FN>
(3) The expense example is based upon the above annual Fund operating 
expenses.  It is also based upon amounts at the beginning of each year 
which includes the prior year's assumed results.  A year's results 
consist of an assumed 5% annual return less total annual operating 
expenses; the expense ratio was applied to an assumed average balance 
(the year's starting investment plus one-half the year's results).  
Each figure represents the cumulative expenses so determined for the 
period specified.
</FN>

</TABLE>

THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST 
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE 
SHOWN.  THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL 
MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF 
PREPARING THE ABOVE EXAMPLE.

The purpose of the above table is to assist the investor in 
understanding the various costs that an investor in the Fund will 
bear directly or indirectly.  The assumed 5% annual return should 
not be interpreted as a prediction of an actual return, which may 
be higher or lower.


<PAGE>


<TABLE>
<CAPTION>

The following historical financial information applies only to shares 
of the Fund which have been designated Class A Shares, upon adoption 
of the class structure described in the Prospectus.  Class A Shares 
are not offered by this Prospectus.  Similar information does not 
exist for Class Y Shares which are offered by this Prospectus.

                      CHURCHILL TAX-FREE FUND OF KENTUCKY
                             FINANCIAL HIGHLIGHTS
                FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

     The following table of Financial Highlights as it relates to 
the five years ended December 31, 1995 has been audited by KPMG Peat 
Marwick LLP, independent auditors, whose report thereon is included 
in the Fund's financial statements contained in its Annual Report, 
which are incorporated by reference into the Additional Statement. 
The information provided in the table should be read in conjunction 
with the financial statements and related notes. The Fund's Annual 
Report contains additional information about the Fund's performance 
and is available upon request without charge. On October 16, 1989, 
Aquila Management Corporation, originally the Fund's Sub-Adviser and 
Administrator, became Administrator only. Effective September 11, 
1995, Banc One Investment Advisors Corporation became the Fund's 
Investment Adviser, replacing PNC Bank, Kentucky, Inc. ("See Management 
Arrangements").

                                        Year Ended December 31,
                           1995         1994         1993         1992

<S>                        <C>          <C>          <C>          <C>
Net Asset Value,
Beginning of Period        $9.97        $10.93       $10.49       $10.39
Income from Investment
Operations:
  Net investment
  income...............    0.60         0.60         0.62         0.66
  Net gain (loss) on
  securities (both
  realized and
  unrealized)..........    0.74         (0.96)        0.47         0.19
  Total from Investment
  Operations...........    1.34         (0.36)        1.09         0.85
Less Distributions:
  Dividends from
  net investment
  income...............    (0.60)       (0.60)       (0.62)       (0.66)
  Distributions from
  capital gains........       -           -          (0.03)       (0.09)
  Total Distributions..    (0.60)       (0.60)       (0.65)       (0.75)
Net Asset Value,
End of Period              $10.71       $9.97       $10.93       $10.49
Total Return (not
(reflecting
sales load)............    13.75%       (3.31)%      10.50%        8.48%
Ratios/Supplemental Data
  Net Assets, End of 
  Period (in thousands)    $230,270     $232,656    $258,632      $192,600
  Ratio of Expenses
  to Average Net
  Assets...............    0.79%        0.72%        0.59%         0.42%
  Ratio of Net Investment
  Income to Average Net
  Assets...............    5.57%        5.81%        5.67%         6.21%
  Portfolio Turnover
  Rate.................    17.09%       35.25%       31.29%        50.33%

Net investment income per share and the ratios of income and expenses 
to average net assets without the Adviser's and Administrator's 
voluntary waiver of fees, the Administrator's voluntary expense 
reimbursement and the expense offset in custodian fees for uninvested 
cash balances would have been:

Net Investment
Income.................    $0.60        $0.60         $0.60         $0.63
Ratio of Expenses
to Average Net
Assets.................    0.80%        0.73%         0.73%          0.68%
Ratio of Net Investment
Income to Average
Net Assets.............    5.74%        5.80%         5.52%          5.95%


 1991        1990          1989          1988          1987*
 <C>         <C>           <C>           <C>           <C>

 $10.00      $10.06        $9.53         $9.26         $9.60
   0.66        0.65         0.68          0.65          0.25
   0.41      (0.03)         0.53          0.26         (0.32)
   1.07        0.62         1.21          0.91         (0.07)
 (0.66)      (0.68)        (0.68)        (0.64)        (0.27)
 (0.02)         -            -             -             -
 (0.68)      (0.68)        (0.68)        (0.64)        (0.27)
 $10.39      $10.00        $10.06        $9.53         $9.26
 10.97%       6.64%        13.09%        10.49%        (0.65)%(1)
$114,798     $66,076      $35,652       $19,007        $5,767
  0.27%        0.10%        0.08%         0.10%        1.08%(2)
  6.53%        6.60%        6.94%         6.87%        5.39%(2)
 16.69%        7.67%        3.63%        10.51%        62.83%
 $0.60         $0.59        $0.57         $0.58        $0.16
  0.84%        0.76%        1.09%         1.21%        3.82%(2)
  5.96%        5.94%        5.92%         5.79%        2.66%(2)


<FN>
(1)Not annualized.
</FN>

<FN>
(2)Annualized.
</FN>

<FN>
*For the period from May 21, 1987 (commencement of operations) to 
December 31, 1987.
</FN>

</TABLE>


<PAGE>

                          INTRODUCTION

     The Fund's shares are designed to be a suitable investment
for investors who seek income exempt from Kentucky State and
regular Federal income taxes.

     You may invest in shares of the Fund as an alternative to
direct investments in Kentucky Obligations, as defined below,
which may include obligations of certain non-Kentucky issuers.
The Fund offers you the opportunity to keep assets fully invested
in a vehicle that provides a professionally managed portfolio of
Kentucky Obligations which may, but not necessarily will, be more
diversified, higher yielding or more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Kentucky Obligations. Through the convenience of a
single security consisting of shares of the Fund, you are also
relieved of the inconvenience associated with direct investments
of fixed denominations, including the selecting, purchasing,
handling, monitoring call provisions and safekeeping of Kentucky
Obligations.

     Kentucky Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes;
bond anticipation notes; construction loan notes; and floating
and variable rate demand notes. Municipal obligations include
municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment. The
purposes for which municipal obligations such as bonds are issued
include the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing,
mass transportation, streets and water and sewer works. Other
public purposes for which municipal obligations may be issued
include the refunding of outstanding obligations, the obtaining
of funds for general operating expenses and the obtaining of
funds to lend to other public institutions and facilities.

                 INVESTMENT OF THE FUND'S ASSETS

     In seeking its objective of providing as high a level of
current income which is exempt from both Kentucky State and
regular Federal income taxes as is consistent with the
preservation of capital, the Fund will invest in Kentucky
Obligations (as defined below). There is no assurance that the
Fund will achieve its objective, which is a fundamental policy of
the Fund. (See "Investment Restrictions.")

     As used in the Prospectus and the Additional Statement, the
term "Kentucky Obligations" means obligations, including those of
certain non-Kentucky issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate
counsel, is exempt from regular Federal income taxes and Kentucky
income taxes. Although exempt from regular Federal income tax,
interest paid on certain types of Kentucky Obligations, and
dividends which the Fund might pay from this interest are
preference items as to the Federal alternative minimum tax; for
further information, see "Dividend and Tax Information." As a
fundamental policy, at least 80% of the Fund's net assets will be
invested in Kentucky Obligations the income paid upon which will
not be subject to the alternative minimum tax; accordingly, the
Fund can invest up to 20% of its net assets in obligations which
are subject to the Federal alternative minimum tax. The Fund may
refrain entirely from purchasing these types of Kentucky
Obligations. (See "Dividend and Tax Information.")

     The non-Kentucky bonds or other obligations the interest on
which is exempt under present law from regular Federal and
Kentucky income taxes are the bonds or other obligations issued
by or under the authority of Guam, the Northern Mariana Islands,
Puerto Rico and the Virgin Islands. The Fund will not purchase
Kentucky Obligations of non-Kentucky issuers unless Kentucky
Obligations of Kentucky issuers of the desired quality, maturity
and interest rate are not available. As a Kentucky-oriented fund,
at least 65% of the Fund's total assets will be invested in
Kentucky Obligations of Kentucky issuers. The Fund invests only
in Kentucky Obligations and, possibly, in Futures and options on
Futures (see below) for protective (hedging) purposes.

     In general, there are nine separate credit ratings, ranging
from the highest to the lowest quality standards for municipal
obligations. So that the Fund will have a portfolio of quality
oriented (investment grade) securities, the Kentucky Obligations
which the Fund will purchase must, at the time of purchase,
either (i) be rated within the four highest credit ratings
assigned by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations
so rated by Banc One Investment Advisors Corporation (the
"Adviser"), subject to the direction and control of the Fund's
Board of Trustees. Municipal obligations rated in the fourth
highest credit rating are considered by such rating agencies to
be of medium quality and thus may present investment risks not
present in more highly rated obligations. Such bonds lack
outstanding investment characteristics and may in fact have
speculative characteristics as well; changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is
the case for higher grade bonds. If after purchase the rating of
any rated Kentucky Obligation is downgraded such that it could
not then be purchased by the Fund, or, in the case of an unrated
Kentucky Obligation, if the Adviser determines that the unrated
obligation is no longer of comparable quality to those rated
obligations which the Fund may purchase, it is the current policy
of the Fund to cause any such obligation to be sold as promptly
thereafter as the Adviser in its discretion determines to be
consistent with the Fund's objectives; such obligation remains in
the Fund's portfolio until it is sold. In addition, because a
downgrade often results in a reduction in the market price of a
downgraded obligation, sale of such an obligation may result in a
loss. See Appendix A to the Additional Statement for further
information as to these ratings. The Fund can purchase industrial
development bonds only if they meet the definition of Kentucky
Obligations, i.e., the interest on them is exempt from Kentucky
State and regular Federal income taxes.

     The Fund is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940
Act"). The Fund also intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code
(the "Code"). One of the tests for such qualification under the
Code is, in general, that at the end of each fiscal quarter of
the Fund, at least 50% of its assets must consist of (i) cash;
and (ii) securities which, as to any one issuer, do not exceed 5%
of the value of the Fund's assets. If the Fund had elected to
register under the 1940 Act as a "diversified" investment
company, it would have to meet the same test as to 75% of its
assets. The Fund may therefore not have as much diversification
among securities, and thus diversification of risk, as if it had
made this election under the 1940 Act. In general, the more the
Fund invests in the securities of specific issuers, the more the
Fund is exposed to risks associated with investments in those
issuers. The Fund's assets, being primarily or entirely Kentucky
issues, are accordingly subject to economic and other conditions
affecting Kentucky. (See "Risk Factors and Special Considerations
Regarding Investment in Kentucky Obligations.")

Certain Stabilizing Measures

     The Fund will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash
and cash equivalents in attempting to protect against declines in
the value of its investments and other market risks. There can,
however, be no assurance that these will be successful. Although
the Fund has no current intention of using futures and options,
to the limited degree described below, these may be used to
attempt to hedge against changes in the market price of the
Fund's Kentucky Obligations caused by interest rate fluctuations.
Futures and options could also provide a hedge against increases
in the cost of securities the Fund intends to purchase.

     Although it does not currently do so, and since inception
has not done so, the Fund may buy and sell futures contracts
relating to indices on municipal bonds ("Municipal Bond Index
Futures") and to U.S. government securities ("U.S. Government
Securities Futures"); both kinds of futures contracts are
"Futures." The Fund may also write and purchase put and call
options on Futures. As a matter of fundamental policy the Fund
will not buy or sell a Future or an option on a Future if
thereafter more than 10% of its net assets would be in initial or
variation margin on such Futures and options on them, and in
premiums on such options. Under an applicable regulatory rule,
the Fund will not enter into Futures or options for which the
aggregate initial margins and premiums paid for options exceed 5%
of the fair market value of the Fund's assets. (See the
Additional Statement.) Under normal market conditions, the Fund
cannot purchase or sell Municipal Bond Index Futures, U.S.
Government Securities Futures, or options on Futures if
thereafter more than 20% of its total assets would consist of
cash, margin deposits on such Futures and margin deposits and
premiums on such options, except for temporary defensive
purposes, i.e., in anticipation of a decline or possible decline
in the value of Kentucky Obligations.

     The primary risks associated with the use of Futures and
options are: (i) imperfect correlation between the change in the
market value of the securities held in the Fund's portfolio and
the prices of Futures or options purchased or sold by the Fund;
(ii) incorrect forecasts by the Adviser concerning interest rates
which may result in the hedge being ineffective; and (iii)
possible lack of a liquid secondary market for a Future or
option; the resulting inability to close a Futures or options
position could adversely affect the Fund's hedging ability.  For
a hedge to be completely effective, the price change of the
hedging instrument should equal the price change of the security
being hedged. The risk of imperfect correlation of these price
changes is increased as the composition of the Fund's portfolio
is divergent from the debt securities underlying the hedging
instrument. To date, the Adviser has had no experience in the use
of Futures or options on them.

     The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits"
established by commodity exchanges which restrict the amount of
change in the contract price allowed during a single trading day.
Thus, once a daily limit is reached, no further trades may be
entered into beyond the limit, thereby preventing the liquidation
of open positions. Prices have in the past reached the daily
limit on a number of consecutive trading days. For further
information about Futures and options, see the Additional
Statement.

     When and if the Fund determines to use Futures or options,
the Prospectus will be supplemented.

Floating and Variable Rate Demand Notes

     Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one
year, but permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding one year, in each
case upon not more than 30-days' notice. The issuer of such notes
normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the
note plus accrued interest upon a specified number of days'
notice to the noteholders. The interest rate on a floating rate
demand note is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is
adjusted automatically at specified intervals.

Participation Interests

     The Fund may purchase from financial institutions
participation interests in Kentucky Obligations (such as
industrial development bonds and municipal lease/purchase
agreements). A participation interest gives the Fund an undivided
interest in the underlying Kentucky Obligations in the proportion
that the Fund's participation interest bears to the total amount
of the underlying Kentucky Obligations. All such participation
interests must meet the Fund's credit requirements. See
"Limitation to 10% as to Certain Investments."

When-Issued and Delayed Delivery Purchases

     The Fund may buy Kentucky Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring
them. The Kentucky Obligations so purchased are subject to market
fluctuation and no interest accrues to the Fund until delivery
and payment take place; their value at the delivery date may be
less than the purchase price. The Fund cannot enter into
when-issued commitments exceeding in the aggregate 15% of the
market value of the Fund's total assets, less liabilities other
than the obligations created by when-issued commitments. If the
Fund chooses to dispose of the right to acquire a when-issued
obligation prior to its acquisition, it could, as with the
disposition of any other portfolio holding, incur a gain or loss
due to market fluctuation; any such gain would be a taxable
short-term gain. The Fund places an amount of assets equal in
value to the amount due on the settlement date for the
when-issued or delayed delivery securities being purchased in a
segregated account with the Custodian, which is marked to market
every business day. See the Additional Statement for further
information.

Limitation to 10% as to Certain Investments

     The Fund cannot purchase Kentucky Obligations that are not
readily marketable if thereafter more than 10% of its net assets
would consist of such investments. However, this 10% limit does
not include any Kentucky Obligations as to which the Fund can
exercise the right to demand payment in full within seven days
and as to which there is a secondary market. Floating and
variable rate demand notes and participation interests (including
municipal lease/purchase obligations) are considered illiquid
unless determined by the Board of Trustees to be readily
marketable. See the Additional Statement.

Current Policy as to Certain Obligations

     The Fund will not invest more than 25% of its total assets
in (i) Kentucky Obligations the interest on which is paid from
revenues of similar type projects or (ii) industrial development
bonds, unless the Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.

Factors Which May Affect the Value of the Fund's 
Investments and Their Yields

     The value of the Kentucky Obligations in which the Fund
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Fund buys Kentucky Obligations, the value of these
obligations will normally go down; if these rates go down, the
value of these obligations will normally go up. Changes in value
and yield based on changes in prevailing interest rates may have
different effects on short-term Kentucky Obligations than on
long-term obligations. Long-term obligations (which often have
higher yields) may fluctuate in value more than short-term ones.
For this reason, the Fund may, to achieve a defensive position,
shorten the average maturity of its portfolio.

Risk Factors and Special Considerations Regarding 
Investment in Kentucky Obligations

     The following is a discussion of the general factors that
might influence the ability of Kentucky issuers to repay
principal and interest when due on the Kentucky Obligations
contained in the portfolio of the Fund. Such information is
derived from sources that are generally available to investors
and is believed by the Fund to be accurate, but has not been
independently verified and may not be complete.

     The Commonwealth of Kentucky ranks first among the States in
the production of coal. Tobacco is the dominant agricultural
product, and Kentucky ranks second among states in the total cash
value of tobacco raised. There is a significant diversification
in the manufacturing mix including tobacco processing plants,
distilleries and durable goods production including automobiles,
heavy machinery, computer appliances and office equipment.
Toyota, a major Japanese automobile manufacturer, has constructed
a large facility in Georgetown, Kentucky. The horse breeding and
racing industry plays an important role both as a significant
industry as well as encouraging tourist business in the state.

     Economic problems include a continuing high unemployment
rate in the non-urbanized areas of the State. The Coal Severance
Tax is a significant revenue producer for the state and its
political subdivisions, and any substantial decrease in the
amount of coal or other minerals produced could result in revenue
shortfalls. Additionally, any federal legislation affecting
adversely the tobacco and/or cigarette industry would have a
negative impact on Kentucky's economy. Although revenue
obligations of the state or its political subdivisions may be
payable from a specific project, there can be no assurances that
further economic difficulties and the resulting impact on state
and local government finances will not adversely affect the
market value of the bonds issued by Kentucky municipalities or
political subdivisions or the ability of the respective entities
to pay debt service. Major legislative initiatives in the area of
education reform and medicaid expenses are having an impact on
the Commonwealth's financial profile.

     The Commonwealth of Kentucky relies upon sales and use tax,
individual income tax, property tax, corporate income tax,
insurance premium tax, alcohol beverage tax, corporate license
tax, cigarette tax, and horse racing tax for its revenue. The
cities, counties and other local governments are essentially
limited to property taxes, occupational license taxes, utility
taxes, transit and restaurant meals taxes and various license
fees for their revenue. Obligations of non-Kentucky issuers are
subject to the risks of general economic and other factors
affecting those issuers.

     Because of constitutional limitations, the Commonwealth of
Kentucky cannot enter into a financial obligation of more than
two years' duration, and no other municipal issuer within the
Commonwealth can enter into a financial obligation of more than
one year's duration. As a consequence, the payment and security
arrangements applicable to Kentucky revenue bonds differ
significantly from those generally applicable to municipal
revenue bonds in other States. See the Additional Statement.

                     INVESTMENT RESTRICTIONS

     The Fund has a number of policies about what it can and
cannot do. Certain of these policies, identified in the
Prospectus and Additional Statement as "fundamental policies,"
cannot be changed unless the holders of a "majority," as defined
in the 1940 Act, of the Fund's outstanding shares vote to change
them. (See the Additional Statement for a definition of such a
majority.) All other policies can be changed from time to time by
the Board of Trustees without shareholder approval. Some of the
more important of the Fund's fundamental policies, not otherwise
identified in the Prospectus, are set forth below; others are
listed in the Additional Statement.

1. The Fund invests only in certain limited securities.

     The Fund cannot buy any securities other than the Kentucky
Obligations meeting the standards stated under "Investment of the
Fund's Assets"; the Fund can also purchase and sell Futures and
options on them within the limits there discussed.

2. The Fund has industry investment requirements.

     The Fund cannot buy the obligations of issuers in any one
industry if more than 25% of its total assets would then be
invested in securities of issuers of that industry; the Fund will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.

3. The Fund cannot make loans.

     The Fund can buy those Kentucky Obligations which it is
permitted to buy (see "Investment of the Fund's Assets"); this is
investing, not making a loan. The Fund cannot lend its portfolio
securities.

4. The Fund can borrow only in limited amounts for special
purposes.

     The Fund can borrow from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage
or pledge its assets only in connection with such borrowing and
only up to the lesser of the amounts borrowed or 5% of the value
of its total assets. However, this shall not prohibit margin
arrangements in connection with the purchase or sale of Municipal
Bond Index Futures, U.S. Government Securities Futures or options
on them, or the payment of premiums on those options. 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 Kentucky Obligations, Futures or
options on Futures while it has any outstanding borrowings which
exceed 5% of the value of its total assets.

                    NET ASSET VALUE PER SHARE

     The Fund's net asset value and offering price per share of
each class are determined as of 4:00 p.m. New York time on each
day that the New York Stock Exchange is open (a "business day").
The net asset value per share is determined by dividing the value
of the net assets of the Fund (i.e., the value of the assets less
liabilities) by the total number of shares outstanding.
Determination of the value of the Fund's assets is subject to the
direction and control of the Fund's Board of Trustees. In general
it is based on market value, except that Kentucky Obligations
maturing in 60 days or less are generally valued at amortized
cost; see the Additional Statement for further information.

                    HOW TO INVEST IN THE FUND

     Institutional Class Shares (Class Y Shares) are offered only
to institutional investors for investments held in a fiduciary,
advisory, agency, custodial or similar capacity, or through them
to their clients, and are not offered directly to retail
customers. Class Y Shares are offered at net asset value with no
sales charge, no redemption fee, no contingent deferred sales
charge and no distribution fee. 

How to Purchase Class Y Shares

     Class Y Shares of the Fund may be purchased through any
investment broker or dealer (a "selected dealer") which has a
sales agreement with Aquila Distributors, Inc. (the
"Distributor") or through the Distributor. There are two ways to
make an initial investment: (i) order the shares through your
investment broker or dealer, if it is a selected dealer; or (ii)
mail the Application with payment to Administrative Data
Management Corp. (the "Agent") at the address on the Application.
There is no sales charge on initial or subsequent investments. 
You are urged to complete an Application and send it to the Agent
so that expedited shareholder services can be established at the
time of your investment.

     The minimum initial investment for Class Y Shares is $1,000,
except as otherwise stated in the Prospectus or Additional
Statement. You may also make an initial investment of at least
$50 by establishing an Automatic Investment Program for Automatic
investments of at least $50 per month and paying at least $50.
(See below and "Automatic Investment Program" in the
Application.) Such investment must be drawn in United States
dollars on a United States commercial or savings bank, credit
union or a United States branch of a foreign commercial bank
(each of which is a "Financial Institution"). You may make
subsequent investments in Class Y Shares in any amount (unless
you have an Automatic Withdrawal Plan). Your subsequent
investment may be made through a selected dealer or by forwarding
payment to the Agent, with the name(s) of account owner(s), the
account number and the name of the Fund. With subsequent
investments, please send the pre-printed stub attached to the
Fund's confirmations.

     Subsequent investments of $50 or more in Class Y Shares can
be made by electronic funds transfer from your demand account at
a Financial Institution. To use electronic funds transfer for
your purchases, your Financial Institution must be a member of
the Automated Clearing House and the Agent must have received
your completed Application designating this feature, or, after
your account has been opened, a Ready Access Features form
available from the Distributor or the Agent. A pre-determined
amount can be regularly transferred for investment ("Automatic
Investment"), or single investments can be made upon receipt by
the Agent of telephone instructions from anyone ("Telephone
Investment"). The maximum amount of each Telephone Investment is
$50,000. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate these investment methods at any time or
charge a service fee, although no such fee is currently
contemplated.

     The offering price for Class Y Shares is the net asset value
per share. The offering price determined on any day applies to
all purchase orders received by the Agent from selected dealers
that day, except that orders received by it after 4:00 p.m. New
York time will receive that day's offering price only if such
orders were received by selected dealers from customers prior to
such time and transmitted to the Distributor prior to its close
of business that day (normally 5:00 p.m. New York time); if not
so transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Fund shares for any day it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net
asset value is suspended and may be suspended by the Distributor
when the Distributor judges it in the Fund's best interest to do
so.

Possible Compensation for Dealers

     The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Fund. Additional compensation may
include payment or partial payment for advertising of the Fund's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Fund
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Fund will affect the price you pay for shares or
the amount that the Fund will receive from such sales. Any of the
foregoing payments to be made by the Distributor may be made
instead by the Administrator out of its own funds, directly or
through the Distributor.

     Brokers and Dealers may receive different levels of
compensation for selling different classes of shares.

Confirmations and Share Certificates

     All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Fund (rounded to the nearest 1/1000th of
a share). No share certificates will be issued for Class Y
Shares. 

     The Fund and the Distributor reserve the right to reject any
order for the purchase of shares. In addition, the offering of
shares may be suspended at any time and resumed at any time
thereafter.

Distribution Plan

     The Fund has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended
to result in the sale of its shares except pursuant to a written
plan adopted under the Rule. No payments under the Plan from
assets represented by Class Y Shares are authorized.

     The Plan contains provisions designed to protect against any
claim against or involving the Fund that some of the expenses
which might be considered to be sales-related which the Fund pays
or may pay come within the purview of the Rule. The Fund believes
that except for payments made with respect to Class A Shares and
Class C Shares it is not financing any such activity and does not
consider any payment enumerated in such provisions as so
financing any such activity. If and to the extent that any
payment as specifically listed in the Plan (see the Additional
Statement) is considered to be primarily intended to result in or
as indirect financing of any activity which is primarily intended
to result in the sale of Fund shares, these payments are
authorized under the Plan. In addition, if the Administrator, out
of its own funds, makes payment for distribution expenses such
payments are authorized. See the Additional Statement.

                  HOW TO REDEEM YOUR INVESTMENT

     You may redeem all or any part of your Class Y Shares at the
net asset value next determined after acceptance of your
redemption request at the Agent. Redemptions can be made by the
various methods described below. There is no minimum period for 
any investment in the Fund, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. There are no redemption fees or penalties on
redemption of Class Y Shares. A redemption may result in a
transaction taxable to you.

     For your convenience the Fund offers expedited redemption
for Class Y Shares to provide you with a high level of liquidity
for your investment.

Expedited Redemption Methods
(Non-Certificate Shares)

     You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.

     1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments

          a) to a Financial Institution account you have
          predesignated or 

          b) by check in the amount of $50,000 or less, mailed to
          you, if your shares are registered in your name at the
          Fund and the check is sent to your address of record,
          provided that there has not been a change of your
          address of record during the 30 days preceding your
          redemption request. You can make only one request for
          telephone redemption by check in any 7-day period. 

     See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.

     To redeem an investment by this method, telephone:

             800-872-5860 toll free or 908-855-5731

     Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.

     2. By FAX or Mail.  You may also request redemption payments
to a predesignated Financial Institution account by a letter of
instruction sent to: Administrative Data Management Corp., Attn:
Aquilasm Group of Funds, by FAX at 908-855-5730 or by mail at 581
Main Street, Woodbridge, NJ 07095-1198, indicating account
name(s), account number, amount to be redeemed, and any payment
directions, signed by the registered holder(s). Signature
guarantees are not required. See "Redemption Payments" below for
payment methods.

     If you wish to use the above procedures you should so elect
on the Expedited Redemption section of the Application or the
Ready Access Features form and provide the required information
concerning your Financial Institution account number. The
Financial Institution account must be in the exclusive name(s) of
the shareholder(s) as registered with the Fund. You may change
the designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.

Regular Redemption Method

     If you own Class Y Shares registered on the books of the
Fund, and you have not elected Expedited Redemption to a
predesignated Financial Institution account, you must use the
Regular Redemption Method. Under this redemption method you
should send a letter of instruction to: Administrative Data
Management Corp., Attn: Aquilasm Group of Funds, 581 Main Street,
Woodbridge, NJ 07095-1198, containing:

          Account Name(s);

          Account Number;

          Dollar amount or number of shares to be redeemed or a
          statement that all shares held in the account are to be 
          redeemed;

          Payment instructions (normally redemption proceeds will
          be mailed to your address as registered with the Fund);

          Signature(s) of the registered shareholder(s); and

          Signature guarantee(s), if required, as indicated
          below.

     For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required
if sufficient documentation is not on file with the Agent.
Additional documentation may be required where shares are held by
certain types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. In all other cases, signatures must be guaranteed by
a member of a national securities exchange, a U.S. bank or trust
company, a state-chartered savings bank, a federally chartered
savings and loan association, a foreign bank having a U.S.
correspondent bank, a participant in the Securities Transfer
Association Medallion Program (STAMP), The Stock Exchanges
Medallion Program (SEMP) or The New York Stock Exchange, Inc.
Medallion Signature Program (MSP). A notary public is not an
acceptable signature guarantor.

Redemption Payments

     Redemption payments will ordinarily be mailed to you at your
address of record. If you so request and the amount of your
redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the facilities
of the Automated Clearing House to the Financial Institution
account specified in the Expedited Redemption section of your
Application or Ready Access Features form. The Fund may impose a
charge, not exceeding $5.00 per wire redemption, after written
notice to shareholders who have elected this redemption
procedure. The Fund has no present intention of making this
charge. Upon 30 days' written notice to shareholders, the Fund
may modify or terminate the use of the Automated Clearing House
to make redemption payments at any time or charge a service fee,
although no such fee is presently contemplated. If any such
changes are made, the Prospectus will be supplemented to reflect
them. If you use a broker or dealer to arrange for a redemption,
it may charge you a fee for this service.

     The Fund will normally make payment for all shares redeemed
on the next business day (see "Net Asset Value Per Share")
following acceptance of the redemption request made in compliance
with one of the redemption methods specified above. Except as set
forth below, in no event will payment be made more than seven
days after acceptance of such a redemption request. However, the
right of redemption may be suspended or the date of payment
postponed (i) during periods when the New York Stock Exchange is
closed for other than weekends and holidays or when trading on
such Exchange is restricted as determined by the Securities and
Exchange Commission by rule or regulation; (ii) during periods in
which an emergency, as determined by the Securities and Exchange
Commission, exists which causes disposal of, or valuation of the
net asset value of, the portfolio securities to be unreasonable
or impracticable; or (iii) for such other periods as the
Securities and Exchange Commission may permit. Payment for
redemption of shares recently purchased by check (irrespective of
whether the check is a regular check or a certified, cashier's or
official bank check) or by Automatic Investment or Telephone
Investment may be delayed up to 15 days or until (i) the purchase
check or Automatic Investment or Telephone Investment has been
honored or (ii) the Agent has received assurances by telephone or
in writing from the Financial Institution on which the purchase
check was drawn, or from which the funds for Automatic Investment
or Telephone Investment were transferred, satisfactory to the
Agent and the Fund, that the purchase check or Automatic
Investment or Telephone Investment will be honored. Possible
delays in payment of redemption proceeds can be eliminated by
using wire payments or Federal Reserve drafts to pay for
purchases.

     If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. See the Additional Statement for details.

     The Fund has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such
shares is less than $500 as a result of shareholder redemptions
or failure to meet the minimum investment level under an
Automatic Purchase Program. If the Board elects to do this,
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.

                    AUTOMATIC WITHDRAWAL PLAN

     You may establish an Automatic Withdrawal Plan if you own or
purchase Class Y Shares of the Fund having a net asset value of
at least $5,000. Under an Automatic Withdrawal Plan you will
receive a monthly or quarterly check in a stated amount, not less
than $50. If such a plan is established, all dividends and
distributions must be reinvested in your shareholder account.
Redemption of shares to make payments under the Automatic
Withdrawal Plan will give rise to a gain or loss for tax
purposes. See the Automatic Withdrawal Plan provisions of the
Application included in the Prospectus, the Additional Statement
under "Automatic Withdrawal Plan," and "Dividend and Tax
Information" below. 

                     MANAGEMENT ARRANGEMENTS

The Board of Trustees

     The business and affairs of the Fund are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Fund's Trustees and officers and provides
further information about them.

The Advisory Agreement

     Banc One Investment Advisors Corporation (the "Adviser")
supervises the investment program of the Fund and the composition
of its portfolio.

     The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment,
supervisory and certain administrative services. The Advisory
Agreement states that the Adviser shall, at its expense, provide
to the Fund all office space and facilities, equipment and
clerical personnel necessary for the carrying out of the
Adviser's duties under the Advisory Agreement. The Adviser will,
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.

     Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Fund and of
those Trustees, if any, who are affiliated with the Adviser.
Under the Advisory Agreement, the Fund bears the cost of
preparing and setting in type its prospectuses, statements of
additional information, and reports to shareholders and the costs
of printing or otherwise producing and distributing those copies
of such prospectuses, statements of additional information and
reports as are sent to its shareholders. Under the Advisory
Agreement, all costs and expenses not expressly assumed by the
Adviser or by the Administrator under the Administration
Agreement or by the Fund's Distributor (principal underwriter)
are paid by the Fund. The Advisory Agreement lists examples of
such expenses borne by the Fund, the major categories of such
expenses being: legal and audit expenses, custodian and transfer
agent or shareholder servicing agent fees and expenses, stock
issuance and redemption costs, certain printing costs,
registration costs of the Fund and its shares under Federal and
State securities laws, interest, taxes and brokerage commissions,
and non-recurring expenses, including litigation.

     Under the Advisory Agreement, the Fund pays a fee payable
monthly and computed on the net asset value of the Fund as of the
close of business each business day at the annual rate of 0.17 of
1% of such net asset value, provided, however, that for any day
that the Fund pays or accrues a fee under the Distribution Plan
of the Fund based upon the assets of the Fund (other than a fee
allocable by class to certain shares of the Fund), the advisory
fee shall be payable at the annual rate of 0.14 of 1% of such net
asset value. (Since the Administrator also receives a fee from
the Fund under the Administration Agreement, the total investment
advisory and administration fees which the Fund pays are at the
annual rate of 0.50 of 1% of such net assets, or, for any day
that the Fund pays or accrues a fee under the Distribution Plan
of the Fund based upon the assets of the Fund, at 0.40 of 1% of
such net asset value; see below.) Payments under the Distribution
Plan began on July 1, 1994 and the advisory and administration
fees are currently being accrued at the lower rate. Prior to
September 11, 1995, different advisory and administration
arrangements were in effect. See the Additional Statement for a
description of such arrangements. The Adviser and the
Administrator may, in order to attempt to achieve a competitive
yield on the shares of the Fund, each waive all or part of any
such fee.

     The Adviser agrees that the above fee shall be reduced, but
not below zero, by an amount equal to its pro-rata portion
(hereafter described) of the amount, if any, by which the total
expenses of the Fund in any fiscal year, exclusive of taxes,
interest and brokerage fees, shall exceed the lesser of (i) 2.5%
of the first $30 million of average annual net assets of the Fund
plus 2% of the next $70 million of such assets and 1.5% of such
assets in excess of $100 million, or (ii) 25% of the Fund's total
annual investment income. The pro-rata portion, as between the
Administrator and Adviser, is based on the aggregate of the fee
of the Adviser and the fee of the Administrator (exclusive of
amounts paid or to be paid out by the Administrator, if any, for
the applicable period pursuant to the Fund's Distribution Plan.)

     The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Fund; see the
Additional Statement. Under these provisions, the Adviser is
authorized to consider sales of shares of the Fund or of any
other investment company or companies having the same investment
adviser, sub-adviser, administrator or principal underwriter as
the Fund.

     The Fund's Custodian is an affiliate of the Adviser. It is
expected that another banking subsidiary of the Adviser's parent,
Banc One Corporation, will provide a credit facility to the Fund.

The Administration Agreement

     Under an Administration Agreement (the "Administration
Agreement"), Aquila Management Corporation as Administrator, at
its own expense, provides office space, personnel, facilities and
equipment for the performance of its functions thereunder and as
is necessary in connection with the maintenance of the
headquarters of the Fund and pays all compensation of the Fund's
Trustees, officers and employees who are affiliated persons of
the Administrator.

     Under the Administration Agreement, subject to the control
of the Fund's Board of Trustees, the Administrator provides all
administrative services to the Fund other than those relating to
its investment portfolio. Such administrative services include
but are not limited to maintaining books and records of the Fund,
either keeping the accounting records of the Fund, including the
computation of the net asset value per share and the dividends
(however, the daily pricing of the Fund's portfolio is the
responsibility of the Adviser under the Advisory Agreement) or,
at its expense and responsibility, delegating these accounting
duties in whole or in part to a company satisfactory to the Fund,
and overseeing all relationships between the Fund and its
transfer agent, custodian, legal counsel, auditors and principal
underwriter, including the negotiation of agreements in relation
thereto, the supervision and coordination of the performance of
such agreements, and the overseeing of all administrative matters
which are necessary or desirable for effective operation of the
Fund and for the sale, servicing, or redemption of the Fund's
shares. See the Additional Statement for a further description of
functions listed in the Administration Agreement as part of such
duties.

     Under the Administration Agreement, the Fund pays a fee
payable monthly and computed on the net asset value of the Fund
at the end of each business day at the annual rate of 0.33 of 1%
of such net asset value, provided, however, that for any day that
the Fund pays or accrues a fee under the Distribution Plan of the
Fund based upon the assets of the Fund (other than a fee
allocable by class to certain shares of the Fund), the annual fee
will be payable at the annual rate of 0.26 of 1% of such net
asset value. Payments under the Distribution Plan began on July
1, 1994 and administration fees are currently being accrued at
the lower rate. See the Additional Statement for a description of
the fund's former management fees. The Administrator has agreed
that the above fee shall be reduced, but not below zero, by an
amount equal to its pro-rata portion (defined as in the Advisory
Agreement) of the amount, if any, by which the total expenses of
the Fund in any fiscal year, exclusive of taxes, interest and
brokerage fees, shall exceed the lesser of (i) 2.5% of the first
$30 million of average annual net assets of the Fund plus 2% of
the next $70 million of such assets and 1.5% of such assets in
excess of $100 million, or (ii) 25% of the Fund's total annual
investment income.

Information about the Adviser,
the Administrator and the Distributor

     Banc One Investment Advisors Corporation (the "Adviser") is
a wholly-owned subsidiary of BANC ONE CORPORATION ("Banc One").
Banc One currently has affiliate banking organizations in
Kentucky, Arizona, Colorado, Illinois, Indiana, Ohio, Oklahoma,
Texas, Utah, West Virginia and Wisconsin. On a consolidated
basis, Banc One had assets of over $90.5 billion as of December
31, 1995. The Adviser was responsible for management of over $3
billion of investments in municipal obligations, of which $1.5
billion were held in mutual funds and of which $325 million were
obligations of Kentucky issuers. The Adviser services Kentucky
clients at offices in Louisville and Lexington. As it has been in
the past, since the beginning of the Fund's operations in 1987,
the Fund's investments will continue to be managed so that it
will have a portfolio of quality-oriented (investment grade)
securities.

     The Fund's portfolio is managed locally by Mr. Thomas S.
Albright, Vice President and Senior Portfolio Manager, at the
Adviser's Louisville office. He has served in this capacity since
September, 1995, when the Adviser became adviser to the Fund.
From 1981 to 1995 he was employed by Liberty National Bank, the
Adviser's local predecessor, where he was responsible for
management of its investment portfolio. He also served as
President of Liberty investment services, Inc., that bank's full
service brokerage subsidiary. Mr. Albright is a member of the
Adviser's Fixed Income Fund Sub-Committee. Mr. Albright attended
the University of Louisville.

     See the Additional Statement as to the legality, under the
Glass-Steagall Act, of the Adviser's acting as the Fund's
investment adviser. In general, under that Act, the Adviser will
not, among other things, be involved in the promotion or
distribution of shares of the Fund.

     The Fund's Administrator is founder and administrator to the
Aquilasm Group of Funds, which consists of tax-free municipal
bond funds, money market funds and an equity fund. As of December
31 1995, these funds had aggregate assets of approximately $2.7
billion, of which approximately $1.9 billion consisted of assets
of tax-free municipal bond funds. The Administrator, which was
founded in 1984, is controlled by Mr. Lacy B. Herrmann (directly,
through a trust and through share ownership by his wife). See the
Additional Statement for information on Mr. Herrmann. 

     The Distributor currently handles the distribution of the
shares of thirteen funds (five money market funds, seven tax-free
municipal bond funds and an equity fund) including the Fund.
Under the Distribution Agreement, the Distributor is responsible
for the payment of certain printing and distribution costs
relating to prospectuses and reports as well as the costs of
supplemental sales literature, advertising and other promotional
activities.

     At the date of this Prospectus, there is a proposed
transaction whereby all of the shares of the Distributor, which
are currently owned by Mr. Herrmann, will be owned by certain
directors and/or officers of the Administrator and/or the
Distributor including Mr. Herrmann. In anticipation of this
transaction, the Board of Trustees, including a majority of the
independent Trustees, has approved a new Distribution Agreement
for the Fund with no material change from the currently effective
Distribution Agreement.

     From January 1, 1995 through September 10, 1995, the Fund
paid or accrued $336,044 in advisory fees to its former adviser
under a former advisory agreement. From September 11, 1995
through December 31, 1995, the Fund paid or accrued $102,734 in
advisory fees to the Adviser. During the year ended December 31,
1995, fees of $515,895 were paid or accrued to the Administrator
under a former administration agreement in effect until September
10, 1995 and under the Administration Agreement in effect
thereafter.

                  DIVIDEND AND TAX INFORMATION

Dividends and Distributions

     The Fund will declare all of its net income, as defined
below, as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Net income for dividend purposes includes all interest income
accrued by the Fund since the previous dividend declaration,
including accretion of any original issue discount, less expenses
paid or accrued. As such net income will vary, the Fund's
dividends will also vary. Dividends and other distributions paid
by the Fund with respect to all classes of the Fund's shares are
calculated at the same time and in the same manner. In addition,
the dividends of each class can vary because each class will bear
certain class-specific charges.

     It is the Fund's present policy to pay dividends so that
they will be received or credited by approximately the first day
of each month. Shareholders may elect to have dividends deposited
without charge by electronic funds transfers into an account at a
Financial Institution which is a member of the Automated Clearing
House by completing a Ready Access Features form.

     Redeemed shares continue to earn dividends through and
including the day which is the earlier of (i) the day before the
day on which the redemption proceeds are mailed, wired or
transferred by the facilities of the Automated Clearing House by
the Agent or paid by the Agent to a selected dealer; or (ii) the
day which is the third day on which the New York Stock Exchange
is open after the day on which the net asset value of the
redeemed shares has been determined. (See "How To Redeem Your
Investment.")

     Net investment income includes amounts of income from the
Kentucky Obligations in the Fund's portfolio which are allocated
as "exempt-interest dividends." "Exempt-interest dividends" are
exempt from regular Federal income tax. The allocation of
"exempt-interest dividends" will be made by the use of one
designated percentage applied uniformly to all income dividends
declared during the Fund's tax year. Such  designation will
normally be made in the first month after the end of each of the
Fund's fiscal years as to income dividends paid in the prior
year. It is possible that in certain circumstances, a small
portion of the dividends paid by the Fund will be subject to
income taxes. During the Fund's fiscal year ended December 31,
1995, 93.76% of the Fund's dividends were "exempt-interest
dividends." For the calendar year 1995, 6.24% of the total
dividends paid were taxable. (These amounts relate to dividends
on Class A Shares; no Class Y Shares were outstanding during that
period.) The percentage of income designated as tax-exempt for
any particular dividend may be different from the percentage of
the Fund's income that was tax-exempt during the period covered
by the dividend.

     Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions ("long-term
gains distributions"), if any, from the excess of net long-term
capital gains over net short-term capital losses realized through
October 31st of each year and not previously paid out will be
paid out after that date; the Fund may also pay supplemental
distributions after the end of its fiscal year. If net capital
losses are realized in any year, they are charged against capital
and not against net investment income which is distributed
regardless of gains or losses. The Fund may be required to impose
backup withholding at a rate of 31% upon payment of redemptions
to shareholders, and from short- and long-term gains
distributions (if any) and any other distributions that do not
qualify as "exempt-interest dividends," if shareholders do not
comply with provisions of the law relating to the furnishing of
taxpayer identification numbers and reporting of dividends.

     Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate application prior to a given
ex-dividend date, dividends and distributions will be
automatically reinvested in full and fractional shares of the
Fund at net asset value on the record date for the dividend or
distribution or other date fixed by the Board of Trustees. An
election to receive cash will continue in effect until written
notification of a change is received by the Agent. All
shareholders, whether their dividends are received in cash or are
being reinvested, will receive a monthly account summary
indicating the current status of their investment. There is no
fixed dividend rate. Corporate shareholders of the Fund are not
entitled to any deduction for dividends received from the Fund.

Tax Information

     The Fund qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as
dividends and distributions. However, the Code contains a number
of complex tests relating to such qualification and it is
possible although not likely that the Fund might not meet one or
more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary
corporation, would receive no tax deduction for payments made to
shareholders and would be unable to pay dividends or
distributions which would qualify as "exempt-interest dividends"
or "capital gains dividends," as discussed below.

     The Fund intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income
earned by the Fund on Kentucky Obligations will be excludable
from gross income of the shareholders for regular Federal income
tax purposes. Capital gains dividends are not included in
exempt-interest dividends. Although "exempt-interest dividends"
are not taxed, each taxpayer must report the total amount of
tax-exempt interest (including exempt-interest dividends from the
Fund) received or acquired during the year.

     The Omnibus Budget Reconciliation Act of 1993 requires that
either gains realized by the Fund on the sale of municipal
obligations acquired after April 30, 1993 at a price which is
less than face or redemption value be included as ordinary income
to the extent such gains do not exceed such discount or that the
discount be amortized and included ratably in taxable income. 
There is an exception to the foregoing treatment if the amount of
the discount is less than 0.25% of face or redemption value
multiplied by the number of years from acquisition to maturity. 
The Fund will report such ordinary income in the years of sale or
redemption rather than amortize the discount and report it
ratably. To the extent the resultant ordinary taxable income is
distributed to shareholders, it will be taxable to them as
ordinary income.

     Capital gains dividends (net long-term gains over net
short-term losses which the Fund distributes and so designates)
are reportable by shareholders as long-term capital gains. This
is the case whether the shareholder takes the distribution in
cash or elects to have the distribution reinvested in Fund shares
and regardless of the length of time the shareholder has held his
or her shares. Capital gains are taxed at the same rates as
ordinary income, except that for individuals, trusts and estates
the maximum tax rate on capital gains distributions is 28% even
if the applicable rate on ordinary income for such taxpayers is
higher than 28%.

     Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Fund are
not distributed but carried forward by the Fund to offset gains
in later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.

     The Fund's gains or losses on sales of Kentucky Obligations
will be long-term or short-term depending upon the length of time
the Fund has held such obligations. Capital gains and losses of
the Fund will also include gains and losses on Futures and
options, if any, including gains and losses actually realized on
sales and exchanges and gains and losses deemed to be realized.
Those deemed to be realized are on Futures and options held by
the Fund at year-end, which are "marked to the market," that is,
deemed sold for fair market value. Net gains or losses realized
and deemed realized on Futures and options will be reportable by
the Fund as long-term to the extent of 60% of the gains or losses
and short-term to the extent of 40% regardless of the actual
holding period of such investments.

     Information as to the tax status of the Fund's dividends and
distributions will be mailed to shareholders annually.

     Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Fund may not be
deducted for regular Federal tax purposes. In addition, under
rules used by the Internal Revenue Service for determining when
borrowed funds are deemed used for the purpose of purchasing or
carrying particular assets, the purchase of shares of the Fund
may be considered to have been made with borrowed funds even
though the borrowed funds are not directly traceable to the
purchase of shares. The receipt of exempt-interest dividends from
the Fund by an individual shareholder may result in some portion
of any social security payments or railroad retirement benefits
received by the shareholder or the shareholder's spouse being
included in taxable income.

     Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds
or private activity bonds should consult their own tax advisers
before purchasing shares.

     While interest from all Kentucky Obligations is tax-exempt
for purposes of computing the shareholder's regular tax, interest
from so-called private activity bonds issued after August 7,
1986, constitutes a tax preference for both individuals and
corporations and thus will enter into a computation of the
alternative minimum tax. Whether or not that computation will
result in a tax will depend on the entire content of the
taxpayer's return. The Fund will not invest in the types of
Kentucky Obligations which would give rise to interest that would
be subject to alternative minimum taxation if more than 20% of
its net assets would be so invested, and may refrain from
investing in that type of bond completely. The 20% limit is a
fundamental policy of the Fund. 

     Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current
earnings, this adjustment will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax.

     As of the date of the Prospectus, Congress is considering a
number of changes affecting taxation. It is not possible to
predict which, if any, of such changes will become law. 

Tax Effects of Redemptions

     Normally, when you redeem shares of the Fund you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid
for the shares. The gain or loss will be long-term if you held
the redeemed shares for over a year, and short-term, if for a
year or less. However, if shares held for six months or less are
redeemed and you have a loss, two special rules apply: the loss
is reduced by the amount of exempt-interest dividends, if any,
which you received on the redeemed shares, and any loss over and
above the amount of such exempt-interest dividends is treated as
a long-term loss to the extent you have received capital gains
dividends on the redeemed shares.

Kentucky Tax Information

     Since the Fund may, except as indicated below, purchase only
Kentucky Obligations (which, as defined, means obligations,
including those of non-Kentucky issuers, of any maturity which
pay interest which, in the opinion of counsel, is exempt from
regular Federal income taxes and Kentucky income taxes) all of
the exempt-interest dividends paid by the Fund will be excludable
from the shareholder's gross income for Kentucky income tax
purposes. The Fund may also pay "short-term gains distributions"
and "long-term gains distributions," each as discussed under
"Dividends and Distributions" above. Under Kentucky income tax
law, short-term gains distributions are not exempt from Kentucky
income tax. Kentucky taxes long-term gains distributions at its
ordinary individual and corporate rates. The only investment
which the Fund may make other than in Kentucky Obligations is in
Futures and options on them. Any gains on Futures and options
(including gains imputed under the Code) paid as part or all of a
short-term gains distribution or a long-term gains distribution
will be taxed as indicated above. Under the laws of Kentucky
relating to ad valorem taxation of property, the shareholders
rather than the Fund are considered the owners of the Fund's
assets. Each shareholder will be deemed to be the owner of a
pro-rata portion of the Fund. According to the Kentucky Revenue
Cabinet, to the extent that such portion consists of Kentucky
Obligations, it will be exempt from property taxes, but it will
be subject to property taxes on intangibles to the extent it
consists of cash on hand, cash in out-of-state banks, Futures,
options and other nonexempt assets.

                       EXCHANGE PRIVILEGE

     There is an exchange privilege as set forth below among this
Fund and certain tax-free municipal bond funds and an equity 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 Administrator and Distributor as the Fund. All exchanges
are subject to certain conditions described below. As of the date
of the Prospectus, the Aquila Bond or Equity Funds are this Fund,
Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust,
Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, 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, Pacific Capital Cash Assets Trust
(Original Shares), Pacific Capital Tax-Free Cash Assets Trust
(Original Shares), Pacific Capital U.S. Treasuries Cash Assets
Trust (Original Shares) and Churchill Cash Reserves Trust.

     Class Y Shares of the Fund may be exchanged only for Class Y
Shares of the Bond or Equity Funds or for shares of a
Money-Market Fund.

     Under the Class Y exchange privilege, once Class Y Shares of
any Bond or Equity Fund have been purchased, those shares (and
any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times
between Money-Market Funds and Class Y Shares of the Bond or
Equity Funds without the payment of any sales charge.

     The "Class Y Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange by an institutional investor from a Money-Market
Fund, or which were received in exchange for Class Y Shares of
another Bond or Equity Fund; or (b) acquired as a result of
reinvestment of dividends and/or distributions on otherwise Class
Y Eligible Shares. Shares of a Money-Market Fund not acquired in
exchange for Class Y Eligible Shares of a Bond or Equity Fund can
be exchanged for Class Y Shares of a Bond or Equity Fund only by
persons eligible to make an initial purchase of Class Y Shares.

     This Fund, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into
its shares, if shares of the fund into which exchange is desired
are not available for sale in your state of residence.  The Fund
may also modify or terminate this exchange privilege at any time.
In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take
effect on less than 60 days' written notice to shareholders.

     All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset
value of the shares surrendered for exchange are at least equal
to the minimum investment requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.

     The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone: 

             800-872-5860 toll free or 908-855-5731

     Note: The Fund, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.

     Exchanges of Class Y Shares will be effected at the relative
net asset values of the Class Y Shares being exchanged next
determined after receipt by the Agent of your exchange request.
Prices for exchanges are determined in the same manner as for
purchases of the Fund's shares. See "How to Invest in the Fund."

     An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period
(see the Additional Statement); no representation is made as to
the deductibility of any such loss should such occur.

     Dividends paid by the Money-Market Funds are taxable, except
to the extent that a portion or all of the dividends paid by
Pacific Capital Tax-Free Cash Assets Trust (a tax-free
Money-Market Fund) are exempt from regular Federal income tax,
and to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Treasuries Cash Assets Trust (which invests
in U.S. Treasury obligations) are exempt from state income taxes.
Dividends paid by Aquila Rocky Mountain Equity Fund are taxable. 
If your state of residence is not the same as that of the issuers
of obligations in which a tax-free municipal Bond Fund or a
tax-free Money-Market Fund invests, the dividends from that fund
may be subject to income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of such a Bond Fund or a tax-free Money-Market Fund under
the exchange privilege arrangement.

     If you are considering an exchange into one of the funds
listed above, you should send for and carefully read its
Prospectus.

                       GENERAL INFORMATION

Performance

     Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance including current yield, taxable equivalent yield,
various expressions of total return, current distribution rate
and taxable equivalent distribution rate.

     Average annual total return figures, as prescribed by the
Securities and Exchange Commission, represent the average annual
percentage change in value of a hypothetical $1,000 purchase,
invested at the maximum public offering price (offering price
includes applicable sales charge) for 1- and 5-year periods and
for a period since the inception of the Fund, to the extent
applicable, through the end of such periods, assuming
reinvestment (without sales charge) of all distributions. The
Fund may also furnish total return quotations for other periods
or based on investments at various applicable sales charge levels
or at net asset value. For such purposes total return equals the
total of all income and capital gains paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a
percentage of the purchase price. See the Additional Statement.

     Current yield reflects the income per share earned by each
of the Fund's portfolio investments; it is calculated by (i)
dividing the Fund's net investment income per share during a
recent 30-day period by (ii) the maximum public offering price on
the last day of that period and by (iii) annualizing the result.
Taxable equivalent yield shows the yield from a taxable
investment that would be required to produce an after-tax yield
equivalent to that of the Fund, which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of
the Fund's yield (calculated as indicated) by one minus a stated
income tax rate and by adding the product to the taxable portion
(if any) of the Fund's yield. See the Additional Statement.

     Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities
and Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will
be paid to the Fund's shareholders. Dividends or distributions
paid to shareholders are reflected in the current distribution
rate or taxable equivalent distribution rate which may be quoted
to shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the Fund
during a recent 30-day period by (ii) the current maximum
offering price and by (iii) annualizing the result. A taxable
equivalent distribution rate shows the taxable distribution rate
that would be required to produce an after-tax distribution rate
equivalent to the Fund's distribution rate (calculated as
indicated above). The current distribution rate, unlike yield
figures, is not limited to investment performance, but takes into
account expenses as well; it also differs from the current yield
computation because it could include distributions to
shareholders from sources, if any, other than dividends and
interest, such as short-term capital gains or return of capital.
If distribution rates are quoted in advertising, they will be
accompanied by calculations of current yield in accordance with
the formula of the Securities and Exchange Commission.

     In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Fund's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum
sales charge on the purchase of shares, but not on reinvestment
of income dividends. The investment results of the Fund, like all
other investment companies, will fluctuate over time; thus,
performance figures should not be considered to represent what an
investment may earn in the future or what the Fund's yield, tax
equivalent yield, distribution rate, taxable equivalent
distribution rate or total return may be in any future period.
The annual report of the Fund contains additional performance
information that will be made available upon request and without
charge.

Description of the Fund and its Shares

     Churchill Tax-Free Trust (the "Trust"), a non-diversified
open-end investment company was formed on March 30, 1987, as a
Massachusetts business trust. Its name was changed from
"Churchill Tax-Free Fund of Kentucky" to "Churchill Tax-Free
Trust" in June, 1988. The Fund is the original and only active
portfolio (series) of the Trust. The Fund is an open-end,
non-diversified management investment company. (See "Investment
of the Fund's Assets" for further information about the Fund's
status as "non-diversified.") The Declaration of Trust permits
the Trustees to issue 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 three classes; however, if they deem it advisable
and in the best interests of shareholders, the Board of Trustees
of the Fund may create additional classes of shares (subject to
rules and regulations of the Securities and Exchange Commission
or by exemptive order) or the Board of Trustees may, at its own
discretion, create additional series of shares, each of which may
have separate assets and liabilities (in which case any such
series will have a designation including the word "Series"). See
the Additional Statement for further information about possible
additional series. Shares are fully paid and non-assessable,
except as set forth under the caption "General Information" in
the Additional Statement; the holders of shares have no
pre-emptive or conversion rights.

     The other two classes of shares of the Fund are
Front-Payment Class Shares ("Class A Shares") and Level-Payment
Class Shares ("Class C Shares"), which are fully described in a
separate prospectus that can be obtained by calling the Fund at
800-872-5859.

     The primary distinction among the Fund's three classes of
shares lies in their different sales charge structures and
ongoing expenses, which are likely to be reflected in differing
yields and other measures of investment performance.  All three
classes represent interests in the same portfolio of Kentucky
Obligations and have the same rights, except that each class
bears the separate expenses, if any, of its Distribution Plan and
has exclusive voting rights with respect to its Plan. There are
no Distribution fees with respect to Class Y Shares. 

     Dividends and other distributions paid by the Fund with
respect to shares of each class are calculated in the same manner
and at the same time, but may differ depending upon the
distribution and service fees, if any, and other class-specific
expenses borne by each class.

     The Fund's Distribution Plan has three parts. In addition to
the defensive provisions described above, Parts I and II of the
Plan authorize payments, to certain "Qualified Recipients," out
of the Fund assets allocable to the Class A Shares and Class C
Shares, respectively.  See the Additional Statement. The Fund has
also adopted a Shareholder Services Plan under which the Fund is
authorized to make certain payments out of the Fund assets
allocable to the Class C Shares. See the Additional Statement.

     Of the shares of the Fund outstanding on March 25, 1996, BHC
Securities, Inc., 2005 Market Street, Philadelphia, PA held of
record 1,764,132 shares (8.2%), all of which were Class A Shares.
The Fund's management is not aware of any person beneficially
owning more than 5% of its outstanding shares as of such date. On
the basis of information received from the holder, the Fund's
management believes that all of the shares indicated are held for
the benefit of clients of that institution.

Voting Rights

     At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders
will vote on the election of Trustees and on other matters
submitted to the vote of shareholders. Shares vote by classes on
any matter specifically affecting one or more classes, such as an
amendment of an applicable part of the Distribution Plan. No
amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of a majority of the outstanding
shares of the Fund, except that the Fund's Board of Trustees may
change the name of the Fund. The Fund may be terminated (i) upon
the sale of its assets to another issuer, or (ii) upon
liquidation and distribution of the assets of the Fund, in either
case if such action is approved by the vote of the holders of a
majority of the outstanding shares of the Fund. If not so
terminated, the Fund will continue indefinitely.


<PAGE>



              APPLICATION FOR CHURCHILL TAX-FREE FUND OF KENTUCKY
                            FOR CLASS Y SHARES ONLY
                PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
                      ADM, ATTN: AQUILA SM GROUP OF FUNDS
                  581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
                             Tel.# 1-800-872-5860

STEP 1
A. ACCOUNT REGISTRATION

___Individual Use line 1
___Joint Account*   Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
*  Joint Accounts will be Joint Tenants with rights of survivorship
   unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.

Please type or print name exactly as account is to be registered
1.________________________________________________________________
  First Name   Middle Initial   Last Name   Social Security Number 
2.________________________________________________________________
  First Name   Middle Initial   Last Name   Social Security Number 
3.________________________________________________________________
  Custodian's First Name      Middle Initial          Last Name 
Custodian for ____________________________________________________
                   Minor's First Name   Middle Initial   Last Name  
Under the ___________UGTMA** _____________________________________
         Name of State       Minors Social Security Number 
4. ____________________________________________________
   ____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) 
of Trustees in which account will be registered and the name and date 
of the Trust Instrument. Account for a Pension or Profit Sharing Plan 
or Trust may be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
        Tax I.D. Number    Authorized Individual          Title 


B. MAILING ADDRESS AND TELEPHONE NUMBER

____________________________________________________
  Street or PO Box                           City 
_______________________________(______)______________
  State           Zip          Daytime Phone Number

Occupation:________________________Employer:________________________

Employer's Address:__________________________________________________
                   Street Address:               City  State  Zip 
Citizen or resident of: ___  U.S. ___ Other  Check here ___ if you 
are a non-U.S. Citizen or resident and not subject to back-up 
withholding (See certification in Step 4, Section B, below.)

C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)

_______________________   _____________________________
Dealer Name                           Branch Number
_______________________   _____________________________
Street Address                   Rep. Number/Name
_______________________   (_______)_____________________
  City    State    Zip     Area Code        Telephone


STEP 2 
PURCHASES OF SHARES

A. INITIAL INVESTMENT

Indicate Method of Payment (For either method, make check 
payable to: CHURCHILL TAX-FREE FUND OF KENTUCKY)

___Initial Investment  $ ______________ (Minimum investment $1,000)
                         
___Automatic Investment $______________ (Minimum $50)

For Automatic Investment of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED 
DEPOSIT SLIP OR VOIDED CHECK.

B. DISTRIBUTIONS

All income dividends and capital gains distributions are automatically 
reinvested in additional shares at Net Asset Value unless otherwise 
indicated below.

Dividends are to be:___ Reinvested  ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
    * For cash dividends, please choose one of the following options:

___ Deposit directly into my/our Financial Institution account. 
    ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK 
    showing the Financial Institution account where I/we would like you
    to deposit the dividend. (A Financial Institution is a commercial 
    bank, savings bank or credit union.)

___ Mail check to my/our address listed in Step 1.


STEP 3
SPECIAL FEATURES

A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No

    This option provides you with a convenient way to have amounts 
automatically drawn on your Financial Institution account and invested
in your Churchill Tax-Free Fund of Kentucky Account. To establish this
program, please complete Step 4, Sections A & B of this Application.

I/We wish to make regular monthly investments of $ _________________ 
(minimum $50) on the ___ 1st day  or ___ 16th day of the month (or on 
the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)

B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No

    This option provides you with a convenient way to add to your account 
(minimum $50 and maximum $50,000) at any time you wish by simply calling 
the Fund toll-free at 1-800-872-5860. To establish this program, please 
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)

C. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)

Application must be received in good order at least 2 weeks 
prior to 1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No

    Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set
forth below. To realize the amount stated below, Administrative 
Data Management Corp. (the Agent) is authorized to redeem sufficient
shares from this account at the then current Net Asset Value, in 
accordance with the terms below:

Dollar Amount of each withdrawal $ ______________beginning________________ .
                                   Minimum: $50             Month/Year
Payments to be made: ___ Monthly or ___ Quarterly

    Checks should be made payable as indicated below. If check is 
payable to a Financial Institution for your account, indicate 
Financial Institution name, address and your account number.
_______________________________     ______________________________________
First Name Middle Initial Last Name   Financial Institution Name
_______________________________     ______________________________________
  Street                             Financial Institution Street Address
_______________________________     ______________________________________
 City   State Zip                   City   State Zip    
                
                                     ____________________________________
                                     Financial Institution Account Number

D. TELEPHONE EXCHANGE
 (Check appropriate box)
___ Yes ___ No

This option allows you to effect exchanges among accounts in your 
name within the Aquila SM Group of Funds by telephone.

    The Agent is authorized to accept and act upon my/our or any other 
persons telephone instructions to execute the exchange of shares of one 
Aquila-sponsored fund for shares of another Aquila-sponsored fund with 
identical shareholder registration in the manner described in the 
Prospectus. Except for gross negligence in acting upon such telephone
instructions to execute an exchange, and subject to the conditions set 
forth herein, I/we understand and agree to hold harmless the Agent, each
of the Aquila Funds, and their respective officers, directors, trustees,
employees, agents and affiliates against any liability, damage, expense,
claim or loss, including reasonable costs and attorneys fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.

E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No

The proceeds will be deposited to your Financial Institution 
account listed.

    Cash proceeds in any amount from the redemption of shares will 
be mailed or wired, whenever possible, upon request, if in an amount 
of $1,000 or more to my/our account at a Financial Institution. The 
Financial Institution account must be in the same name(s) as this 
Fund account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________   ____________________________________
  Account Registration            Financial Institution Account Number
_______________________________   ____________________________________
  Financial Institution Name      Financial Institution Transit/Routing
                                                                Number
_______________________________   ____________________________________
  Street                            City   State Zip      


STEP 4 
Section A

DEPOSITORS AUTHORIZATION TO HONOR DEBITS

IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT
YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B.

I/We authorize the Financial Institution listed below to charge to 
my/our account any drafts or debits drawn on my/our account initiated 
by the Agent, Administrative Data Management Corp., and to pay such 
sums in accordance therewith, provided my/our account has sufficient 
funds to cover such drafts or debits. I/We further agree that your 
treatment of such orders will be the same as if I/we personally signed 
or initiated the drafts or debits.

I/We understand that this authority will remain in effect until you 
receive my/our written instructions to cancel this service. I/We also 
agree that if any such drafts or debits are dishonored, for any 
reason, you shall have no liabilities.

Financial Institution Account Number _______________________________________

Name and Address where my/our account is maintained

Name of Financial Institution______________________________________________

Street Address_____________________________________________________________

City___________________________________________State _________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account is 
registered

______________________________________________
        (Please Print)
X_____________________________________________  __________________
        (Signature)                                    (Date)

______________________________________________
        (Please Print)
X_____________________________________________  __________________
        (Signature)                                    (Date)

                        INDEMNIFICATION AGREEMENT

To: Financial Institution Named Above

So that you may comply with your depositor's request, Aquila 
Distributors, Inc. (the "Distributor") agrees:

1 Electronic Funds Transfer debit and credit items transmitted pursuant
  to the above authorization shall be subject to the provisions of the 
  Operating Rules of the National Automated Clearing House Association.

2 To indemnify and hold you harmless from any loss you may suffer in 
  connection with the execution and issuance of any electronic debit 
  in the normal course of business initiated by  the Agent (except 
  any loss due to your payment of any amount drawn against insufficient 
  or uncollected funds), provided that you promptly notify us in 
  writing of any claim against you with respect to the same, and further
  provided that you will not settle or pay or agree to settle or pay any 
  such claim without the written permission of the Distributor.

3 To indemnify you for any loss including your reasonable costs and 
  expenses in the event that you dishonor, with or without cause, 
  any such electronic debit.

STEP 4 
Section B

SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED

- The undersigned warrants that he/she has full authority and is of 
  legal age to purchase shares of the Fund and has received and 
  read a current Prospectus of the Fund and agrees to its terms.

- I/We authorize the Fund and its agents to act upon these 
  instructions for the features that have been checked.

- I/We acknowledge that in connection with an Automatic Investment or 
  Telephone Investment, if my/our account at the Financial Institution
  has insufficient funds, the Fund and its agents may cancel the 
  purchase transaction and are authorized to liquidate other shares or
  fractions thereof held in my/our Fund account to make up any deficiency
  resulting from any decline in the net asset value of shares so 
  purchased and any dividends paid on those shares. I/We authorize the 
  Fund and its agents to correct any transfer error by a debit or credit
  to my/our Financial Institution account and/or Fund account and to 
  charge the account for any related charges. I/We acknowledge that 
  shares purchased either through Automatic Investment or Telephone 
  Investment are subject to applicable sales charges.

- The Fund, the Agent and the Distributor and their Trustees, directors, 
  employees and agents will not be liable for acting upon instructions
  believed to be genuine, and will not be responsible for any losses
  resulting from unauthorized telephone transactions if the Agent follows
  reasonable procedures designed to verify the identity of the caller. 
  The Agent will request some or all of the following information: account
  name and number; name(s) and social security number registered to the 
  account and personal identification; the Agent may also record calls.
  Shareholders should verify the accuracy of confirmation statements
  immediately upon receipt. Under penalties of perjury, the undersigned
  whose Social Security (Tax I.D.) Number is shown above certifies 
  (i) that Number is my correct taxpayer identification number and 
  (ii) currently I am not under IRS notification that I am subject to 
  backup withholding (line out (ii) if under notification). If no such 
  Number is shown, the undersigned further certifies, under penalties
  of perjury, that either (a) no such Number has been issued, and a 
  Number has been or will soon be applied for; if a Number is not 
  provided to you within sixty days, the undersigned understands that 
  all payments (including liquidations) are subject to 31% withholding 
  under federal tax law, until a Number is provided and the undersigned 
  may be subject to a $50 I.R.S. penalty; or (b) that the undersigned 
  is not a citizen or resident of the U.S.; and either does not expect 
  to be in the U.S. for 183 days during each calendar year and does 
  not conduct a business in the U.S. which would receive any gain from 
  the Fund, or is exempt under an income tax treaty.

NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. 
FOR A TRUST, ALL TRUSTEES MUST SIGN.*
__________________________     ____________________________     _________
Individual (or Custodian)      Joint Registrant, if any            Date
__________________________     ____________________________     _________
Corporate Officer, Partner,    Title                               Date
Trustee, etc.    

* For Trust, Corporations or Associations, this form must be accompanied 
by proof of authority to sign, such as a certified copy of the corporate 
resolution or a certificate of incumbency under the trust instrument.

SPECIAL INFORMATION

- Certain features (Automatic Investment, Telephone Investment, 
  Expedited Redemption and Direct Deposit of Dividends) are effective 
  15 days after this form is received in good order by the Fund's Agent.

- You may cancel any feature at any time, effective 3 days after the 
  Agent receives written notice from you.

- Either the Fund or the Agent may cancel any  feature, without prior 
  notice, if in its judgment your use of any  feature involves unusual 
  effort or difficulty in the administration of your account.

- The Fund reserves the right to alter, amend or terminate any or all  
  features or to charge a service fee upon 30 days written notice to 
  shareholders except if additional notice is specifically required by 
  the terms of the Prospectus.

BANKING INFORMATION

- If your Financial Institution account changes, you must complete a 
  Ready Access features form which may be obtained from Aquila 
  Distributors at 1-800-872-5859 and send it to the Agent together 
  with a "voided" check or pre-printed deposit slip from the new 
  account. The new Financial Institution change is effective in 15 
  days after this form is received in good order by the Fund's Agent.

AUTOMATIC WITHDRAWAL PLAN PROVISIONS

By requesting an Automatic Withdrawal Plan, the applicant agrees to 
the terms and conditions applicable to such plans, as stated below.

1. The Agent will administer the Automatic Withdrawal Plan 
   (the "Plan") as agent for the person (the "Planholder") who 
   executed the Plan authorization.

2. Certificates will not be issued for shares of the Fund purchased 
   for and held under the Plan, but the Agent  will credit all such 
   shares to the Planholder on the records of the Fund. Any share
   certificates now held by the Planholder may be surrendered 
   unendorsed to the Agent with the application so that the shares
   represented by the certificate may be held under the Plan.

3. Dividends and distributions will be reinvested in shares of the 
   Fund at Net Asset Value without a sales charge.

4. Redemptions of shares in connection with disbursement payments 
   will be made at the Net Asset Value per share in effect at the 
   close of business on the last business day of the month or quarter.

5. The amount and the interval of disbursement payments and the address
   to which checks are to be mailed may be changed, at any time, by the
   Planholder on written notification to the Agent. The Planholder 
   should allow at least two weeks time in mailing such notification 
   before the requested change can be put in effect.

6. The Planholder may, at any time, instruct the Agent by written notice
   (in proper form in accordance with the requirements of the then current 
   Prospectus of the Fund) to redeem all, or any part of, the shares held
   under the Plan. In such case the Agent will redeem the number of shares
   requested at the Net Asset Value per share in effect in accordance with
   the Fund's usual redemption procedures and will mail a check for the
   proceeds of such redemption to the Planholder.

7. The Plan may, at any time, be terminated by the Planholder on written
   notice to the Agent, or by the Agent upon receiving directions to that 
   effect from the Fund. The Agent will also terminate the Plan upon 
   receipt of evidence satisfactory to it of the death or legal 
   incapacity of the Planholder. Upon termination of the Plan by the 
   Agent or the Fund, shares remaining unredeemed will be held in an
   uncertificated account in the name of the Planholder, and the account
   will continue as a dividend-reinvestment, uncertificated account 
   unless and until proper instructions are received from the Planholder,
   his executor or guardian, or as otherwise appropriate.

8. The Agent shall incur no liability to the Planholder for any action 
   taken or omitted by the Agent in good faith.

9. In the event that the Agent shall cease to act as transfer agent for 
   the Fund, the Planholder will be deemed to have appointed any successor
   transfer agent to act as his agent in administering the Plan.

10.Purchases of additional shares concurrently with withdrawals are
   undesirable because of sales charges when purchases are made. 
   Accordingly, a Planholder may not maintain this Plan while 
   simultaneously making regular purchases. While an occasional lump sum
   investment may be made, such investment should normally be an amount
   equivalent to three times the annual withdrawal or $5,000, whichever 
   is less.


<PAGE>


INVESTMENT ADVISER
Banc One Investment Advisors Corporation
416 West Jefferson Street
Louisville, Kentucky 40202

ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017

BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Thomas A. Christopher     Douglas Dean
Diana P. Herrmann         Ann R. Leven
Theodore T. Mason         Anne J. Mills
William J. Nightingale    James R. Ramsey

OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Senior Vice President
L. Michele Crutcher, Assistant Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary

DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017

TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198

CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271

INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154

COUNSEL
Hollyer Brady Smith Troxell 
  Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176

TABLE OF CONTENTS
Highlights.......................................2
Table of Expenses................................4
Financial Highlights.............................5
Introduction.....................................6
Investment Of The Fund's Assets..................6
Investment Restrictions.........................11
Net Asset Value Per Share.......................11
How To Invest In The Fund.......................12
How To Redeem Your Investment...................14
Automatic Withdrawal Plan.......................16
Management Arrangements.........................17
Dividend And Tax Information....................20
Exchange Privilege..............................23
General Information.............................25
Application 

AQUILA
[LOGO]
CHURCHILL
TAX-FREE FUND
OF
KENTUCKY

A tax-free
income investment

[LOGO]

PROSPECTUS

One Of The
Aquilasm Group Of Funds