Registration Nos. 33-4382 & 811-4626
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933[ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 18 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 18 [ X ]
THE CASCADES TRUST
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Hollyer, Brady, Smith, Troxell,
Barrett, Rockett, Hines & Mone
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
___
[___] immediately upon filing pursuant to paragraph (b)
[_X_] on April 5, 1996 pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[___] on (date) pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) prusuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effec-
tive date for a previous post-effective amendment.
Registrant hereby declares, pursuant to Section (a)(1) of Rule
24f-2 under the Investment Company Act of 1940, that Registrant has
registered an indefinite number of its shares under the Securities
Act of 1933 pursuant to that Section and that the Rule 24f-2 Notice
for Registrant's fiscal year ended September 30, 1995 was filed in
November 1995.
<PAGE>
THE CASCADES TRUST
CROSS REFERENCE SHEET
Part A of
Form N-1A
Item No. Prospectus Caption(s)
1..............Cover Page
2..............Table of Expenses
3..............Financial Highlights; General Information
4..............Introduction; Highlights; Investment of the
Trust's Assets; Investment Restrictions;
General Information
5..............Management Arrangements
5A.............**
6..............General Information; Alternative Purchase
Plans; Dividend and Tax Information
7..............Net Asset Value per Share; Alternative
Purchase Plans; How to Invest in
the Trust; Exchange Privilege
8..............How to Redeem Your Investment; Automatic
Withdrawal Plan; Exchange Privilege
9..............*
Part B of
Form N-1A Statement of Additional Information
Item No. or Prospectus Caption(s)
10.............Cover Page
11.............Cover Page
12.............*
13.............Investment of the Trust's Assets; Municipal
Bonds; Investment Restrictions
14.............Trustees and Officers
15.............General Information (Prospectus caption);
Trustees and Officers
16.............Additional Information as to Management
Arrangements; General Information
17.............Additional Information as to Management
Arrangements
18.............General Information
19.............Limitations of Redemptions in Kind; Computa-
tion of Net Asset Value; Automatic With-
drawal Plan; Distribution Plan
20.............Additional Tax Information
21.............How to Invest in the Trust (Prospectus cap-
tion); General Information
22.............Performance
* Not applicable or negative answer
** Contained in the annual report of the Registrant
<PAGE>
Aquila
Tax-Free Trust of Oregon
380 Madison Avenue, Suite 2300
New York, New York 10017
800-USA-OREG (800-872-6734)
212-697-6666
Prospectus April 5, 1996
Class A Shares
Class C Shares
The Trust is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Oregon and
regular Federal income taxes as is consistent with preservation of
capital by investing in municipal obligations which pay interest
exempt from Oregon 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 Trust's Adviser, Qualivest Capital Management, Inc.,
a subsidiary of U.S. Bancorp.
This Prospectus concisely states information about the
Trust that you should know before investing. A Statement of
Additional Information about the Trust (the "Additional Statement")
dated April 5, 1996, has been filed with the Securities and
Exchange Commission and is available without charge upon written
request to Administrative Data Management Corp., the Trust'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 Trust and its management
not included in this Prospectus. The Additional Statement is
incorporated by reference in its entirety in this Prospectus. Only
when you have read both the Prospectus and the Additional Statement
are all material facts about the Trust available to you.
SHARES OF THE TRUST ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY, QUALIVEST CAPITAL MANAGEMENT, INC., (THE
"ADVISER"), UNITED STATES NATIONAL BANK OR OREGON, ANY OF THEIR
AFFILIATES OR ANY OTHER BANK. SHARES OF THE TRUST 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 TRUST INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
FOR PURCHASE, REDEMPTION OR ACCOUNT INQUIRIES CONTACT
THE TRUST'S TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
CALL 800-872-6735 TOLL FREE OR 908-855-5731
FOR GENERAL INQUIRIES & YIELD INFORMATION,
CALL 800-872-6734 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
Tax-Free Trust of Oregon, founded by Aquila Management
Corporation in 1985 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 State of Oregon, its counties and
various other local authorities to finance such long-term projects
as schools, airports, roads, hospitals, water facilities and other
vital public purpose projects throughout Oregon. (See
"Introduction.")
Tax-Free Income - The municipal obligations in which the Trust
invests pay interest which is exempt from both regular Federal and
State of Oregon income taxes. Dividends paid by the Trust from this
income are likewise free of both such taxes. It is, however,
possible that in certain circumstances a small portion of the
dividends paid by the Trust will be subject to income taxes. The
Federal alternative minimum tax may apply to some investors, but
its impact will be limited since not more than 20% of the Trust's
net assets can be invested in obligations paying interest which is
subject to this tax. The receipt of exempt-interest dividends from
the Trust 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 Trust 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 Trust'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 Trust," 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 Trust by Automatic Investment or
Telephone Investment. (See "How to Invest in the Trust.")
Alternative Purchase Plans - The Trust 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 Trust 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 Trust'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 Trust 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 Trust 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 195 issues with different
maturities. (See "Investment of the Trust's Assets.")
Local Portfolio Management - Qualivest Capital Management,
Inc., a subsidiary of U.S. Bancorp ("Bancorp") and its subsidiary,
United States National Bank of Oregon ("USNB"), serves as the
Trust's Investment Adviser, providing experienced local
professional management. The Trust pays fees at a rate of 0.20% of
1% of average annual net assets to its Adviser and fees at the same
rate to its Administrator (for total fees at a rate of 0.40 of 1%
of average annual net assets). (See "Table of Expenses,"
"Distribution Plan" and "Management Arrangements.") Bancorp is a
$21 billion superregional financial services holding company
organized under the laws of Oregon in 1968. USNB, headquartered in
Portland, is a national banking association chartered in 1891.
Other services of Bancorp and its subsidiaries include consumer
financing, commercial finance, international banking, investment
advisory, discount brokerage and venture capital.
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 Trust 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 Trust 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 Trust'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 Trust's
Investments and Their Yields.") The Trust's assets, being primarily
or entirely Oregon issues, are subject to economic and other
conditions affecting Oregon. (See "Risks and Special Considerations
Regarding Investment in Oregon Obligations.") Moreover, the Trust
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 Trust's Assets.") The
Trust may also, to a limited degree, buy and sell futures contracts
and options on futures contracts, although since inception the
Trust 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>
TAX-FREE TRUST OF OREGON
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 Trust Operating Expenses (3)
(as a percentage of average net assets)
Investment Advisory Fee 0.20% 0.20%
12b-1 Fee 0.15% 0.75%
All other expenses (4) 0.38% 0.63%
Administration Fee 0.20% 0.20%
Service Fee None 0.25%
Other Expenses (4) 0.18% 0.18%
Total Trust Operating Expenses (4) 0.73% 1.58%
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:
<S> <C> <C> <C> <C>
One Three Five Ten
Year Years Years Years
Class A Shares $47 $62 $79 $127
Class C Shares
With complete redemption
at end of period $26 $50 $86 $141 (6)
With no redemption $16 $50 $86 $141 (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 XX.
</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 Trust 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 0.02% expense offset in custodian fees received
for uninvested cash balances. Reflecting this offset, other expenses,
all other expenses, and total Trust operating expenses for Class A Shares
were 0.16%, 0.36% and 0.71%, respectively; for Class C Shares, these
expenses would have been 0.16%, 0.61% and 1.56%, 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 Trust 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 TRUST").
The purpose of the above table is to assist the investor in understanding
the various costs that an investor in the Trust 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
Trust 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.
TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights as it relates to the five years
ended September 30, 1995 has been audited by KPMG Peat Marwick LLP, independent
auditors, whose report thereon is included in the Trust'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 statments and related notes. On April 23, 1990,
Aquila Management Corporation, originally the Trust's Sub-Adviser and
Administrator, became Administrator only.
Year ended September 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $10.20 $10.95 $10.48 $10.15 $9.67
Income from Investment
Operations:
Net investment income 0.55 0.56 0.58 0.65 0.62
Net gain (loss) on
securities (both
realized and
unrealized) 0.39 (0.75) 0.50 0.29 0.49
Total from Investment
Operations 0.94 (0.19) 1.08 0.94 1.11
Less Distributions:
Dividends from net
investment income (0.55) (0.56) (0.58) (0.61) (0.63)
Distributions from
capital gains (0.04) - (0.03) - -
Total Distributions (0.59) (0.56) (0.61) (0.61) (0.63)
Net Asset Value, End of
Period $10.55 $10.20 $10.95 $10.48 $10.15
Total Return (not
reflecting sales load) 9.52% (1.77)% 10.64% 9.51% 11.83%
Ratios/Supplemental Data
Net Assets, End of
Period (in thousands) $310,554 $316,317 $331,018 $249,953 $189,734
Ratio of Expenses to
Average Net Assets 0.71% 0.68% 0.66% 0.66% 0.71%
Ratio of Net Investment
Income to Average Net
Assets 5.38% 5.28% 5.46% 5.87% 6.30%
Portfolio Turnover Rate 13% 11% 8% 11% 21%
Net investment income per share and the ratios of income and expenses to
average net assets before expense offset in custodian fees for uninvested cash
balances would have been:
Net Investment Income $0.55 $0.56 $0.58 $0.65 $0.62
Ratio of Expenses to
Average Net Assets 0.73% 0.70% 0.68% 0.66% 0.73%
Ratio of Net Investment
Income to Average Net
Assets 5.37% 5.26% 5.44% 5.87% 6.28%
<CAPTION>
1990 1989 1988 1987 1986<F*>
<C> <C> <C> <C> <C>
$9.76 $9.67 $9.11 $9.85 $9.60
0.66 0.73 0.61 0.65 0.17
(0.11) 0.01 0.60 (0.71) 0.25
0.55 0.74 1.21 (0.06) 0.42
(0.64) (0.65) (0.65) (0.68) (0.17)
- - - - -
(0.64) (0.65) (0.65) (0.68) (0.17)
$9.67 $9.76 $9.67 $9.11 $9.85
5.76% 7.83% 13.66% (0.59)% 4.06%<F1>
$140,713 $122,096 $102,361 $92,990 $36,117
0.71% 0.76% 0.80% 0.55% 0.61%<F2>
6.55% 6.61% 6.77% 6.88% 6.33%<F2>
25% 45% 24% 17% None
$0.66 $0.73 $0.61 $0.62 $0.16
0.73% 0.78% 0.82% 0.83% 1.21%<F2>
6.53% 6.59% 6.75% 6.60% 5.73%<F2>
<FN>
<F*> For the period from June 16, 1986 (commencement of operations) to
September 30, 1986.
</FN>
<FN>
<F1> Not annualized.
</FN>
<FN>
<F2> Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable investment
for investors who seek income exempt from Oregon State and regular
Federal income taxes.
You may invest in shares of the Trust as an alternative to
direct investments in Oregon Obligations, as defined below, which
may include obligations of certain non-Oregon issuers. The Trust
offers you the opportunity to keep assets fully invested in a
vehicle that provides a professionally managed portfolio of Oregon
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 Oregon Obligations. Through the convenience of a single
security consisting of shares of the Trust, 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 Oregon Obligations.
Oregon 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. The Trust is the only
active portfolio of the Cascades Trust.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Oregon State and regular
Federal income taxes as is consistent with the preservation of
capital, the Trust will invest in Oregon Obligations (as defined
below). There is no assurance that the Trust will achieve its
objective, which is a fundamental policy of the Trust. (See
"Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Oregon Obligations" means obligations, including those of
certain non-Oregon 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 not subject to
Oregon income taxes. Although exempt from regular Federal income
tax, interest paid on certain types of Oregon Obligations, and
dividends which the Trust 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 Trust's net assets will be
invested in Oregon Obligations the income paid upon which will not
be subject to the alternative minimum tax; accordingly, the Trust
can invest up to 20% of its net assets in obligations which are
subject to the Federal alternative minimum tax. The Trust may
refrain entirely from purchasing these types of Oregon Obligations.
(See "Dividend and Tax Information.")
The non-Oregon bonds or other obligations the interest on
which is exempt under present law from regular Federal and Oregon
income taxes are those issued by or under the authority of Guam,
the Northern Mariana Islands, Puerto Rico and the Virgin Islands.
The Trust will not purchase Oregon Obligations of non-Oregon
issuers unless Oregon Obligations of Oregon issuers of the desired
quality, maturity and interest rate are not available. As an
Oregon-oriented fund, at least 65% of the Trust's total assets will
be invested in Oregon Obligations of Oregon issuers. The Trust
invests only in Oregon 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 Trust will have a portfolio of quality
oriented (investment grade) securities, the Oregon Obligations
which the Trust 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 Qualivest
Capital Management, Inc., the Trust's investment adviser (the
"Adviser"), subject to the direction and control of the Trust'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 Oregon
Obligation is downgraded such that it could not then be purchased
by the Trust, or, in the case of an unrated Oregon Obligation, if
the Adviser determines that the unrated obligation is no longer of
comparable quality to those rated obligations which the Trust may
purchase, it is the current policy of the Trust to cause any such
obligation to be sold as promptly thereafter as the Adviser in its
discretion determines to be consistent with the Trust's objectives;
such obligation remains in the Trust'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 Trust
can purchase industrial development bonds only if they meet the
definition of Oregon Obligations, i.e., the interest on them is
exempt from Oregon State and regular Federal income taxes.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Trust 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 Trust, 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 Trust's assets. If the Trust 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 Trust 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 Trust invests in the
securities of specific issuers, the more the Trust is exposed to
risks associated with investments in those issuers. The Trust's
assets, being primarily or entirely Oregon issues, are accordingly
subject to economic and other conditions affecting Oregon. (See
"Risk Factors and Special Considerations Regarding Investment in
Oregon Obligations.")
Certain Stabilizing Measures
The Trust 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 Trust 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 Trust's Oregon
Obligations caused by interest rate fluctuations. Futures and
options could also provide a hedge against increases in the cost of
securities the Trust intends to purchase.
Although it does not currently do so, and since inception has
not done so, the Trust 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 Trust
may also write and purchase put and call options on Futures.
As a matter of fundamental policy the Trust 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 Trust 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
Trust's assets. (See the Additional Statement.)
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 Trust's portfolio and
the prices of Futures or options purchased or sold by the Trust;
(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 Trust'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 Trust'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 Trust determines to use futures and 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 Trust may purchase from financial institutions
participation interests in Oregon Obligations (such as industrial
development bonds and municipal lease/purchase agreements). A
participation interest gives the Trust an undivided interest in the
underlying Oregon Obligations in the proportion that the Trust's
participation interest bears to the total amount of the underlying
Oregon Obligations. All such participation interests must meet the
Trust's credit requirements. See "Limitation to 10% as to Certain
Investments."
When-Issued and Delayed Delivery Purchases
The Trust may buy Oregon Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them.
The Oregon Obligations so purchased are subject to market
fluctuation and no interest accrues to the Trust until delivery and
payment take place; their value at the delivery date may be less
than the purchase price. The Trust cannot enter into when-issued
commitments exceeding in the aggregate 15% of the market value of
the Trust's total assets, less liabilities other than the
obligations created by when-issued commitments. If the Trust
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
Trust 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 Trust cannot purchase Oregon 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 Oregon Obligations as to which the Trust can exercise
the right to demand payment in full within three days and as to
which there is a secondary market. Floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. (See
the Additional Statement.)
Current Policy as to Certain Obligations
The Trust will not invest more than 25% of its total assets in
(i) Oregon Obligations the interest on which is paid from revenues
of similar type projects or (ii) industrial development bonds,
unless this 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 Trust's
Investments and Their Yields
The value of the Oregon Obligations in which the Trust
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Trust buys Oregon 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 Oregon 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 Trust may, to achieve a defensive position,
shorten the average maturity of its portfolio.
Risk Factors and Special Considerations Regarding
Investment in Oregon Obligations
The following is a discussion of the general factors that
might influence the ability of Oregon issuers to repay principal
and interest when due on the Oregon Obligations contained in the
portfolio of the Trust. Such information is derived from sources
that are generally available to investors and is believed by the
Trust to be accurate, but has not been independently verified and
may not be complete.
Oregon's economy is substantially diversified among many
industries. The lumber and forest products industry, an industry
highly susceptible to recessionary cycles, has long been a
significant component of the State's economy. However, a political
environment supporting the reduction of logging on public lands has
taken its toll on this industry and the pursuit of protection for
the spotted owl and wild salmon runs have severely curtailed
logging in certain areas.
As employment in the lumber and forest products industries has
declined, other industries have been picking up the slack. 1994 saw
many manufacturing plants lured to the State. The ultimate decision
of whether to locate in the State depends on a company's ability to
secure property tax breaks from the county in which its plant will
be located. A relatively new State property tax exemption program
grants counties the right to offer property tax breaks for new
plants costing more than $100 million to build. The principal
sources of State tax revenues are the personal income and corporate
income taxes; Oregon does not have a sales tax. Recent attempts to
institute a sales tax have been unsuccessful. A recent attempt to
introduce a "transaction tax" was unsuccessful. As a result, State
tax revenues are particularly sensitive to economic recessions.
In addition to general obligation bonds, the State and its
political subdivisions issue revenue obligations payable from
specific projects or sources, including lease rentals. There can be
no assurance that a material downturn in the State's economy, with
the resulting impact on the financial strength of State and local
entities, will not adversely affect obligors of the obligations
held in the Trust's portfolio to make the required payments on
these obligations, and consequently, the market value of such
obligations.
Additionally, certain municipal securities held by the Trust
may rely in whole or in part for repayment on ad valorem property
taxes. There are existing limits under Oregon State law on the
issuance of bonds supported by such taxes. In recent years several
voter initiatives have sought to amend the State Constitution to
"freeze" or roll back such taxes. On November 6, 1990, Oregon
voters approved a property tax limitation measure. The adoption of
the tax limitation measure may have an adverse effect on the
general financial condition of cities, counties, school districts
and other districts and may in some cases impair their ability to
pay principal and interest on obligations. The tax limitation
measure does permit tax levies to pay interest and principal on
bonds issued on or before November 6, 1990, as well as indebtedness
authorized by the Oregon Constitution (bonds issued by the State of
Oregon under specific constitutional provisions), and general
obligation bonds approved by the voters for capital construction or
improvements. (See the Additional Statement for information about
the tax limitation measure.)
At present, it is difficult to assess the impact of the tax
limitation measure, in part, because it will not be fully phased in
until 1995-1996. In addition, the effect of this measure is also
dependent on whether alternative revenue sources are obtained and,
if so, the type and amount of such revenues. The adoption of the
tax limitation measure may have an adverse effect on the general
financial condition of affected cities, counties, school districts
and other districts, and may, in some cases, impair their ability
to pay obligations other than general obligation bonds. In
addition, the adoption of the tax limitation measure will require
the Legislature to provide funds from its general fund to replace
tax revenues lost by the public school system through fiscal year
1995-96. This could have an adverse effect on the State's credit
rating, particularly if alternative revenue sources are not
obtained. Moreover, the tax limitation measure might contract the
overall size of the Oregon municipal bond market and might have
some adverse effect on the value of the Trust's portfolio. See the
Additional Statement.
The Oregon Constitution reserves to the people of the State
initiative and referendum powers pursuant to which measures
designed to amend the State Constitution or enact legislation can
be placed on the statewide general election ballot for
consideration by the voters. Over the past decade Oregon has
witnessed increasing activity in the number of initiative petitions
that have qualified for statewide general elections. From the 1988
elections through those of 1994, both the number of such petitions
that qualified and the number of such petitions that were approved
by the voters have increased. It is not possible to predict what
petitions will qualify for submission to the voters in 1996 nor
which will be approved.
There is a relatively inactive market for municipal bonds of
Oregon issuers other than the general obligations of the State
itself. Consequently, the market price of such other bonds may be
changeable. If the Trust were forced to sell a large volume of
these bonds for any reason, such as redemptions of a large number
of its shares, there is a risk that the large sale itself might
adversely affect the value of the Trust's portfolio.
INVESTMENT RESTRICTIONS
The Trust 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 Trust'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 Trust's fundamental policies, not otherwise identified in
the Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than the Oregon
Obligations meeting the standards stated under "Investment of the
Trust's Assets"; the Trust can also purchase and sell Futures and
options on them within the limits there discussed.
2. The Trust has industry investment requirements.
The Trust 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 Trust will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.
3. The Trust cannot make loans.
The Trust can buy those Oregon Obligations which it is
permitted to buy (see "Investment of the Trust's Assets"); this is
investing, not making a loan. The Trust cannot lend its portfolio
securities.
4. The Trust can borrow only in limited amounts for special
purposes.
The Trust 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. The Trust will not borrow
to purchase Oregon Obligations or to increase its income, but only
to meet redemptions so that it will not have to sell Oregon
Obligations to pay for redemptions. Interest on borrowings would
reduce the Trust's income. Except in connection with borrowings,
the Trust will not issue senior securities. The Trust will not
purchase any Oregon 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 Trust'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 Trust (i.e., the value of the assets less
liabilities) by the total number of shares outstanding.
Determination of the value of the Trust's assets is subject to the
direction and control of the Trust's Board of Trustees. In general,
it is based on market value, except that Oregon 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 Trust 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 Oregon 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.
By purchasing Class A Shares you have the option of paying
the applicable sales charge at the time of your purchase. By
purchasing Class C Shares, you have the option of paying 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 Trust'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 Trust 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>
<S> <C> <C>
Class A Class C
Initial Sales Maximum of 4% of the None
Charge Public Offering Price
Contingent Deferred None (except for Maximum CDSC of 1% if
Sales Charge certain purchases shares redeemed before 12
over $1 Million) months; 0% after 12 months
Distribution and 0.15 of 1% Distribution fee of 0.75
Service Fees of 1% and a service fee of
0.25 of 1% for a total of
1%, payable for six years
Other Information Initial Sales Charge Shares convert to Class A
waived or reduced in Shares 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 Trust 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 Trust 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 Trust 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 TRUST
The Trust'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 Trust and the Class of Shares to be purchased. With
subsequent investments, please send the pre-printed stub attached
to the Trust'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 Trust 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
Trust 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 Trust'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>
<S> <C> <C> <C>
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
Less than $25,000...... 4.00% 4.17% 3.00%
$25,000 but less
than $50,000........ 3.75% 3.90% 3.00%
$50,000 but less
than $100,000....... 3.50% 3.63% 2.75%
$100,000 but less
than $250,000....... 3.25% 3.36% 2.75%
$250,000 but less
than $500,000....... 3.00% 3.09% 2.50%
$500,000 but less
than $1,000,000..... 2.50% 2.56% 2.25%
For purchases of $1 million or more see "Purchases of $1 Million
or More," below.
</TABLE>
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 Trust through a single selected dealer or
through the Distributor. Class A Shares of the Trust 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 Trust'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 Trust is a party.
The Trust 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 Trust 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 Trust
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 Trust, 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 Trust 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 Trust) will
pay to any dealer effecting a purchase of Class A Shares of the
Trust using the proceeds of a Qualified Redemption the lesser of 1%
of such proceeds or same amounts described under "Purchases of $1
Million or More," above on the same terms and conditions. Class A
Shares of the Trust 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 Trust 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 Trust. Additional compensation may include
payment or partial payment for advertising of the Trust'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 Trust'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 Trust 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 Trust will affect the price you pay for shares or
the amount that the Trust 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 Trust a
Systematic Payroll Investment Plan ("Payroll Plan") you may arrange
for systematic investments into the Trust 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 Trust. An investment in the Trust will be
made for you at the offering price, which includes applicable sales
charges determined as described above, when the Trust receives the
funds from your employer. The Trust 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 Trust (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 Trust 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 Trust" 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 Trust 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 Trust 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 Trust 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
Trust (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 Trust.
Such payments shall be made only out of the Trust'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 Trust, 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 Trust'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 5, 1996, all outstanding shares of the Trust were what
are currently designated Class A Shares. During the fiscal year
ended September 30, 1995, $230,866 was paid under the Plan as then
in effect to Qualified Recipients, of which $4,260 was paid to the
Distributor. (See the Additional Statement for a description of the
Distribution Plan.)
Whenever the Trust makes Class A Permitted Payments, the
aggregate annual rate of the advisory fee and administration fee
otherwise payable by the Trust will be reduced from 0.50 of 1% to
0.40 of 1% of the Trust's average annual net assets. (See
"Management Arrangements.")
Under another part of the Plan, the Trust 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 Trust (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
Trust. Such payments shall be made only out of the Trust'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
Trust, 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 Trust'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 Trust that some of the expenses
which might be considered to be sales-related which the Trust pays
or may pay come within the purview of the Rule. The Trust 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 Trust 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 Trust 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 Trust 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 Trust (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 Trust. Such payments shall
be made only out of the Trust'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 Trust, 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 Trust, 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 Trust 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
Trust 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:
800-872-6735 toll free or 908-855-5731
Note: The Trust, 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 Trust. 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 Trust'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 Trust, 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 Trust);
* 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 Trust may impose a charge, not
exceeding $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. The Trust
has no present intention of making this charge. Upon 30 days'
written notice to shareholders, the Trust 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 Trust 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 Trust, 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 Trust to make
payment wholly or partly in cash, the Trust may pay the redemption
price in whole or in part by the distribution in kind of securities
from the portfolio of the Trust, in lieu of cash, in conformity
with applicable rules of the Securities and Exchange Commission.
See the Additional Statement for details.
The Trust 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 Trust 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 Trust 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 Trust are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Trust's Trustees and officers and provides
further information about them.
The Advisory Agreement
Qualivest Capital Management, Inc. (the "Adviser"), a
subsidiary of U.S. Bancorp, supervises the investment program of
the Trust and the composition of its portfolio. The principal
subsidiary of U.S. Bancorp is United States National Bank of
Oregon.
The services of the Adviser are rendered under an Investment
Advisory Agreement (the "Advisory Agreement") which provides,
subject to the control of the Board of Trustees, for investment
supervision and for either keeping the accounting records of the
Trust, including the computation of the net asset value per share
and the dividends, or, at the Adviser's expense and responsibility,
delegating these accounting duties in whole or in part to a company
satisfactory to the Trust. The Advisory Agreement states that the
Adviser shall, at its expense, provide to the Trust all office
space and facilities, equipment and clerical personnel necessary
for the carrying out of the Adviser's duties under the Advisory
Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Trust and of
those Trustees, if any, who are affiliated with the Adviser. Under
the Advisory Agreement, the Trust 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 Trust's
Distributor (principal underwriter) are paid by the Trust. The
Advisory Agreement lists examples of such expenses borne by the
Trust, 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 Trust 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 Trust agrees to pay the
Adviser, and the Adviser agrees to accept as full compensation for
all services rendered by the Adviser as such, an annual fee payable
monthly and computed on the net asset value of the Trust as of the
close of business each business day at the annual rate of 0.25 of
1% of such net asset value provided, however, that for any day that
the Trust pays or accrues a fee under the Distribution Plan of the
Trust based upon the assets of the Trust, such annual fee is
payable at the rate of 0.20 of 1% of all of the Trust's average
annual net assets. (Since the Administrator also receives a fee
from the Trust under the Administration Agreement, the total
investment advisory and administration fees which the Trust pays
are at the annual rate of 0.50 of 1% of such net assets, or, for
any day that the Trust pays or accrues a fee under the Distribution
Plan of the Trust based upon the assets of the Trust above the Base
Amount, at 0.40 of 1% of such net asset value; see below.)
Effective July 1, 1995, such combined annual fees are payable at
the rate of 0.40 of 1% of all of the Trust's average annual net
assets for any day that the Trust pays or accrues a fee under the
Distribution Plan of the Trust based upon the assets of the Trust.
The Adviser and the Administrator may, in order to attempt to
achieve a competitive yield on the shares of the Trust, each waive
all or part of any such fee.
Under the Advisory Agreement, the Adviser agrees that the
above fee shall be reduced, but not below zero, by an amount equal
to one-half of the amount, if any, by which the total expenses of
the Trust 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 Trust plus 2% of
the next $70 million of such assets and 1.5% of its average annual
net assets in excess of $100 million, or (ii) 25% of the Trust's
total annual investment income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Trust; see the
Additional Statement. Under these provisions, the Adviser is
authorized to consider sales of shares of the Trust or of any other
investment company or companies having the same investment adviser,
sub-adviser, administrator or principal underwriter as the Trust.
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 Trust and pays all compensation of the Trust's Trustees,
officers and employees who are affiliated persons of the
Administrator. Prior to April 23, 1990, Aquila Management
Corporation acted as sub-adviser and administrator under a
sub-advisory and administration agreement, performing substantially
the same functions for the same compensation.
Under the Administration Agreement, subject to the control of
the Trust's Board of Trustees, the Administrator provides all
administrative services to the Trust other than those relating to
its investment portfolio and the maintenance of its accounting
books and records. Such administrative services include but are not
limited to maintaining books and records (other than accounting
books and records) of the Trust, and overseeing all relationships
between the Trust and its shareholder servicing 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 Trust and for the sale,
servicing, or redemption of the Trust'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 Trust pays a fee
payable monthly and computed on the net asset value of the Trust at
the end of each business day at the annual rate of 0.25 of 1% of
such net asset value provided, however, that for any day that the
Trust pays or accrues a fee under the Distribution Plan of the
Trust based upon the assets of the Trust, such annual fee is
payable at the rate of 0.20 of 1% of all of the Trust's average
annual net assets. The Administrator has agreed that the above fee
shall be reduced, but not below zero, by an amount equal to
one-half of the amount, if any, by which the total expenses of the
Trust in any fiscal year, exclusive of taxes, interest and
brokerage fees, exceed the lesser of (i) 2.5% of the first $30
million of average annual net assets of the Trust plus 2% of the
next $70 million of such assets and 1.5% of its average annual net
assets in excess of $100 million, or (ii) 25% of the Trust's total
annual investment income.
Information as to the Adviser,
the Administrator and the Distributor
The Adviser is a subsidiary of U.S. Bancorp ("Bancorp") and
its subsidiary, United States National Bank of Oregon ("USNB").
Bancorp is a $21 billion superregional financial services holding
company organized under the laws of Oregon in 1968. USNB,
headquartered in Portland, is a national banking association,
chartered in 1891. It offers a wide variety of full-service and
commercial banking operations in over 200 locations in Oregon.
Other services of Bancorp and it subsidiaries include mortgage
banking, lease financing, consumer financing, commercial finance,
international banking, investment advisory, insurance agency and
credit life insurance services, discount brokerage and venture
capital. As of September 30, 1994, the Adviser had under management
nearly $5.2 billion in assets. See the Additional Statement as to
the legality, under the Glass-Steagall Act, of the Adviser acting
as the Trust'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 Trust.
Mr. Edgar M. Potts, with the position of Fixed-Income Manager,
is the officer of the Adviser who manages the Trust's portfolio. He
has served as such since the Trust's inception in 1986. He has been
employed by the Adviser since 1977, before that by the Adviser's
parent company, U.S. National Bank. He has 35 years of investment
experience in those positions and in other financial institutions.
He has a B.S. in economics from Georgetown University.
Mr. Stephen J. Galiani is the backup portfolio manager. Mr.
Galiani has been employed by the Adviser since 1994. He was
president of Galiani Asset Management, a private investment
advisory firm from 1990 to 1994. Prior to owning his own firm, Mr.
Galiani was Vice President and Senior Portfolio Manager of the
municipal bond mutual funds for the Keystone family of mutual funds
with over $2 billion in municipal debt assets. Before managing
Keystone mutual funds, Mr. Galiani was Vice President and Portfolio
Manager of municipal bond portfolios for the Eaton Vance
Corporation. Mr. Galiani has an MBA from Boston University, School
of Management.
The Trust'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.
For the fiscal year of the Trust ended September 30, 1995,
fees of $729,908 were paid or accrued to each of the Adviser and
the Administrator.
The Distributor currently handles the distribution of the
shares of thirteen funds (seven tax-free municipal bond funds, five
money market funds and an equity fund), including the Trust. 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.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust 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 Trust
since the previous dividend declaration, including accretion of any
original issue discount, less expenses paid or accrued. As such net
income will vary, the Trust's dividends will also vary. Dividends
and other distributions paid by the Trust 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 Trust'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
Oregon Obligations in the Trust'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
Trust's tax year. Such designation will normally be made in the
first month after the end of each of the Trust'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
Trust will be subject to income taxes. During the Trust's fiscal
year ended September 30, 1995, 98.98% of the Trust's dividends were
"exempt-interest dividends." For the calendar year 1995, 0.74% of
the total dividends paid were taxable as ordinary income and 1.76%
were taxable as long-term capital gains. (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 Trust'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 Trust 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 Trust 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 Trust 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 Trust are not entitled to any deduction for dividends
received from the Trust.
Tax Information
The Trust 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 Trust 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 Trust 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 Trust on Oregon 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 Trust) received or
acquired during the year.
The Omnibus Budget Reconciliation Act of 1993 requires that
either gains realized by the Trust 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 Trust 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 Trust 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 Trust 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 Trust are
not distributed but carried forward by the Trust to offset gains in
later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.
The Trust's gains or losses on sales of Oregon Obligations
will be long-term or short-term depending upon the length of time
the Trust has held such obligations. Capital gains and losses of
the Trust 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
Trust 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
Trust 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 Trust'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 Trust 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 Trust 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 Trust 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 Oregon 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 Trust
will not invest in the types of Oregon 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 Trust.
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 Trust 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 Trust 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.
Oregon Tax Information
Individual shareholders of the Trust, resident in Oregon, will
not be subject to Oregon personal income tax on distributions
received from the Trust to the extent such distributions are
attributable to interest on tax-exempt obligations of the State of
Oregon and its political subdivisions and authorities or on
obligations issued by or under the authority of the governments of
Puerto Rico, the Virgin Islands, Guam and the Northern Mariana
Islands, provided that the Trust complies with the requirement of
the Code that at least 50% of its assets at the close of each
quarter of its taxable year is invested in state, municipal or
other obligations the interest on which is exempt from federal
income tax under Section 103(a) thereof.
Other distributions from the Trust, including all long-term
and short-term capital gains, will generally not be exempt from
Oregon income tax.
Trust distributions are expected to be fully includable in
income in determining the Oregon excise tax on corporations.
Shares of the Trust will not be subject to the Oregon property
tax.
Shareholders of the Trust should consult their tax advisers
about other state and local tax consequences of their investment in
the Trust.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Trust 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 Trust. All exchanges are
subject to certain conditions described below. As of the date of
the Prospectus, the Aquila-sponsored Bond or Equity Funds are this
Trust, Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust,
Tax-Free Trust of Arizona, Tax-Free Fund of Colorado, Churchill
Tax-Free Fund of Kentucky, Tax-Free Fund For Utah and Narragansett
Insured Tax-Free Income Fund; the Aquila Money-Market Funds are
Capital Cash Management Trust, Pacific Capital Cash Assets Trust
(Original Shares), Pacific Capital Tax-Free Cash Assets Trust
(Original Shares), Pacific Capital U.S. Treasuries Cash Assets
Trust (Original Shares) and Churchill Cash Reserves Trust.
Class A Shares of the Trust can be exchanged only into
Class A Shares of any Bond or Equity Trust 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 Trust (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 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 Trust, 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
Trust 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:
800-872-6735 toll free or 908-855-5731
Note: The Trust, 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 Trust's shares. See "How to
Invest in the Trust".
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 Trust'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 the applicable sales charge) for 1- and 5-year periods and
for a period since the inception of the Trust, to the extent
applicable, through the end of such periods, assuming reinvestment
(without sales charge) of all distributions. The Trust 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 Trust's portfolio investments; it is calculated by (i) dividing
the Trust'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
Trust, which invests in tax-exempt obligations. It is computed by
dividing the tax-exempt portion of the Trust'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 Trust'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 Trust'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 Trust
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 Trust'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 Trust'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 Trust, 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 Trust'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
Trust contains additional performance information that will be made
available upon request and without charge.
Description of the Trust and its Shares
The Trust is a series of The Cascades Trust (the "Business
Trust") formed in 1985 under the name Tax-Free Trust of Oregon. On
August 10, 1989, the name of the Business Trust was changed to The
Cascades Trust. The Business Trust presently has only one active
series, the original series, which continues to be called Tax-Free
Trust of Oregon.
The Business Trust is an open-end, non-diversified management
investment company organized as a Massachusetts business trust.
(See "Investment of the Trust Assets" above for further information
about the Trust'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 Business Trust. Each share represents an equal proportionate
interest in the Trust with each other share of its class; shares of
the respective classes represent proportionate interests in the
Trust in accordance with their respective net asset values. Income,
direct liabilities and direct operating expenses of each series
will be allocated directly to each series, and general liabilities
and expenses, if any, of the Business Trust will be allocated among
the series in a manner acceptable to the Board of Trustees. Upon
liquidation of a series, shareholders of the series are entitled to
share pro-rata in the net assets of that series available for
distribution to shareholders and upon liquidation of the Business
Trust, the respective series are entitled to share proportionately
in the assets available to the Business Trust after allocation to
the various series. Shareholders of each series are entitled to
share pro-rata in the net assets of the Trust available for
distribution to shareholders, in accordance with the respective net
asset values of the shares of each of that series 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 Trust 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 Trust 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 Trust at 800-872-6735.
The primary distinction among the Trust'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 Oregon 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.
As of April 2, 1996, BHC Securities, Inc., 2005 Market
Street, Philadelphia, PA held of record 2,590,644 shares (9.7%) of
the Trust and Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box
30561, New Brunswick, NJ held of record 2,590,644 shares (8.9%) of
the Trust, all of which were Class A Shares. The Trust's management
is not aware of any other person owning of record or beneficially
5% or more of the Trust's outstanding shares as of that date. On
the basis of information received from those record owners, the
Trust's management believes that all of such shares are held for
the benefit of brokerage clients.
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.
Rule 18f-2 under the Investment Company Act of 1940 provides
that matters submitted to shareholders affecting any series must be
approved by a majority of the outstanding voting securities of such
series, voting separately from the other series, unless it is clear
that the interests of each series in the matter are identical or
the matter does not affect a series. However, the rule exempts the
selection of accountants and the election of Trustees from the
separate voting requirement.
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 Trust, except that the Trust's Board of
Trustees may change the name of the Trust. The Trust may be
terminated (i) upon the sale of its assets to another issuer, or
(ii) upon liquidation and distribution of the assets of the Trust,
in either case if such action is approved by the vote of the
holders of a majority of the outstanding shares of the Trust. If
not so terminated, the Trust will continue indefinitely.
<PAGE>
APPLICATION FOR TAX-FREE TRUST OF OREGON
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
1-800-872-6735
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:________________________
Employers 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:
TAX-FREE TRUST OF OREGON)
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 Tax-Free Trust of Oregon 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 Trust toll-free at 1-800-872-6735. 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 Trust 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 Trust 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 Trust 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 Trust and has received and
read a current Prospectus of the Trust and agrees to its terms.
- - I/We authorize the Trust 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 Trust and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Trust 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 Trust and its agents to correct any transfer error by
a debit or credit to my/our Financial Institution account and/or
Trust 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 Trust, 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 Trust, 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 Trust's Agent.
- - You may cancel any feature at any time, effective 3 days after the Agent
receives written notice from you.
- - Either the Trust 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 Trust 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
1-800-872-6734 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 Trust'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
Trust 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
Trust.
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 Trust purchased for
and held under the Plan, but the Agent will credit all such shares to
the Planholder on the records of the Trust. 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 Trust
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 Trust) 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 Trust'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 Trust. 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
Trust, 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 Trust, 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
Qualivest Capital Management, Inc.
A subsidiary of U.S. Bancorp and its subsidiary,
United States National Bank of Oregon
111 S.W. Fifth Avenue
U.S. Bancorp Tower
Portland, Oregon 97204
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
James A. Gardner
Diana P. Herrmann
Ann R. Leven
Raymond H. Lung
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
W. Dennis Cheroutes, Senior Vice President
Sally Wilson Church, Vice President
Nancy Kayani, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights
Table Of Expenses
Financial Highlights
Introduction
Investment Of The Trust's Assets
Investment Restrictions
Net Asset Value Per Share
How To Invest In The Trust
How To Redeem Your Investment
Automatic Withdrawal Plan
Management Arrangements
Dividend And Tax Information
Exchange Privilege
General Information
Application and Letter of Intent
AQUILA
[EAGLE LOGO]
TAX-FREE TRUST
OF OREGON
[LOGO]
A tax-free
income investment
A Series of The Cascades Trust
PROSPECTUS
One of The
Aquilasm Group of Funds
<PAGE>
Aquila
Tax-Free Trust of Oregon
380 Madison Avenue, Suite 2300
New York, New York 10017
800-USA-OREG (800-872-6734)
212-697-6666
Prospectus April 5, 1996
Institutional Class Shares
Class Y Shares
The Trust is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Oregon and
regular Federal income taxes as is consistent with preservation of
capital by investing in municipal obligations which pay interest
exempt from Oregon 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 Trust's Adviser, Qualivest Capital Management, Inc.,
a subsidiary of U.S. Bancorp.
There are three classes of shares of the Trust:
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
Trust that you should know before investing. A Statement of
Additional Information about the Trust (the "Additional Statement")
dated April 5, 1996, has been filed with the Securities and
Exchange Commission and is available without charge upon written
request to Administrative Data Management Corp., the Trust'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 Trust and its management
not included in this Prospectus. The Additional Statement is
incorporated by reference in its entirety in this Prospectus. Only
when you have read both the Prospectus and the Additional Statement
are all material facts about the Trust available to you.
SHARES OF THE TRUST ARE NOT DEPOSITS IN, OBLIGATIONS OF OR
GUARANTEED OR ENDORSED BY, QUALIVEST CAPITAL MANAGEMENT, INC., (THE
"ADVISER"), UNITED STATES NATIONAL BANK OR OREGON, ANY OF THEIR
AFFILIATES OR ANY OTHER BANK. SHARES OF THE TRUST 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 TRUST INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
FOR PURCHASE, REDEMPTION OR ACCOUNT INQUIRIES CONTACT
THE TRUST'S TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORP.
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
CALL 800-872-6735 TOLL FREE OR 908-855-5731
FOR GENERAL INQUIRIES & YIELD INFORMATION,
CALL 800-872-6734 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
Tax-Free Trust of Oregon, founded by Aquila Management
Corporation in 1985 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 State of Oregon, its counties and
various other local authorities to finance such long-term projects
as schools, airports, roads, hospitals, water facilities and other
vital public purpose projects throughout Oregon. (See
"Introduction.")
Tax-Free Income - The municipal obligations in which the
Trust invests pay interest which is exempt from both regular
Federal and State of Oregon income taxes. Dividends paid by the
Trust from this income are likewise free of both such taxes. It is,
however, possible that in certain circumstances a small portion of
the dividends paid by the Trust will be subject to income taxes.
The Federal alternative minimum tax may apply to some investors,
but its impact will be limited since not more than 20% of the
Trust's net assets can be invested in obligations paying interest
which is subject to this tax. The receipt of exempt-interest
dividends from the Trust 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 Trust 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 Trust'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 Trust," 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 Trust by Automatic Investment or
Telephone Investment. (See "How to Invest in the Trust.")
Alternative Purchase Plans - The Trust provides alternative
ways to invest. (See "Description of the Trust and its Shares.")
For this purpose the Trust 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 Trust 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 195 issues with different
maturities. (See "Investment of the Trust's Assets.")
Local Portfolio Management - Qualivest Capital Management,
Inc., a subsidiary of U.S. Bancorp ("Bancorp") and its subsidiary,
United States National Bank of Oregon ("USNB"), serves as the
Trust's Investment Adviser, providing experienced local
professional management. The Trust pays fees at a rate of 0.20% of
1% of average annual net assets to its Adviser and fees at the same
rate to its Administrator (for total fees at a rate of 0.40 of 1%
of average annual net assets). (See "Table of Expenses,"
"Distribution Plan" and "Management Arrangements.") Bancorp is a
$21 billion superregional financial services holding company
organized under the laws of Oregon in 1968. USNB, headquartered in
Portland, is a national banking association chartered in 1891.
Other services of Bancorp and its subsidiaries include consumer
financing, commercial finance, international banking, investment
advisory, discount brokerage and venture capital.
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 penalties or redemption fees
for redemption of Class Y Shares.
Certain Stabilizing Measures - The Trust 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 Trust
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 Trust'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 Trust's
Investments and Their Yields.") The Trust's assets, being primarily
or entirely Oregon issues, are subject to economic and other
conditions affecting Oregon. (See "Risks and Special Considerations
Regarding Investment in Oregon Obligations.") Moreover, the Trust
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 Trust's Assets.") The
Trust may also, to a limited degree, buy and sell futures contracts
and options on futures contracts, although since inception the
Trust 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>
TAX-FREE TRUST OF OREGON
TABLE OF EXPENSES
<S> <C>
Class Y
Shareholder Transaction Expenses Shares
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 Trust Operating Expenses (1)
(as a percentage of average net assets)
Investment Advisory Fee 0.20%
All other expenses (2) 0.38%
Administration Fee 0.20%
Other Expenses (2) 0.18%
Total Trust Operating Expenses (2) 0.58%
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
$6 19 32 73
<FN>
(1) Estimated based upon actual expenses incurred by the Trust during
its most recent fiscal year. During that period, only Class A Shares
were outstanding.
</FN>
<FN>
(2) Does not reflect a 0.02% expense offset in custodian fees received
for uninvested cash balances. Reflecting this offset, other expenses,
all other expenses, and total Trust operating expenses for Class Y Shares
would have been 0.16%, 0.36% and 0.56%, respectively.
</FN>
<FN>
(3) The expense example is based upon the above annual Trust 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 Trust 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 Trust 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.
TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights as it relates to the five
years ended September 30, 1995 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon is included in the Trust'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. On April 23, 1990, Aquila Management Corporation, originally
the Trust's Sub-Adviser and Administrator, became Administrator only.
Year ended September 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $10.20 $10.95 $10.48 $10.15 $9.67
Income from Investment
Operations:
Net investment income 0.55 0.56 0.58 0.65 0.62
Net gain (loss) on
securities (both
realized and
unrealized) 0.39 (0.75) 0.50 0.29 0.49
Total from Investment
Operations 0.94 (0.19) 1.08 0.94 1.11
Less Distributions:
Dividends from net
investment income (0.55) (0.56) (0.58) (0.61) (0.63)
Distributions from
capital gains (0.04) - (0.03) - -
Total Distributions (0.59) (0.56) (0.61) (0.61) (0.63)
Net Asset Value, End of
Period $10.55 $10.20 $10.95 $10.48 $10.15
Total Return (not
reflecting sales load) 9.52% (1.77)% 10.64% 9.51% 11.83%
Ratios/Supplemental Data
Net Assets, End of
Period (in thousands) $310,554 $316,317 $331,018 $249,953 $189,734
Ratio of Expenses to
Average Net Assets 0.71% 0.68% 0.66% 0.66% 0.71%
Ratio of Net Investment
Income to Average Net
Assets 5.38% 5.28% 5.46% 5.87% 6.30%
Portfolio Turnover Rate 13% 11% 8% 11% 21%
Net investment income per share and the ratios of income and expenses to
average net assets before expense offset in custodian fees for uninvested
cash balances would have been:
Net Investment Income $0.55 $0.56 $0.58 $0.65 $0.62
Ratio of Expenses to
Average Net Assets 0.73% 0.70% 0.68% 0.66% 0.73%
Ratio of Net Investment
Income to Average Net
Assets 5.37% 5.26% 5.44% 5.87% 6.28%
<CAPTION>
1990 1989 1988 1987 1986<F*>
<C> <C> <C> <C> <C>
$9.76 $9.67 $9.11 $9.85 $9.60
0.66 0.73 0.61 0.65 0.17
(0.11) 0.01 0.60 (0.71) 0.25
0.55 0.74 1.21 (0.06) 0.42
(0.64) (0.65) (0.65) (0.68) (0.17)
- - - - -
(0.64) (0.65) (0.65) (0.68) (0.17)
$9.67 $9.76 $9.67 $9.11 $9.85
5.76% 7.83% 13.66% (0.59)% 4.06%<F1>
$140,713 $122,096 $102,361 $92,990 $36,117
0.71% 0.76% 0.80% 0.55% 0.61%<F2>
6.55% 6.61% 6.77% 6.88% 6.33%<F2>
25% 45% 24% 17% None
$0.66 $0.73 $0.61 $0.62 $0.16
0.73% 0.78% 0.82% 0.83% 1.21%<F2>
6.53% 6.59% 6.75% 6.60% 5.73%<F2>
<FN>
<F*> For the period from June 16, 1986 (commencement of operations) to
September 30, 1986.
</FN>
<FN>
<F1> Not annualized.
</FN>
<FN>
<F2> Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable investment
for investors who seek income exempt from Oregon State and regular
Federal income taxes.
You may invest in shares of the Trust as an alternative to
direct investments in Oregon Obligations, as defined below, which
may include obligations of certain non-Oregon issuers. The Trust
offers you the opportunity to keep assets fully invested in a
vehicle that provides a professionally managed portfolio of Oregon
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 Oregon Obligations. Through the convenience of a single
security consisting of shares of the Trust, 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 Oregon
Obligations.
Oregon 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. The Trust is the only
active portfolio of the Cascades Trust.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Oregon State and regular
Federal income taxes as is consistent with the preservation of
capital, the Trust will invest in Oregon Obligations (as defined
below). There is no assurance that the Trust will achieve its
objective, which is a fundamental policy of the Trust. (See
"Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Oregon Obligations" means obligations, including those of
certain non-Oregon 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 not subject to
Oregon income taxes. Although exempt from regular Federal income
tax, interest paid on certain types of Oregon Obligations, and
dividends which the Trust 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 Trust's net assets will be
invested in Oregon Obligations the income paid upon which will not
be subject to the alternative minimum tax; accordingly, the Trust
can invest up to 20% of its net assets in obligations which are
subject to the Federal alternative minimum tax. The Trust may
refrain entirely from purchasing these types of Oregon Obligations.
(See "Dividend and Tax Information.")
The non-Oregon bonds or other obligations the interest on
which is exempt under present law from regular Federal and Oregon
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 Trust will not purchase Oregon
Obligations of non-Oregon issuers unless Oregon Obligations of
Oregon issuers of the desired quality, maturity and interest rate
are not available. As an Oregon-oriented fund, at least 65% of the
Trust's total assets will be invested in Oregon Obligations of
Oregon issuers. The Trust invests only in Oregon 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 Trust will have a portfolio of quality
oriented (investment grade) securities, the Oregon Obligations
which the Trust 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 Qualivest
Capital Management, Inc., the Trust's investment adviser (the
"Adviser"), subject to the direction and control of the Trust'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 Oregon
Obligation is downgraded such that it could not then be purchased
by the Trust, or, in the case of an unrated Oregon Obligation, if
the Adviser determines that the unrated obligation is no longer of
comparable quality to those rated obligations which the Trust may
purchase, it is the current policy of the Trust to cause any such
obligation to be sold as promptly thereafter as the Adviser in its
discretion determines to be consistent with the Trust's objectives;
such obligation remains in the Trust'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 Trust
can purchase industrial development bonds only if they meet the
definition of Oregon Obligations, i.e., the interest on them is
exempt from Oregon State and regular Federal income taxes.
The Trust is classified as a "non-diversified" investment
company under the Investment Company Act of 1940 (the "1940 Act").
The Trust 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 Trust, 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 Trust's assets. If the Trust 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 Trust 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 Trust invests in the
securities of specific issuers, the more the Trust is exposed to
risks associated with investments in those issuers. The Trust's
assets, being primarily or entirely Oregon issues, are accordingly
subject to economic and other conditions affecting Oregon. (See
"Risk Factors and Special Considerations Regarding Investment in
Oregon Obligations.")
Certain Stabilizing Measures
The Trust 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 Trust 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 Trust's Oregon
Obligations caused by interest rate fluctuations. Futures and
options could also provide a hedge against increases in the cost of
securities the Trust intends to purchase.
Although it does not currently do so, and since inception
has not done so, the Trust 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 Trust may also write and purchase put and call
options on Futures.
As a matter of fundamental policy the Trust 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 Trust 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
Trust's assets. (See the Additional Statement.)
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 Trust's portfolio and
the prices of Futures or options purchased or sold by the Trust;
(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 Trust'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 Trust'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 Trust determines to use futures and
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 Trust may purchase from financial institutions
participation interests in Oregon Obligations (such as industrial
development bonds and municipal lease/purchase agreements). A
participation interest gives the Trust an undivided interest in the
underlying Oregon Obligations in the proportion that the Trust's
participation interest bears to the total amount of the underlying
Oregon Obligations. All such participation interests must meet the
Trust's credit requirements. See "Limitation to 10% as to Certain
Investments."
When-Issued and Delayed Delivery Purchases
The Trust may buy Oregon Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring them.
The Oregon Obligations so purchased are subject to market
fluctuation and no interest accrues to the Trust until delivery and
payment take place; their value at the delivery date may be less
than the purchase price. The Trust cannot enter into when-issued
commitments exceeding in the aggregate 15% of the market value of
the Trust's total assets, less liabilities other than the
obligations created by when-issued commitments. If the Trust
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
Trust 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 Trust cannot purchase Oregon 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 Oregon Obligations as to which the Trust can exercise
the right to demand payment in full within three days and as to
which there is a secondary market. Floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) are considered illiquid unless
determined by the Board of Trustees to be readily marketable. (See
the Additional Statement.)
Current Policy as to Certain Obligations
The Trust will not invest more than 25% of its total assets
in (i) Oregon 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 Trust's
Investments and Their Yields
The value of the Oregon Obligations in which the Trust
invests will fluctuate depending in large part on changes in
prevailing interest rates. If the prevailing interest rates go up
after the Trust buys Oregon 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 Oregon 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 Trust may, to achieve a defensive position,
shorten the average maturity of its portfolio.
Risk Factors and Special Considerations Regarding
Investment in Oregon Obligations
The following is a discussion of the general factors that
might influence the ability of Oregon issuers to repay principal
and interest when due on the Oregon Obligations contained in the
portfolio of the Trust. Such information is derived from sources
that are generally available to investors and is believed by the
Trust to be accurate, but has not been independently verified and
may not be complete.
Oregon's economy is substantially diversified among many
industries. The lumber and forest products industry, an industry
highly susceptible to recessionary cycles, has long been a
significant component of the State's economy. However, a political
environment supporting the reduction of logging on public lands has
taken its toll on this industry and the pursuit of protection for
the spotted owl and wild salmon runs have severely curtailed
logging in certain areas.
As employment in the lumber and forest products industries
has declined, other industries have been picking up the slack. 1994
saw many manufacturing plants lured to the State. The ultimate
decision of whether to locate in the State depends on a company's
ability to secure property tax breaks from the county in which its
plant will be located. A relatively new State property tax
exemption program grants counties the right to offer property tax
breaks for new plants costing more than $100 million to build. The
principal sources of State tax revenues are the personal income and
corporate income taxes; Oregon does not have a sales tax. Recent
attempts to institute a sales tax have been unsuccessful. A recent
attempt to introduce a "transaction tax" was unsuccessful. As a
result, State tax revenues are particularly sensitive to economic
recessions.
In addition to general obligation bonds, the State and its
political subdivisions issue revenue obligations payable from
specific projects or sources, including lease rentals. There can be
no assurance that a material downturn in the State's economy, with
the resulting impact on the financial strength of State and local
entities, will not adversely affect obligors of the obligations
held in the Trust's portfolio to make the required payments on
these obligations, and consequently, the market value of such
obligations.
Additionally, certain municipal securities held by the
Trust may rely in whole or in part for repayment on ad valorem
property taxes. There are existing limits under Oregon State law on
the issuance of bonds supported by such taxes. In recent years
several voter initiatives have sought to amend the State
Constitution to "freeze" or roll back such taxes. On November 6,
1990, Oregon voters approved a property tax limitation measure. The
adoption of the tax limitation measure may have an adverse effect
on the general financial condition of cities, counties, school
districts and other districts and may in some cases impair their
ability to pay principal and interest on obligations. The tax
limitation measure does permit tax levies to pay interest and
principal on bonds issued on or before November 6, 1990, as well as
indebtedness authorized by the Oregon Constitution (bonds issued by
the State of Oregon under specific constitutional provisions), and
general obligation bonds approved by the voters for capital
construction or improvements. (See the Additional Statement for
information about the tax limitation measure.)
At present, it is difficult to assess the impact of the tax
limitation measure, in part, because it will not be fully phased in
until 1995-1996. In addition, the effect of this measure is also
dependent on whether alternative revenue sources are obtained and,
if so, the type and amount of such revenues. The adoption of the
tax limitation measure may have an adverse effect on the general
financial condition of affected cities, counties, school districts
and other districts, and may, in some cases, impair their ability
to pay obligations other than general obligation bonds. In
addition, the adoption of the tax limitation measure will require
the Legislature to provide funds from its general fund to replace
tax revenues lost by the public school system through fiscal year
1995-96. This could have an adverse effect on the State's credit
rating, particularly if alternative revenue sources are not
obtained. Moreover, the tax limitation measure might contract the
overall size of the Oregon municipal bond market and might have
some adverse effect on the value of the Trust's portfolio. See the
Additional Statement.
The Oregon Constitution reserves to the people of the State
initiative and referendum powers pursuant to which measures
designed to amend the State Constitution or enact legislation can
be placed on the statewide general election ballot for
consideration by the voters. Over the past decade Oregon has
witnessed increasing activity in the number of initiative petitions
that have qualified for statewide general elections. From the 1988
elections through those of 1994, both the number of such petitions
that qualified and the number of such petitions that were approved
by the voters have increased. It is not possible to predict what
petitions will qualify for submission to the voters in 1996 nor
which will be approved.
There is a relatively inactive market for municipal bonds
of Oregon issuers other than the general obligations of the State
itself. Consequently, the market price of such other bonds may be
changeable. If the Trust were forced to sell a large volume of
these bonds for any reason, such as redemptions of a large number
of its shares, there is a risk that the large sale itself might
adversely affect the value of the Trust's portfolio.
INVESTMENT RESTRICTIONS
The Trust 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 Trust'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 Trust's fundamental policies, not otherwise identified in
the Prospectus, are set forth below; others are listed in the
Additional Statement.
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than the Oregon
Obligations meeting the standards stated under "Investment of the
Trust's Assets"; the Trust can also purchase and sell Futures and
options on them within the limits there discussed.
2. The Trust has industry investment requirements.
The Trust 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 Trust will
consider that a non-governmental user of facilities financed by
industrial development bonds is an issuer in an industry.
3. The Trust cannot make loans.
The Trust can buy those Oregon Obligations which it is
permitted to buy (see "Investment of the Trust's Assets"); this is
investing, not making a loan. The Trust cannot lend its portfolio
securities.
4. The Trust can borrow only in limited amounts for special
purposes.
The Trust 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. The Trust will not borrow
to purchase Oregon Obligations or to increase its income, but only
to meet redemptions so that it will not have to sell Oregon
Obligations to pay for redemptions. Interest on borrowings would
reduce the Trust's income. Except in connection with borrowings,
the Trust will not issue senior securities. The Trust will not
purchase any Oregon 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 Trust'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 Trust (i.e., the value of the assets less
liabilities) by the total number of shares outstanding.
Determination of the value of the Trust's assets is subject to the
direction and control of the Trust's Board of Trustees. In general,
it is based on market value, except that Oregon 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 TRUST
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 Trust 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 Trust.
With subsequent investments, please send the pre-printed stub
attached to the Trust'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 Trust 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 Trust
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 Trust'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 Trust. Additional compensation may include
payment or partial payment for advertising of the Trust'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 Trust'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 Trust 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 Trust will affect the price you pay for shares or
the amount that the Trust 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 Trust (rounded to the nearest 1/1000th of
a share). No Share certificates will be issued for Class Y
Shares.
The Trust 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 Trust 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 Trust that some of the expenses
which might be considered to be sales-related which the Trust pays
or may pay come within the purview of the Rule. The Trust 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 Trust 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 Trust, 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 Trust 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
Trust 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:
800-872-6735 toll free or 908-855-5731
Note: The Trust, 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 Trust. 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
Trust, 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 Trust);
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 Trust may impose a charge, not
exceeding $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. The Trust
has no present intention of making this charge. Upon 30 days'
written notice to shareholders, the Trust 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 Trust 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 Trust, 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 Trust to
make payment wholly or partly in cash, the Trust may pay the
redemption price in whole or in part by the distribution in kind of
securities from the portfolio of the Trust, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. See the Additional Statement for details.
The Trust 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 shares Class Y Shares of the Trust 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 Trust are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Trust's Trustees and officers and provides
further information about them.
The Advisory Agreement
Qualivest Capital Management, Inc. (the "Adviser"), a
subsidiary of U.S. Bancorp, supervises the investment program of
the Trust and the composition of its portfolio. The principal
subsidiary of U.S. Bancorp is United States National Bank of
Oregon.
The services of the Adviser are rendered under an
Investment Advisory Agreement (the "Advisory Agreement") which
provides, subject to the control of the Board of Trustees, for
investment supervision and for either keeping the accounting
records of the Trust, including the computation of the net asset
value per share and the dividends, or, at the Adviser's expense and
responsibility, delegating these accounting duties in whole or in
part to a company satisfactory to the Trust. The Advisory Agreement
states that the Adviser shall, at its expense, provide to the Trust
all office space and facilities, equipment and clerical personnel
necessary for the carrying out of the Adviser's duties under the
Advisory Agreement.
Under the Advisory Agreement, the Adviser pays all
compensation of those officers and employees of the Trust and of
those Trustees, if any, who are affiliated with the Adviser. Under
the Advisory Agreement, the Trust 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 Trust's
Distributor (principal underwriter) are paid by the Trust. The
Advisory Agreement lists examples of such expenses borne by the
Trust, the major categories of such expenses being: legal and audit
expenses, custodian and or shareholder servicing agent fees and
expenses, stock issuance and redemption costs, certain printing
costs, registration costs of the Trust 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 Trust agrees to pay the
Adviser, and the Adviser agrees to accept as full compensation for
all services rendered by the Adviser as such, an annual fee payable
monthly and computed on the net asset value of the Trust as of the
close of business each business day at the annual rate of 0.25 of
1% of such net asset value provided, however, that for any day that
the Trust pays or accrues a fee under the Distribution Plan of the
Trust based upon the assets of the Trust, such annual fee is
payable at the rate of 0.20 of 1% of all of the Trust's average
annual net assets. (Since the Administrator also receives a fee
from the Trust under the Administration Agreement, the total
investment advisory and administration fees which the Trust pays
are at the annual rate of 0.50 of 1% of such net assets, or, for
any day that the Trust pays or accrues a fee under the Distribution
Plan of the Trust based upon the assets of the Trust above the Base
Amount, at 0.40 of 1% of such net asset value; see below.)
Effective July 1, 1995, such combined annual fees are payable at
the rate of 0.40 of 1% of all of the Trust's average annual net
assets for any day that the Trust pays or accrues a fee under the
Distribution Plan of the Trust based upon the assets of the Trust.
The Adviser and the Administrator may, in order to attempt to
achieve a competitive yield on the shares of the Trust, each waive
all or part of any such fee.
Under the Advisory Agreement, the Adviser agrees that the
above fee shall be reduced, but not below zero, by an amount equal
to one-half of the amount, if any, by which the total expenses of
the Trust 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 Trust plus 2% of
the next $70 million of such assets and 1.5% of its average annual
net assets in excess of $100 million, or (ii) 25% of the Trust's
total annual investment income.
The Advisory Agreement contains provisions as to the
allocation of the portfolio transactions of the Trust; see the
Additional Statement. Under these provisions, the Adviser is
authorized to consider sales of shares of the Trust or of any other
investment company or companies having the same investment adviser,
sub-adviser, administrator or principal underwriter as the
Trust.
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 Trust and pays all compensation of the Trust's Trustees,
officers and employees who are affiliated persons of the
Administrator. Prior to April 23, 1990, Aquila Management
Corporation acted as sub-adviser and administrator under a
sub-advisory and administration agreement, performing substantially
the same functions for the same compensation.
Under the Administration Agreement, subject to the control
of the Trust's Board of Trustees, the Administrator provides all
administrative services to the Trust other than those relating to
its investment portfolio and the maintenance of its accounting
books and records. Such administrative services include but are not
limited to maintaining books and records (other than accounting
books and records) of the Trust, and overseeing all relationships
between the Trust and its shareholder servicing 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 Trust and for the sale,
servicing, or redemption of the Trust'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 Trust pays a fee
payable monthly and computed on the net asset value of the Trust at
the end of each business day at the annual rate of 0.25 of 1% of
such net asset value provided, however, that for any day that the
Trust pays or accrues a fee under the Distribution Plan of the
Trust based upon the assets of the Trust, such annual fee is
payable at the rate of 0.20 of 1% of all of the Trust's average
annual net assets. The Administrator has agreed that the above fee
shall be reduced, but not below zero, by an amount equal to
one-half of the amount, if any, by which the total expenses of the
Trust in any fiscal year, exclusive of taxes, interest and
brokerage fees, exceed the lesser of (i) 2.5% of the first $30
million of average annual net assets of the Trust plus 2% of the
next $70 million of such assets and 1.5% of its average annual net
assets in excess of $100 million, or (ii) 25% of the Trust's total
annual investment income.
Information as to the Adviser,
the Administrator and the Distributor
The Adviser is a subsidiary of U.S. Bancorp ("Bancorp") and
its subsidiary, United States National Bank of Oregon ("USNB").
Bancorp is a $21 billion superregional financial services holding
company organized under the laws of Oregon in 1968. USNB,
headquartered in Portland, is a national banking association,
chartered in 1891. It offers a wide variety of full-service and
commercial banking operations in over 200 locations in Oregon.
Other services of Bancorp and it subsidiaries include mortgage
banking, lease financing, consumer financing, commercial finance,
international banking, investment advisory, insurance agency and
credit life insurance services, discount brokerage and venture
capital. As of September 30, 1994, the Adviser had under management
nearly $5.2 billion in assets. See the Additional Statement as to
the legality, under the Glass-Steagall Act, of the Adviser acting
as the Trust'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 Trust.
Mr. Edgar M. Potts, with the position of Fixed-Income
Manager, is the officer of the Adviser who manages the Trust's
portfolio. He has served as such since the Trust's inception in
1986. He has been employed by the Adviser since 1977, before that
by the Adviser's parent company, U.S. National Bank. He has 35
years of investment experience in those positions and in other
financial institutions. He has a B.S. in economics from Georgetown
University.
Mr. Stephen J. Galiani is the backup portfolio manager. Mr.
Galiani has been employed by the Adviser since 1994. He was
president of Galiani Asset Management, a private investment
advisory firm from 1990 to 1994. Prior to owning his own firm, Mr.
Galiani was Vice President and Senior Portfolio Manager of the
municipal bond mutual funds for the Keystone family of mutual funds
with over $2 billion in municipal debt assets. Before managing
Keystone mutual funds, Mr. Galiani was Vice President and Portfolio
Manager of municipal bond portfolios for the Eaton Vance
Corporation. Mr. Galiani has an MBA from Boston University, School
of Management.
The Trust'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.
For the fiscal year of the Trust ended September 30, 1995,
fees of $729,908 were paid or accrued to each of the Adviser and
the Administrator.
The Distributor currently handles the distribution of the
shares of thirteen funds (seven tax-free municipal bond funds, five
money market funds and an equity fund), including the Trust. 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.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust 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 Trust
since the previous dividend declaration, including accretion of any
original issue discount, less expenses paid or accrued. As such net
income will vary, the Trust's dividends will also vary. Dividends
and other distributions paid by the Trust with respect to all
classes of the Trust'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 Trust'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
Oregon Obligations in the Trust'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
Trust's tax year. Such designation will normally be made in the
first month after the end of each of the Trust'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
Trust will be subject to income taxes. During the Trust's fiscal
year ended September 30, 1995, 98.98% of the Trust's dividends were
"exempt-interest dividends." For the calendar year 1995, 0.74% of
the total dividends paid were taxable as ordinary income and 1.76%
were taxable as long-term capital gains. (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 Trust'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 Trust 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 Trust 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 Trust 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 Trust are not entitled to any deduction for dividends
received from the Trust.
Tax Information
The Trust 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 Trust 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 Trust 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 Trust on Oregon 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 Trust) received or
acquired during the year.
The Omnibus Budget Reconciliation Act of 1993 requires that
either gains realized by the Trust 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 Trust 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 Trust 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 Trust 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 Trust are
not distributed but carried forward by the Trust to offset gains in
later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.
The Trust's gains or losses on sales of Oregon Obligations
will be long-term or short-term depending upon the length of time
the Trust has held such obligations. Capital gains and losses of
the Trust 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
Trust 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
Trust 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 Trust'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 Trust 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 Trust 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 Trust 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 Oregon 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 Trust
will not invest in the types of Oregon 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 Trust.
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 Trust 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.
Oregon Tax Information
Individual shareholders of the Trust, resident in Oregon,
will not be subject to Oregon personal income tax on distributions
received from the Trust to the extent such distributions are
attributable to interest on tax-exempt obligations of the State of
Oregon and its political subdivisions and authorities or on
obligations issued by or under the authority of the governments of
Puerto Rico, the Virgin Islands, Guam and the Northern Mariana
Islands, provided that the Trust complies with the requirement of
the Code that at least 50% of its assets at the close of each
quarter of its taxable year is invested in state, municipal or
other obligations the interest on which is exempt from federal
income tax under Section 103(a) thereof.
Other distributions from the Trust, including all long-term
and short-term capital gains, will generally not be exempt from
Oregon income tax.
Trust distributions are expected to be fully includable in
income in determining the Oregon excise tax on corporations.
Shares of the Trust will not be subject to the Oregon
property tax.
Shareholders of the Trust should consult their tax advisers
about other state and local tax consequences of their investment in
the Trust.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Trust 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 Trust. All exchanges are
subject to certain conditions described below. As of the date of
the Prospectus, the Aquila-sponsored Bond or Equity Funds are this
Trust, Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust,
Tax-Free Trust of Arizona, Tax-Free Fund of Colorado, Churchill
Tax-Free Fund of Kentucky, Tax-Free Fund For Utah and Narragansett
Insured Tax-Free Income Fund; the Aquila Money-Market Funds are
Capital Cash Management Trust, Pacific Capital Cash Assets Trust
(Original Shares), Pacific Capital Tax-Free Cash Assets Trust
(Original Shares), Pacific Capital U.S. Treasuries Cash Assets
Trust (Original Shares) and Churchill Cash Reserves Trust.
Class Y Shares of the Trust 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 shares of Class
Y Shares 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 of 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 Trust, as well as the Money-Market Funds and 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 Trust 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:
800-872-6735 toll free or 908-855-5731
Note: The Trust, 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 Trust's shares. See "How to Invest in the
Trust".
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 Trust'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 the applicable sales charge) for 1- and 5-year periods and
for a period since the inception of the Trust, to the extent
applicable, through the end of such periods, assuming reinvestment
(without sales charge) of all distributions. The Trust 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 Trust's portfolio investments; it is calculated by (i)
dividing the Trust'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 Trust, which invests in tax-exempt obligations. It is
computed by dividing the tax-exempt portion of the Trust'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
Trust'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 Trust'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 Trust
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 Trust'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 Trust'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 Trust, 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 Trust'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
Trust contains additional performance information that will be made
available upon request and without charge.
Description of the Trust and its Shares
The Trust is a series of The Cascades Trust (the "Business
Trust") formed in 1985 under the name Tax-Free Trust of Oregon. On
August 10, 1989, the name of the Business Trust was changed to The
Cascades Trust. The Business Trust presently has only one active
series, the original series, which continues to be called Tax-Free
Trust of Oregon.
The Business Trust is an open-end, non-diversified
management investment company organized as a Massachusetts business
trust. (See "Investment of the Trust Assets" above for further
information about the Trust'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 Business Trust. Each share represents an equal proportionate
interest in the Trust with each other share of its class; shares of
the respective classes represent proportionate interests in the
Trust in accordance with their respective net asset values. Income,
direct liabilities and direct operating expenses of each series
will be allocated directly to each series, and general liabilities
and expenses, if any, of the Business Trust will be allocated among
the series in a manner acceptable to the Board of Trustees. Upon
liquidation of a series, shareholders of the series are entitled to
share pro-rata in the net assets of that series available for
distribution to shareholders and upon liquidation of the Business
Trust, the respective series are entitled to share proportionately
in the assets available to the Business Trust after allocation to
the various series. Shareholders of each series are entitled to
share pro-rata in the net assets of the Trust available for
distribution to shareholders, in accordance with the respective net
asset values of the shares of each of that series 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 Trust 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 Trust 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 Trust at 800-872-
6735.
The primary distinction among the Trust'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 Oregon 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 Trust 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 Trust'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 Trust assets allocable to the Class A Shares and Class C
Shares, respectively. See the Additional Statement. The Trust has
also adopted a Shareholder Services Plan under which the Trust is
authorized to make certain payments out of the Trust assets
allocable to the Class C Shares. See the Additional Statement.
Ownership of Shares of the Trust
As of April 2, 1996, BHC Securities, Inc., 2005 Market
Street, Philadelphia, PA held of record 2,590,644 shares (9.7%) of
the Trust and Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box
30561, New Brunswick, NJ held of record 2,590,644 shares (8.9%) of
the Trust, all of which were Class A Shares. The Trust's management
is not aware of any other person owning of record or beneficially
5% or more of the Trust's outstanding shares as of that date. On
the basis of information received from those record owners, the
Trust's management believes that all of such shares are held for
the benefit of brokerage clients.
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.
Rule 18f-2 under the Investment Company Act of 1940
provides that matters submitted to shareholders affecting any
series must be approved by a majority of the outstanding voting
securities of such series, voting separately from the other series,
unless it is clear that the interests of each series in the matter
are identical or the matter does not affect a series. However, the
rule exempts the selection of accountants and the election of
Trustees from the separate voting requirement.
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 Trust, except that the Trust's Board of
Trustees may change the name of the Trust. The Trust may be
terminated (i) upon the sale of its assets to another issuer, or
(ii) upon liquidation and distribution of the assets of the Trust,
in either case if such action is approved by the vote of the
holders of a majority of the outstanding shares of the Trust. If
not so terminated, the Trust will continue indefinitely.
<PAGE>
APPLICATION FOR TAX-FREE TRUST OF OREGON
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
1-800-872-6735
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:________________________
Employers 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:
TAX-FREE TRUST OF OREGON)
___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 Tax-Free Trust of Oregon 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 Trust toll-free at 1-800-872-6735. 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 Trust 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 Trust and has received and
read a current Prospectus of the Trust and agrees to its terms.
- - I/We authorize the Trust 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 Trust and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Trust 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 Trust and its agents to correct any transfer error by
a debit or credit to my/our Financial Institution account and/or
Trust 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 Trust, 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 Trust, 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 Trusts Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Trust 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 Trust 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 1-800-872-6734 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 Trust'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 Trust purchased
for and held under the Plan, but the Agent will credit all such
shares to the Planholder on the records of the Trust. 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
Trust 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 Trust) 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 Trust'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 Trust. 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 Trust, 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 Trust, 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
Qualivest Capital Management, Inc.
A subsidiary of U.S. Bancorp and its subsidiary,
United States National Bank of Oregon
111 S.W. Fifth Avenue
U.S. Bancorp Tower
Portland, Oregon 97204
ADMINISTRATOR
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
James A. Gardner
Diana P. Herrmann
Ann R. Leven
Raymond H. Lung
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
W. Dennis Cheroutes, Senior Vice President
Sally Wilson Church, Vice President
Nancy Kayani, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights
Table Of Expenses
Financial Highlights
Introduction
Investment Of The Trust's Assets
Investment Restrictions
Net Asset Value Per Share
How To Invest In The Trust
How To Redeem Your Investment
Automatic Withdrawal Plan
Management Arrangements
Dividend And Tax Information
Exchange Privilege
General Information
Application
AQUILA
[EAGLE LOGO]
TAX-FREE TRUST
OF OREGON
[LOGO]
A tax-free
income investment
A Series of The Cascades Trust
PROSPECTUS
One of The
Aquilasm Group of Funds
<PAGE>
Aquila
Tax-Free Trust of Oregon
380 Madison Avenue Suite 2300
New York, New York 10017
800-USA-OREG (800-872-6734)
212-697-6666
Statement of Additional Information
April 5, 1996
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. The Additional Statement should be
read in conjunction with the Prospectus (the "Prospectus") dated
April 5, 1996, of Tax-Free Trust of Oregon (the "Trust"), which may
be obtained from the Trust's Shareholder Servicing Agent,
Administrative Data Management Corp. by writing to it at: 10
Woodbridge Center Drive, Woodbridge, NJ 07095-1198 or by calling
the following numbers:
800-872-6735 toll free or 908-855-5731
or from Aquila Distributors, Inc., the Trust's Distributor, by
writing to it at 380 Madison Avenue, Suite 2300, New York, New York
10017; or by calling:
800-872-6734 toll free or 212-697-6666
The Annual Report of the Trust for the fiscal year ended
September 30, 1995, will be delivered with the Additional
Statement.
TABLE OF CONTENTS
Investment of the Trust's Assets . . . . . . . . . . . . . . . .2
Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . .7
Performance . . . . . . . . . . . . . . . . . . . . . . . . . .9
Investment Restrictions . . . . . . . . . . . . . . . . . . . 12
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 13
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 16
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 16
Additional Information as to Management Arrangements . . . . . 22
Computation of Net Asset Value . . . . . . . . . . . . . . . . 26
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 27
Additional Tax Information . . . . . . . . . . . . . . . . . . 28
General Information . . . . . . . . . . . . . . . . . . . . . 28
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 30
<PAGE>
INVESTMENT OF THE TRUST'S ASSETS
The investment objective and policies of the Trust are
described in the Prospectus, which refers to the matters described
below. See the Prospectus for the definition of "Oregon
Obligations."
Ratings
The ratings assigned by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") represent
their respective opinions of the quality of the municipal bonds and
notes which they undertake to rate. It should be emphasized,
however, that ratings are general and not absolute standards of
quality. Consequently, obligations with the same maturity, stated
interest rate and rating may have different yields, while
obligations of the same maturity and stated interest rate with
different ratings may have the same yield. See Appendix A to this
Additional Statement for further information about the ratings of
Moody's and S&P as to the various rated Oregon Obligations which
the Trust may purchase.
The table below gives information as to the percentage of
Trust net assets invested, as of September 30, 1995, in Oregon
Obligations in the various rating categories:
Highest rating (1) 43.6%
Second highest rating (2) 47.9%
Third highest rating (3) 7.2%
Fourth highest rating (4) 0.2%
Not rated: 1.2%
100.0%
(1) Aaa of Moody's or AAA of S&P.
(2) Aa of Moody's or AA of S&P.
(3) A of Moody's or A of S&P.
(4) Baa of Moody's or BBB of S&P.
When-Issued and Delayed Delivery Obligations
The Trust may buy Oregon Obligations on a when-issued or
delayed delivery basis. The purchase price and the interest rate
payable on the Oregon Obligations are fixed on the transaction
date. At the time the Trust makes the commitment to purchase Oregon
Obligations on a when-issued or delayed delivery basis, it will
record the transaction and thereafter reflect the value each day of
such Oregon Obligations in determining its net asset value. The
Trust will make commitments for such when-issued transactions only
when it has the intention of actually acquiring the Oregon
Obligations. The Trust 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.
On delivery dates for such transactions, the Trust will meet its
commitments by selling the Oregon Obligations held in the separate
account and/or from cash flow.
Determination of the Marketability of Certain Securities
In determining marketability of floating and variable rate
demand notes and participation interests (including municipal
lease/purchase obligations) the Board of Trustees will consider the
following factors, not all of which may be applicable to any
particular issue: the quality, maturity and coupon rate of the
issue, ratings received from the nationally recognized statistical
rating organizations and any changes or prospective changes in such
ratings, the likelihood that the issuer will continue to
appropriate the required payments for the issue, recent purchases
and sales of the same or similar issues, the general market for
municipal securities of the same or similar quality, the Adviser's
opinion as to marketability of the issue and other factors that may
be applicable to any particular issue.
Futures Contracts and Options
The Trust is permitted to buy and sell futures contracts
relating to municipal bond indices ("Municipal Bond Index Futures")
and to U.S. Government securities ("U.S. Government Securities
Futures," together referred to as "Futures"), and exchange traded
options based on Futures as a possible means to protect the asset
value of the Trust during periods of changing interest rates,
although in fact the Trust may never do so. The following
discussion is intended to explain briefly the workings of Futures
and options on them.
Unlike when the Trust purchases or sells an Oregon Obligation,
no price is paid or received by the Trust upon the purchase or sale
of a Future. Initially, however, when such transactions are entered
into, the Trust will be required to deposit with the futures
commission merchant ("broker") an amount of cash or Oregon
Obligations equal to a varying specified percentage of the contract
amount. This amount is known as initial margin. Subsequent
payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying index or
security fluctuates, making the Future more or less valuable, a
process known as marking to market. Insolvency of the broker may
make it more difficult to recover initial or variation margin.
Changes in variation margin are recorded by the Trust as unrealized
gains or losses. Margin deposits do not involve borrowing by the
Trust and may not be used to support any other transactions. At any
time prior to expiration of the Future, the Trust may elect to
close the position by taking an opposite position which will
operate to terminate the Trust's position in the Future. A final
determination of variation margin is then made. Additional cash is
required to be paid by or released to the Trust and it realizes a
gain or a loss. Although Futures by their terms call for the actual
delivery or acceptance of cash, in most cases the contractual
obligation is fulfilled without having to make or take delivery.
All transactions in the futures markets are subject to commissions
payable by the Trust and are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts
are traded. Although the Trust intends to buy and sell Futures only
on an exchange where there appears to be an active secondary
market, there is no assurance that a liquid secondary market will
exist for any particular Future at any particular time. In such
event, or in the event of an equipment failure at a clearing house,
it may not be possible to close a futures position.
Municipal Bond Index Futures currently are based on a
long-term municipal bond index developed by the Chicago Board of
Trade ("CBT") and The Bond Buyer (the "Municipal Bond Index").
Financial futures contracts based on the Municipal Bond Index began
trading on June 11, 1985. The Municipal Bond Index is comprised of
40 tax-exempt municipal revenue and general obligation bonds. Each
bond included in the Municipal Bond Index must be rated A or higher
by Moody's or S&P and must have a remaining maturity of 19 years or
more. Twice a month new issues satisfying the eligibility
requirements are added to, and an equal number of old issues are
deleted from, the Municipal Bond Index. The value of the Municipal
Bond Index is computed daily according to a formula based on the
price of each bond in the Municipal Bond Index, as evaluated by six
dealer-to-dealer brokers.
The Municipal Bond Index futures contract is traded only on
the CBT. Like other contract markets, the CBT assures performance
under futures contracts through a clearing corporation, a nonprofit
organization managed by the exchange membership which is also
responsible for handling daily accounting of deposits or
withdrawals of margin.
There are at present U.S. Government financial futures
contracts based on long-term Treasury bonds, Treasury notes, GNMA
Certificates and three-month Treasury bills. U.S. Government
Securities Futures have traded longer than Municipal Bond Index
Futures, and the depth and liquidity available in the trading
markets for them are in general greater.
Call Options on Futures Contracts. The Trust may also purchase
and sell exchange related call and put options on Futures. The
purchase of a call option on a Future is analogous to the purchase
of a call option on an individual security. Depending on the
pricing of the option compared to either the Future upon which it
is based, or upon the price of the underlying debt securities, it
may or may not be less risky than ownership of the futures contract
or underlying debt securities. Like the purchase of a futures
contract, the Trust may purchase a call option on a Future to hedge
against a market advance when the Trust is not fully invested.
The writing of a call option on a Future constitutes a partial
hedge against declining prices of the securities which are
deliverable upon exercise of the Future. If the price at expiration
of the Future is below the exercise price, the Trust will retain
the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Trust's
portfolio holdings.
Put Options on Futures Contracts. The purchase of put options
on a Future is analogous to the purchase of protective put options
on portfolio securities. The Trust may purchase a put option on a
Future to hedge the Trust's portfolio against the risk of rising
interest rates.
The writing of a put option on a Future constitutes a partial
hedge against increasing prices of the securities which are
deliverable upon exercise of the Future. If the Future price at
expiration is higher than the exercise price, the Trust will retain
the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the
Trust intends to purchase.
The writer of an option on a Future is required to deposit
initial and variation margin pursuant to requirements similar to
those applicable to Futures. Premiums received from the writing of
an option will be included in initial margin. The writing of an
option on a Future involves risks similar to those relating to
Futures.
Risk Factors in Futures Transactions and Options
One risk in employing Futures or options on them to attempt to
protect against the price volatility of the Trust's Oregon
Obligations is that the Adviser could be incorrect in its
expectations as to the extent of various interest rate movements or
the time span within which the movements take place. For example,
if the Trust sold a Future in anticipation of an increase in
interest rates, and then interest rates went down instead, the
Trust would lose money on the sale.
Another risk as to Futures or options on them arises because
of the imperfect correlation between movement in the price of the
Future and movements in the prices of the Oregon Obligations which
are the subject of the hedge. The risk of imperfect correlation
increases as the composition of the Trust's portfolio diverges from
the municipal bonds included in the applicable index or from the
security underlying the U.S. Government Securities Futures. The
price of the Future or option may move more than or less than the
price of the Oregon Obligations being hedged. If the price of the
Future or option moves less than the price of the Oregon
Obligations which are the subject of the hedge, the hedge will not
be fully effective but, if the price of the Oregon Obligations
being hedged has moved in an unfavorable direction, the Trust would
be in a better position than if it had not hedged at all. If the
price of the Oregon Obligations being hedged has moved in a
favorable direction, this advantage will be partially offset by the
Future or option. If the price of the Future or option has moved
more than the price of the Oregon Obligations, the Trust will
experience either a loss or gain on the Future or option which will
not be completely offset by movements in the price of the Oregon
Obligations which are the subject of the hedge. To compensate for
the imperfect correlation of movements in the price of the Oregon
Obligations being hedged and movements in the price of the Futures
or options, the Trust may buy or sell Futures or options in a
greater dollar amount than the dollar amount of the Oregon
Obligations being hedged if the historical volatility of the prices
of the Oregon Obligations being hedged is less than the historical
volatility of the debt securities underlying the hedge. It is also
possible that, where the Trust has sold Futures or options to hedge
its portfolio against decline in the market, the market may advance
and the value of the Oregon Obligations held in the Trust's
portfolio may decline. If this occurred the Trust would lose money
on the Future or option and also experience a decline in value of
its portfolio securities.
Where Futures or options are purchased to hedge against a
possible increase in the price of Oregon Obligations before the
Trust is able to invest in them in an orderly fashion, it is
possible that the market may decline instead; if the Trust then
concludes not to invest in them at that time because of concern as
to possible further market decline or for other reasons, the Trust
will realize a loss on the Futures or options that is not offset by
a reduction in the price of the Oregon Obligations which it had
anticipated purchasing.
The particular municipal bonds comprising the index underlying
Municipal Bond Index Futures will vary from the bonds held by the
Trust. The correlation of the hedge with such bonds may be affected
by disparities in the average maturity, ratings, geographical mix
or structure of the Trust's investments as compared to those
comprising the Index, and general economic or political factors. In
addition, the correlation between movements in the value of the
Municipal Bond Index may be subject to change over time, as
additions to and deletions from the Municipal Bond Index alter its
structure. The correlation between U.S. Government Securities
Futures and the municipal bonds held by the Trust may be adversely
affected by similar factors and the risk of imperfect correlation
between movements in the prices of such Futures and the prices of
Municipal Bonds held by the Trust may be greater.
Trading in Municipal Bond Index Futures may be less liquid
than that in other Futures. The trading of Futures and options is
also subject to certain market risks, such as inadequate trading
activity and limits on upward or downward price movement which
could at times make it difficult or impossible to liquidate
existing positions.
Regulatory Aspects of Futures and Options
The Trust will, due to requirements under the Investment
Company Act of 1940 (the "1940 Act"), deposit in a segregated
account with its custodian bank Oregon Obligations maturing in one
year or less or cash, in an amount equal to the fluctuating market
value of long Futures or options it has purchased, less any margin
deposited on long positions.
The Trust must operate within certain restrictions as to its
long and short positions in Futures under a rule (the "CFTC Rule")
adopted by the Commodity Futures Trading Commission ("CFTC") under
the Commodity Exchange Act (the "CEA") to be eligible for the
exclusion provided by the CFTC Rule as a "commodity pool operator"
(as defined under the CEA), and must represent to the CFTC that the
Trust will operate within such restrictions. Under these
restrictions the Trust will not, as to any positions, whether long,
short or a combination thereof, enter into Futures or options for
which the aggregate initial margins and premiums paid for options
exceed 5% of the fair market value of its assets. Under the
restrictions, the Trust also must, as to its short positions, use
Futures and options solely for bona-fide hedging purposes within
the meaning and intent of the applicable provisions under the CEA.
As to the Trust's long positions which are used as part of its
portfolio strategy and are incidental to its activities in the
underlying cash market, the "underlying commodity value" (see
below) of its Futures must not exceed the sum of (i) cash set aside
in an identifiable manner, or short-term U.S. debt obligations or
other U.S. dollar-denominated high quality short-term money market
instruments so set aside, plus any funds deposited as margin; (ii)
cash proceeds from existing investments due in 30 days and (iii)
accrued profits held at the futures commission merchant. (There is
described above the segregated account which the Trust must
maintain with its custodian bank as to its Futures and options
activities due to requirements other than those of the CFTC Rule;
the Trust will, as to long positions, be required to abide by the
more restrictive of this other requirement or the above
requirements of the CFTC Rule.) The "underlying commodity value" of
a Future or option is computed by multiplying the size of the
Future by the daily settlement price of the Future or option.
The "sale" of a Future means the acquisition by the Trust of
an obligation to deliver an amount of cash equal to a specified
dollar amount times the difference between the value of the index
or government security at the close of the last trading day of the
Future and the price at which the Future is originally struck
(which the Trust anticipates will be lower because of a subsequent
rise in interest rates and a corresponding decline in the index
value). This is referred to as having a "short" Futures position.
The "purchase" of a Future means the acquisition by the Trust of an
obligation to take delivery of such an amount of cash. In this
case, the Trust anticipates that the closing value will be higher
than the price at which the Future is originally struck. This is
referred to as having a "long" Futures position. No physical
delivery of the bonds making up the index or the U.S. government
securities, as the case may be, is made as to either a long or a
short Futures position.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage
computed by taking the lesser of purchases or sales of portfolio
securities for a year and dividing it by the monthly average value
of such securities during the year, excluding certain short-term
securities. Since the turnover rate of the Trust will be affected
by a number of factors, the Trust is unable to predict what rate
the Trust will have in any particular period or periods, although
such rate is not expected to exceed 100%. However, the rate could
be substantially higher or lower in any particular period.
MUNICIPAL BONDS
The two principal classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit
and unlimited taxing power for the payment of principal and
interest. Revenue or special tax bonds are payable only from the
revenues derived from a particular facility or class of facilities
or projects or, in a few cases, from the proceeds of a special
excise or other tax, but are not supported by the issuer's power to
levy unlimited general taxes. There are, of course, variations in
the security of municipal bonds, both within a particular
classification and between classifications, depending on numerous
factors. The yields of municipal bonds depend on, among other
things, general financial conditions, general conditions of the
municipal bond market, size of a particular offering, the maturity
of the obligation and rating of the issue.
Since the Trust may invest in industrial development bonds or
private activity bonds, the Trust may not be an appropriate
investment for entities which are "substantial users" of facilities
financed by those bonds or for investors who are "related persons"
of such users. Generally, an individual will not be a "related
person" under the Internal Revenue Code unless such investor or his
or her immediate family (spouse, brothers, sisters and lineal
descendants) own directly or indirectly in the aggregate more than
50 percent of the equity of a corporation or is a partner of a
partnership which is a "substantial user" of a facility financed
from the proceeds of those bonds. A "substantial user" of such
facilities is defined generally as a "non-exempt person who
regularly uses a part of [a] facility" financed from the proceeds
of industrial development or private activity bonds.
As indicated in the Prospectus, there are certain Oregon
Obligations the interest on which is subject to the Federal
alternative minimum tax on individuals. While the Trust may
purchase these obligations, it may, on the other hand, refrain from
purchasing particular Oregon Obligations due to this tax
consequence. Also, as indicated in the Prospectus, the Trust will
not purchase obligations of Oregon issuers the interest on which is
subject to regular Federal income tax. The foregoing may reduce the
number of issuers of obligations which are available to the Trust.
Oregon Property Tax Restrictions
On November 6, 1990, Oregon voters approved a property tax
limitation measure. When the tax limitation measure is fully phased
in, it limits the amount of taxes which may be imposed by local
governments upon property to $15 per $1,000 of real market value.
Property taxes to fund the public school system decrease from a
maximum of $15 per $1,000 in fiscal year 1991-92 to $5 per $1,000
in 1995-96 and thereafter. Property taxes to fund government
operations other than the public school system are limited to $10
per $1,000 in fiscal year 1991-92 and thereafter. Property taxes
are categorized as those revenues raised to fund the public school
system (defined as educational or support services by any
government from pre-kindergarten through post-graduate training)
and those used to fund all government operations other than the
public school system.
The State Legislature is required to replace from the State's
general fund the revenues lost by the public school system during
the fiscal years 1991-92 through 1995-96. The amount of each year's
replacement revenue is calculated by using the loss of school
property tax revenue in each prior year plus six percent. The State
is obliged to replace funds lost from property taxes; however, it
is under no obligation to maintain levels of State school support
from other sources at previous levels. Therefore the total amount
of funding available to school districts for operations is expected
to be reduced. The impact on each school district will vary.
At present, it is difficult to assess the impact of the tax
limitation measure, in part, because it will not be fully phased in
until fiscal year 1995-1996. In addition, the effect of the measure
is also dependent on whether alternative revenue sources are
obtained and, if so, the type and amount of such revenues. The
adoption of the tax limitation measure may have an adverse effect
on the general financial condition of affected cities, counties,
school districts and other districts, and may, in some cases,
impair their ability to pay obligations other than general
obligation bonds. In addition, the adoption of the tax limitation
measure will require the Legislature to provide funds from its
general fund to replace tax revenues lost by the public school
system through fiscal year 1995-96. This could have an adverse
effect on the State's credit rating, particularly if alternative
revenue sources are not obtained. Moreover, the tax limitation
measure might contract the overall size of the Oregon municipal
bond market and might have some adverse effect the value of the
Trust's portfolio.
PERFORMANCE
As noted in the Prospectus, the Trust may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are subject
to rules of the Securities and Exchange Commission ("SEC"). These
rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation
furnished by the Trust be accompanied by certain standardized
performance information computed as required by the SEC. Current
yield and average annual compounded total return quotations used by
the Trust are based on these standardized methods and are computed
separately for each of the Trust's three classes. Prior to April 5,
1996, the Trust had outstanding only one class of shares which are
currently designated Class A Shares, "Front Payment Class Shares."
On that date the trust began to offer shares of two other classes,
Class C Shares, "Level Payment Class Shares" and Class Y Shares,
"Institutional Class Shares." During the historical periods listed
below, there were no Class C Shares or Class Y Shares outstanding
and the information below relates solely to Class A Shares. Each of
these and other methods that may be used by the Trust are described
in the following material.
Total Return
Average annual total return is determined by finding the
average annual compounded rates of return over 1- and 5-year
periods and a period since the inception of the operations of the
Trust (on June 16, 1986) that would equate an initial hypothetical
$1,000 investment to the value such an investment would have if it
were completely redeemed at the end of each such period. The
calculation assumes the maximum sales charge is deducted from the
hypothetical initial $1,000 purchase, that on each reinvestment
date during each such period any capital gains are reinvested at
net asset value, and all income dividends are reinvested at net
asset value, without sales charge (because the Trust does not
impose any sales charge on reinvestment of dividends). The
computation further assumes that the entire hypothetical account
was completely redeemed at the end of each such period.
Investors should note that the maximum sales charge (4%) of
the offering price, reflected in the following quotations is a one
time charge, paid at the time of initial investment. The greatest
impact of this charge is during the early stages of an investment
in the Trust. Actual performance will be affected less by this one
time charge the longer an investment remains in the Trust.
The average annual compounded rates of return for the Trust
for the 1- and 5-year periods ended September 30, 1995, were 5.09%
and 6.96%, respectively. The average annual compounded rate of
return for the Trust from inception to September 30, 1995, was
7.01%.
These figures were calculated according to the following SEC
formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1- and 5-year periods or the
period since inception, at the end of each such period.
As discussed in the Prospectus, the Trust may quote total
rates of return in addition to its average annual total return.
Such quotations are computed in the same manner as the Trust's
average annual compounded rate, except that such quotations will be
based on the Trust's actual return for a specified period as
opposed to its average return over the periods described above. The
total returns for the Trust for the 1- and 5-year periods ended
September 30, 1995 were 5.09% and 39.98%, respectively. The total
return for the Trust from inception to September 30, 1995, was
87.67%. In general, actual total rate of return will be lower than
average annual rate of return because the average annual rate of
return reflects the effect of compounding. See discussion of the
impact of the sales charge on quotations of rates of return, above.
Yield
Current yield reflects the income per share earned by the
Trust's portfolio investments. Current yield is determined by
dividing the net investment income per share earned during a 30-day
base period by the maximum offering price per share on the last day
of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base
period net of fee waivers and reimbursements of expenses, if any.
The yield for the Trust for the 30-day period ended on September
30, 1995, (the date of the Trust's most recent audited financial
statements, which are included in the Trust's Annual Report for the
year ended September 30, 1995) was 4.24%.
These figures were obtained using the Securities and Exchange
Commission formula:
6
Yield = 2 [(a-b + 1) -1]
----
cd
where
a = interest earned during the period
b = expenses accrued for the period (net of waivers and
reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
Taxable Equivalent Yield
The Trust may also quote a taxable equivalent yield which
shows the taxable yield that would be required to produce an
after-tax yield equivalent to that of a fund which invests in
tax-exempt obligations. Such yield is computed by dividing that
portion of the yield of the Trust (computed as indicated above)
which is tax-exempt by one minus the highest applicable combined
federal and Oregon income tax rate (and adding the result to that
portion of the yield of the Trust that is not tax-exempt, if any).
The taxable equivalent yield for the Trust for the 30-day period
ended on September 30, 1995 (the date of the Trust's most recent
audited financial statements, which are included in the Trust's
annual report for the year ended September 30, 1995) was 7.83%.
The Oregon and the combined Oregon and Federal income tax
rates upon which the Trust's tax equivalent yield quotations are
based are 9.0% and 46.12%, respectively. From time to time, as any
changes to such rates become effective, tax equivalent yield
quotations advertised by the Trust will be updated to reflect such
changes. Any tax rate increases will tend to make a tax-free
investment, such as the Trust, relatively more attractive than
taxable investments. Therefore, the details of specific tax
increases may be used in Trust sales material.
Current Distribution Rate
Current yield and tax equivalent yield, which are calculated
according to a formula prescribed by the SEC, are not indicative of
the amounts which were or will be paid to the Trust's shareholders.
Amounts paid to shareholders are reflected in the quoted current
distribution rate or taxable equivalent distribution rate. The
current distribution rate is computed by (i) dividing the total
amount of dividends per share paid by the Trust 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 Trust's
current distribution rate (calculated as indicated above). The
current distribution rate can differ from the current yield
computation because it could include distributions to shareholders
from additional sources (i.e., sources other than dividends and
interest), such as short-term capital gains. If distribution rates
are published, they will be accompanied by calculations of current
yield in accordance with the formula of the Securities and Exchange
Commission.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase shares of the Trust at net asset value, the
Trust may quote a "Current Distribution Rate for Net Asset Value
Investments." This rate is computed by (i) dividing the total
amount of dividends per share paid by the Trust during a recent
30-day period by (ii) the current net asset value of the Trust and
by (iii) annualizing the result. Figures for yield, total return
and other measures of performance for Net Asset Value Investments
may also be quoted. These will be derived as described above with
the substitution of net asset value for public offering price. 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.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used.
INVESTMENT RESTRICTIONS
The Trust has a number of policies concerning what it can and
cannot do. Those that are called fundamental policies cannot be
changed unless the holders of a "majority" (as defined in the 1940
Act) of the Trust's outstanding shares vote to change them. Under
that Act, the vote of the holders of a "majority" of the Trust's
outstanding shares means the vote of the holders of the lesser of
(a) 67% or more of the Trust's shares present at a meeting or
represented by proxy if the holders of more than 50% of its shares
are so present or represented; or (b) more than 50% of the Trust's
outstanding shares. Those fundamental policies not set forth in the
Prospectus are set forth below:
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than Oregon
Obligations (discussed under "Investment of the Trust's Assets" in
the Prospectus), Municipal Bond Index Futures, U.S. Government
Securities Futures and options on Futures; therefore the Trust
cannot buy any voting securities, any commodities or commodity
contracts other than Municipal Bond Index Futures and U.S.
Government Securities Futures, any mineral related programs or
leases, any shares of other investment companies or any warrants,
puts, calls or combinations thereof other than on Futures.
The Trust cannot purchase or hold the securities of any issuer
if, to its knowledge, Trustees, Directors or officers of the Trust
or its Adviser individually owning beneficially more than 0.5 of 1%
of the securities of that issuer together own in the aggregate more
than 5% of such securities.
The Trust cannot buy real estate or any non-liquid interests
in real estate investment trusts; however, it can buy any
securities which it can otherwise buy even though the issuer
invests in real estate or has interests in real estate.
2. The Trust does not buy for control.
The Trust cannot invest for the purpose of exercising control
or management of other companies.
3. The Trust does not sell securities it does not own or borrow
from brokers to buy securities.
Thus, it cannot sell short or buy on margin; however, the
Trust can make margin deposits in connection with the purchase or
sale of Municipal Bond Index Futures, U.S. Government Securities
Futures and options on them, and can pay premiums on these options.
4. The Trust is not an underwriter.
The Trust cannot engage in the underwriting of securities,
that is, the selling of securities for others. Also, it cannot
invest in restricted securities. Restricted securities are
securities which cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Trust's Distribution Plan has three parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II) and to certain defensive provisions (Part
III).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Trust would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Adviser or
the Distributor. The Distributor will consider shares which are not
Qualified Holdings of such unrelated broker-dealers to be Qualified
Holdings of the Distributor and will authorize Permitted Payments
to the Distributor with respect to such shares whenever Permitted
Payments are being made under the Plan.
Part I of the Plan applies only to the Front Payment Shares
class ("Class A") of shares of the Trust (regardless of whether
such class is so designated or is redesignated by some other
name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors, Inc.
(the "Distributor"), including but not limited to any principal
underwriter of the Trust, with which the Trust or the Distributor
has entered into written agreements in connection with Part I
("Class A Plan Agreements") and which have rendered assistance
(whether direct, administrative, or both) in the distribution
and/or retention of the Trust's Front Payment Shares or servicing
of shareholder accounts with respect to such shares. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all Front
Payment shares beneficially owned by such Qualified Recipient, or
beneficially owned by its brokerage customers, other customers,
other contacts, investment advisory clients, or other clients, if
the Qualified Recipient was, in the sole judgment of the
Distributor, instrumental in the purchase and/or retention of such
shares and/or in providing administrative assistance or other
services in relation thereto.
Subject to the direction and control of the Board of
Trustees of the Trust, the Trust may make payments ("Class A
Permitted Payments") to Qualified Recipients, which Class A
Permitted Payments may be made directly, or through the Distributor
or shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (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 of the Trust
represented by the Front Payment Shares class of shares. Such
payments shall be made only out of the Trust assets allocable to
the Front Payment Shares. The Distributor shall have sole
authority (i) as to the selection of any Qualified Recipient or
Recipients; (ii) not to select any Qualified Recipient; and (iii)
the amount of Class A Permitted Payments, if any, to each Qualified
Recipient provided that the total Class A Permitted Payments to all
Qualified Recipients do not exceed the amount set forth above.
The Distributor is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by
it, the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front Payment Shares,
including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records; assisting
in processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in connection
with customer orders to purchase or redeem shares; verifying and
guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated
accounts; furnishing (either alone or together with other reports
sent to a shareholder by such person) monthly and year end
statements and confirmations of purchases and redemptions;
transmitting, on behalf of the Trust, proxy statements, annual
reports, updating prospectuses and other communications from the
Trust to its shareholders; receiving tabulating and transmitting to
the Trust proxies executed by shareholders with respect to meetings
of shareholders of the Trust; and providing such other related
services as the Distributor or a shareholder may request from time
to time; and (c) the possibility that the Qualified Holdings of the
Qualified Recipient would be redeemed in the absence of its
selection or continuance as a Qualified Recipient. Notwithstanding
the foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified Recipient.
Amounts within the above limits accrued to a Qualified Recipient
but not paid during a fiscal year may be paid thereafter; if less
than the full amount is accrued to all Qualified Recipients, the
difference will not be carried over to subsequent years.
While Part I is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under Section 9 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which the
amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Trust an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part I originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees, with
votes cast in person at a meeting called for the purpose of voting
on Part I of the Plan; and (ii) by a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities of
the Front Payment Shares class (or of any predecessor class or
category of shares, whether or not designated as a class) and a
vote of holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Level Payment Class and/or of
any other class whose shares are convertible into Front Payment
Shares. Part I has continued, and will, unless terminated as
hereinafter provided, continue in effect, until the June 30 next
succeeding such effectiveness, and from year to year thereafter
only so long as such continuance is specifically approved at least
annually by the Trust's Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of voting
on such continuance. Part I may be terminated at any time by the
vote of a majority of the Independent Trustees or by the vote of
the holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part I applies.
Part I may not be amended to increase materially the amount of
payments to be made without shareholder approval of the class or
classes of shares affected by Part I as set forth in (ii) above,
and all amendments must be approved in the manner set forth in (i)
above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since each
such agreement must be approved in accordance with, and contain the
provisions required by, the Rule. In the case of Qualified
Recipients which are not principal underwriters of the Trust, the
Class A Plan Agreements with them shall be (i) their agreements
with the Distributor with respect to payments under the Trust's
Distribution Plan in effect prior to April 1, 1996 or (ii) Class A
Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level Payment
Shares Class ("Class C Shares") of the Trust (regardless of
whether such class is so designated or is redesignated by some
other name).
As used in Part II of the Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to any principal underwriter of the Trust, with which the Trust
or the Distributor has entered into written agreements in
connection with Part II ("Class C Plan Agreements") and which
have rendered assistance (whether direct, administrative, or
both) in the distribution and/or retention of the Trust's Level
Payment Shares or servicing of shareholder accounts with respect
to such shares. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Level Payment shares beneficially owned
by such Qualified Recipient, or beneficially owned by its
brokerage customers, other customers, other contacts, investment
advisory clients, or other clients, if the Qualified Recipient
was, in the sole judgment of the Distributor, instrumental in the
purchase and/or retention of such shares and/or in providing
administrative assistance or other services in relation
thereto.
Subject to the direction and control of the Board of
Trustees of the Trust, the Trust may make payments ("Class C
Permitted Payments") to Qualified Recipients, which Class C
Permitted Payments may be made directly, or through the
Distributor or shareholder servicing agent as disbursing agent,
which may not exceed, for any fiscal year of the Trust (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year) 0.75 of 1% of the average annual
net assets of the Trust represented by the Level Payment Shares
class of shares. Such payments shall be made only out of the
Trust assets allocable to the Level Payment Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class C Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Adviser, the Administrator or the Distributor, such
person shall agree to furnish to the Distributor for transmission
to the Board of Trustees of the Trust an accounting, in form and
detail satisfactory to the Board of Trustees, to enable the Board
of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
Part II originally went into effect when it was approved
(i) by a vote of the Trustees, including the Independent
Trustees, with votes cast in person at a meeting called for the
purpose of voting on Part II of the Plan; and (ii) by a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Level Payment Shares class.
Part II has continued, and will, unless terminated as hereinafter
provided, continue in effect, until the April 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part II
applies. Part II may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class C Plan Agreements with them shall be their
agreements with the Distributor with respect to payments under
Part II.
Defensive Provisions (Part III)
Another part of the Plan (Part III) states that if and to
the extent that any of the payments listed below are considered
to be "primarily intended to result in the sale of" shares issued
by the Trust within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Trust or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of
preparation, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Trust's shares; (iv) all legal and accounting fees relating
to the preparation of any such reports, prospectuses, statements
of additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Trust and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Trust's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors or
prospective investors.
The Plan states that while it is in effect, the selection
and nomination of those Trustees of the Trust who are not
"interested persons" of the Trust shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan states that while it is in effect, the Trust's
Administrator and Distributor shall report at least quarterly to
the Trust's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this
Plan, the identity of the Qualified Recipient of each Payment,
and the purposes for which the amounts were expended; (ii) all
costs of each item of cost specified in the Plan (making
estimates of such costs where necessary or desirable) during the
preceding calendar or fiscal quarter; and (iii) all fees of the
Fund to the distributor, sub-adviser or administrator paid or
accrued during such quarter. In addition if any such Qualified
Recipient is an affiliate, as that term is defined in the Act, of
the Trust, the Adviser, the Administrator or the Distributor,
such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees of the Trust an accounting,
in form and detail satisfactory to the Board of Trustees, to
enable the Board of Trustees to make the determinations of the
fairness of the compensation paid to such affiliated person, not
less often than annually.
The Plan defines as the Trust's Independent Trustees
those Trustees who are not "interested persons" of the Trust as
defined in the 1940 Act and who have no direct or indirect
financial interest in the operation of the Plan or in any
agreements related to the Plan. The Plan, unless terminated as
hereinafter provided, continues in effect from year to year only
so long as such continuance is specifically approved at least
annually by the Trust's Board of Trustees and its Independent
Trustees with votes cast in person at a meeting called for the
purpose of voting on such continuance. In voting on the
implementation or continuance of the Plan, those Trustees who
vote to approve such implementation or continuance must conclude
that there is a reasonable likelihood that the Plan will benefit
the Trust and its shareholders. The Plan may be terminated at any
time by vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the 1940 Act)
of the outstanding voting securities of the Trust. The Plan may
not be amended to increase materially the amount of payments to
be made without shareholder approval and all amendments must be
approved in the manner set forth above as to continuance of the
Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act
as now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part III shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Trust.
SHAREHOLDER SERVICES PLAN
The Trust has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares of the Trust of "Service Fees" within the meaning of
Article III, Section 26(b)(9) of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. The
Services Plan applies only to the Class C Shares of shares of the
Trust (regardless of whether such class is so designated or is
redesignated by some other name).
As used in the Services Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the
Trust, who have, pursuant to written agreements with the Trust or
the Distributor, agreed to provide personal services to Level-
Payment shareholders and/or maintenance of Level-Payment
shareholder accounts. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Level-Payment Shares beneficially owned
by such Qualified Recipient's customers, clients or other
contacts. "Administrator" shall mean Aquila Management
Corporation or any successor serving as sub-adviser or
administrator of the Trust.
Subject to the direction and control of the Board of
Trustees of the Trust, the Trust may make payments ("Service
Fees") to Qualified Recipients, which Service Fees (i) may be
paid directly or through the Distributor or shareholder servicing
agent as disbursing agent and (ii) may not exceed, for any fiscal
year of the Trust (as adjusted for any part or parts of a fiscal
year during which payments under the Services Plan are not
accruable or for any fiscal year which is not a full fiscal year)
0.25 of 1% of the average annual net assets of the Trust
represented by the Level-Payment Class of shares. Such payments
shall be made only out of the Trust assets allocable to the
Level-Payment Shares. The Distributor shall have sole authority
with respect to the selection of any Qualified Recipient or
Recipients and the amount of Service Fees, if any, paid to each
Qualified Recipient, provided that the total Service Fees paid to
all Qualified Recipients may not exceed the amount set forth
above and provided, further, that no Qualified Recipient may
receive more than 0.25 of 1% of the average annual net asset
value of shares sold by such Recipient. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient
and (b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level-Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; and providing such other related services as
the Distributor or a shareholder may request from time to time.
Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees (as defined below) may remove any person as
a Qualified Recipient. Amounts within the above limits accrued to
a Qualified Recipient but not paid during a fiscal year may be
paid thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While the Services Plan is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Services Plan, the identity
of the Qualified Recipient of each payment, and the purposes for
which the amounts were expended; and (ii) all fees of the Trust
to the Distributor paid or accrued during such quarter. In
addition, if any Qualified Recipient is an "affiliated person,"
as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), of the Trust, the Adviser, the
Administrator or the Distributor, such person shall agree to
furnish to the Distributor for transmission to the Board of
Trustees of the Trust an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Trust and had no direct or indirect financial interest in the
operation of the Service Plan or in any agreements related to the
Service Plan (the "Independent Trustees"), with votes cast in
person at a meeting called for the purpose of voting on the
Service Plan. It is effective as of the date first above written
and will continue in effect for a period of more than one year
from such date only so long as such continuance is specifically
approved at least annually as set forth in the preceding
sentence. It may be amended in like manner and may be terminated
at any time by vote of the Independent Trustees.
The Services Plan shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the Act as now in force
or hereafter amended.
While the Service Plan is in effect, the selection and
nomination of those Trustees of the Trust who are not "interested
persons" of the Trust, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing herein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
LIMITATION OF REDEMPTIONS IN KIND
The Trust has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which the Trust is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1 percent
of the net asset value of the Trust during any 90-day period for
any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Trust will have the option of redeeming the
excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting
the assets into cash. The method of valuing securities used to
make redemptions in kind will be the same as the method of
valuing portfolio securities described under "Net Asset Value Per
Share" in the Prospectus, and such valuation will be made as of
the same time the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their affiliations,
if any, with the Administrator or the Distributor, and their
principal occupations during at least the past five years are set
forth below. None of the Trustees or officers of the Trust is
affiliated with the Adviser, except as indicated.
As of March 31 1996, all of the Trustees and officers as
a group owned less than 1% of its outstanding shares.
Mr. Herrmann is an "interested person" of the Trust as that
term is defined in the Investment Company Act of 1940 (the "1940
Act") as an officer of the Trust and a Director, officer and
shareholder of the Distributor. Ms. Herrmann is an interested
person as a member of his immediate family. Mr. Lung is an
interested person as a security holder of the Adviser's parent.
Interested persons are so designated by an asterisk.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder, President and Chairman of the Board of Aquila
Management Corporation since 1984, the sponsoring organization
and Administrator and/or Sub-Adviser to the following open-end
investment companies, and Founder, Chairman of the Board of
Trustees, and President of each: Prime Cash Fund, 1982-1996;
Pacific Capital Cash Assets Trust since 1984; Short Term Asset
Reserves since 1984; Churchill Cash Reserves Trust since 1985;
Pacific Capital U.S. Treasuries Cash Assets Trust since 1988;
Pacific Capital Tax-Free Cash Assets Trust since 1988; each of
which is a money market fund, and together with Capital Cash
Management Trust ("CCMT") are called the Aquila Money-Market
Funds; and Hawaiian Tax-Free Trust since 1984; Tax-Free Trust of
Arizona since 1986; Tax-Free Fund of Colorado since 1987;
Churchill Tax-Free Fund of Kentucky since 1987; Tax-Free Fund For
Utah since 1992; and Narragansett Insured Tax-Free Income Fund
since 1992; each of which is a tax-free municipal bond fund, and
an equity fund, Aquila Rocky Mountain Equity Fund since 1993,
together with this Trust are called the Aquila Bond and Equity
Funds; Vice President, Director, Secretary and formerly Treasurer
of Aquila Distributors, Inc. since 1981, distributor of the above
funds; President and Chairman of the Board of Trustees of CCMT, a
money market fund since 1981, and an Officer and Trustee/Director
of its predecessors since 1974; President and a Director of STCM
Management Company, Inc., sponsor and sub-adviser to CCMT;
Chairman, President, and a Director since 1984, of InCap
Management Corporation, formerly sub-adviser and administrator of
Prime Cash Fund and Short Term Asset Reserves, and Founder and
Chairman of several other money market funds; Director or Trustee
of OCC Cash Reserves, Inc., Oppenheimer Quest Global Value Fund,
Inc., Oppenheimer Quest Value Fund, Inc., and Trustee of Quest
For Value Accumulation Trust, The Saratoga Advantage Trust, and
of the Rochester Group of Funds, each of which is an open-end
investment company; Trustee of Brown University since 1990;
actively involved for many years in leadership roles with
university, school and charitable organizations.
Vernon R. Alden, Trustee, 420 Boylston Street, Suite 403, Boston,
Massachusetts 02116
Director of Augat Inc., a manufacturing corporation, since 1979,
Colgate Palmolive Company since 1974, Digital Equipment
Corporation, a computer manufacturing corporation, since 1959,
Intermet Corporation, an independent foundry, since 1986, and
Sonesta International Hotels Corporation since 1978; Chairman of
the Board and Executive Committee of The Boston Company, Inc., a
financial services company, 1969-1978; Trustee of Hawaiian Tax-
Free Trust, Pacific Capital Cash Assets Trust, Pacific Capital
Tax-Free Cash Assets Trust and Pacific Capital U.S. Treasuries
Cash Assets Trust since 1989, of Cascades Cash Fund, 1989-1994
and of Narragansett Insured Tax-Free Income Fund since 1992;
Associate Dean and member of the faculty of Harvard University
Graduate School of Business Administration, 1951-1962; member of
the faculty and Program Director of Harvard Business School -
University of Hawaii Advanced Management Program, summer of 1959
and 1960; President of Ohio University, 1962-1969; Chairman of
The Japan Society of Boston, Inc., and member of several Japan-
related advisory councils; Chairman of the Massachusetts Business
Development Council and the Massachusetts Foreign Business
Council, 1978-1983; Trustee of the Boston Symphony Orchestra
since 1975; Chairman of the Massachusetts Council on the Arts and
Humanities, 1972-1984; Member of the Board of Fellows of Brown
University, 1969-1986; Trustee and member of the Executive
Committee, Plymouth Plantation; trustee of various other cultural
and educational organizations; Honorary Consul General of the
Royal Kingdom of Thailand.
Warren C. Coloney, Trustee, 7304 Millwood Road, Bethesda,
Maryland 20817
Consultant to top management and governing boards on issues of
corporate governance, strategy, organization and human resource
management; Director of the Washington, D.C. office of Management
Practice, Inc., since 1992; President of Coloney & Company, Inc.,
since 1984; Managing Director-Europe of Towers, Perrin, Forster &
Crosby, Inc., 1974-1984; President of Coloney, Cannon, Main &
Pursell, Inc., 1968-1974; Registered Professional Engineer;
Founding Member of the Institute of Management Consultants;
Trustee of Cascades Cash Fund, 1989-1994; active in a number of
professional, social, church, and community service organizations
in England and the United States.
James A. Gardner, Trustee, Vandervert Ranch, Vandervert Road,
Bend, Oregon 97707
President of Gardner Associates, an investment and real estate
firm, since 1970; President Emeritus of Lewis and Clark College
and Law School since 1989 and President, 1981-1989; affiliated
with the Ford Foundation, 1969-1981; Lecturer and Assistant
Director of Admissions of Harvard College, 1968-1969; Member of
the Oregon Young Presidents Organization since 1983; Director of
Stanley Investment & Management Inc., an international business
brokerage, since 1987; Member of the Council on Foreign Relations
since 1988; Trustee of Cascades Cash Fund, 1989-1994; Director of
the Oregon High Desert Museum since 1989; active in civic,
business, educational and church organizations in Oregon.
Diana P. Herrmann*, Trustee, 380 Madison Avenue, New York, New
York 10017
Senior Vice President and Secretary and formerly Vice
President of the Administrator since 1986 and Director since
1984; Trustee of Tax-Free Trust of Arizona since 1994 and of
Churchill Tax-Free Fund of Kentucky and Churchill Cash Reserves
Trust since 1995; Vice President of InCap Management Corporation
since 1986 and Director since 1983; Vice President and formerly
Assistant Vice President of the Money Funds since 1986; Assistant
Vice President of Oxford Cash Management Fund, 1986-1988;
Assistant Vice President and formerly Loan Officer of European
American Bank, 1981-1986; daughter of the Trust's President;
Trustee of the Leopold Schepp Foundation (academic scholarships)
since 1995; actively involved in mutual fund and trade
associations and in college and other volunteer
organizations.
Ann R. Leven, Trustee, 785 Park Avenue, Apartment 20A, New York,
NY 10021
Treasurer of the National Gallery of Art, Washington, D.C., since
1994, Deputy Treasurer, 1990-1994; Treasurer of the Smithsonian
Institution, Washington, D.C., 1984-1990; President of ARL
Associates, strategic consultants, since 1983; Vice
President/Senior Corporate Planning Officer of The Chase
Manhattan Bank, N.A., 1979-1983; Treasurer of The Metropolitan
Museum of Art, 1972-1979; Trustee of Short Term Asset Reserves,
1984-1993, of Churchill Tax-Free Fund of Kentucky since 1987, of
Cascades Cash Fund, 1989-1994, and of Churchill Cash Reserves
Trust since 1995; Trustee of Oxford Cash Management Fund, 1987-
1988; Director of the Delaware Group of mutual funds since 1989;
Adjunct Professor at Columbia University Graduate School of
Business Administration since 1975; Trustee of the American Red
Cross Endowment Fund, 1985-1990; Member of the Visiting Committee
of Harvard Business School, 1979-1985; Member of the Board of
Overseers of The Amos Tuck School, Dartmouth College, 1978-1984;
Staff Director of the Presidential Task Force on the Arts and
Humanities, 1981; Director of Alliance Capital Reserves Fund, a
money market fund, 1978-1979.
Raymond H. Lung*, Trustee, 2828 Southwest Hamilton Street,
Portland, Oregon 97201
Retired; Trustee of Qualivest Group of Funds since 1994;
Executive Vice President and Executive Trust Officer of U.S.
National Bank of Oregon, 1989-1991; Senior Vice President and
Executive Trust Officer, 1980-1989; various other management
positions, 1954-1980; Member of Executive Committee, Trust
Division, American Bankers Association, 1986-1988; Director of
Pacific Securities Depository Trust Company and Pacific Clearing
Corporation (subsidiaries of the Pacific Stock Exchange), 1980-
1987; Director of Collins Pine Company and Ostrander Companies
(lumber and oil), 1980-1990; Trustee of Cascades Cash Fund, 1992-
1994.
Richard C. Ross, Trustee, 510 SW Country Club Road, Lake Oswego,
Oregon 97034
President of Richard Ross Communications, a consulting firm,
since 1986; Senior communications consultant to Pihas, Schmidt,
Westerdahl, advertising and public relations, 1986-1988;
Executive News Director of KATU Television, 1975-1986; News
Director of KGW-TV, 1956-1975; Trustee of Cascades Cash Fund,
1989-1994; Director of the Portland Rose Festival since 1972;
Director of the Greater Portland Convention & Visitors
Association, 1982-1985; Director of the Portland Chamber of
Commerce, 1971-1980; President of the Oregon chapter of the
National Multiple Sclerosis Society, 1984-1986; Director of the
Meridian Park Hospital Foundation, 1984-1987; Chairman of the
Broadcasters Group of the Bar-Press-Broadcasters professional
relations committee, 1964-1984; Former President of the Rotary
Club of East Portland and currently a Director of Goodwill
Industries, Metropolitan Youth Symphony and the Lake Oswego
Community Theatre.
W. Dennis Cheroutes, Senior Vice President, 410 17th Street,
Suite 1715, Denver, Colorado 80202
Investment Executive, Dain Bosworth, Inc., 1986-1995; and branch
office mutual fund co-ordinator, 1990-1995; owner of special
order clothing business, 1976-1986.
Sally Wilson Church, Vice President, 4800 MaCadam Avenue, Suite
300, Portland, Oregon 97201
Vice President of Cascades Cash Fund, 1989-1994; Corporate Vice
President of Shearson Lehman Hutton and Senior Marketing
Coordinator of its Northwest Region, 1985-1989 and an employee in
various capacities at that firm, 1978-1985.
Nancy L. Kayani, Vice President, 4800 MaCadam Avenue, Suite 300,
Portland, Oregon 97201
Assistant Vice President of Cascades Cash Fund, 1992-1994;
Customer Service Representative of U.S. National Bank of Oregon,
1990-1991; Securities Trader of Bidwell & Co., 1988-1989;
Securities Trader and Mutual Fund Regional Representative of
Fidelity Investments Southwest, 1985-1987; Stockbroker of Dean
Witter Reynolds, 1983-1984; Mutual Regional Representative of
Columbia Management Company, 1980-1983;
William C. Wallace, Vice President, 380 Madison Avenue, New York,
New York 10017
Vice President of Capital Cash Management Trust and Pacific
Capital Cash Assets Trust since 1984; Senior Vice President of
Hawaiian Tax-Free Trust since 1985 and Vice President, 1984-1985;
Senior Vice President of Tax-Free Trust of Arizona since 1989 and
Vice President, 1986-1988; Vice President of Churchill Tax-Free
Fund of Kentucky and Tax-Free Fund of Colorado since 1987, of
Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital
U.S. Treasuries Cash Assets Trust since 1988 and of Narragansett
Insured Tax-Free Income Fund since 1992; Secretary and Director
of STCM Management Company, Inc. since 1974; President of the
Distributor since 1995 and formerly Vice President of the
Distributor, 1986-1992; Member of the Panel of Arbitrators,
American Arbitration Association, since 1978; Assistant Vice
President, American Stock Exchange, Market Development Division,
and Director of Marketing, American Gold Coin Exchange, a
subsidiary of the American Stock Exchange, 1976-1984.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and
the Aquila Bond and Equity Funds since 1991 and Treasurer, 1981-
1991; formerly Treasurer of the predecessor of CCMT; Treasurer
and Director of STCM Management Company, Inc., since 1974;
Treasurer of Trinity Liquid Assets Trust, 1982-1986 and of Oxford
Cash Management Fund, 1982-1988; Treasurer of InCap Management
Corporation since 1982, of the Administrator since 1984 and of
the Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Aquila Money-Market Funds and the Aquila Bond
and Equity Funds and of Aquila Distributors, Inc. since 1992;
Associate Director of Furman Selz Incorporated, 1991-1992; Vice
President of Scudder, Stevens & Clark, Inc. and Treasurer of
Scudder Institutional Funds, 1989-1991; Vice President of Lazard
Freres Institutional Funds Group, Treasurer of Lazard Freres
Group of Investment Companies and HT Insight Funds, Inc., 1986-
1988; Vice President of Lehman Management Co., Inc. and Assistant
Treasurer of Lehman Money Market Funds, 1981-1985; Controller of
Seligman Group of Investment Companies, 1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New
York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market Funds and the Aquila Bond and Equity
Funds since 1982; Secretary of Trinity Liquid Assets Trust, 1982-
1985 and Trustee of that Trust, 1985-1986; Secretary of Oxford
Cash Management Fund, 1982-1988.
John M. Herndon, Vice President, 380 Madison Avenue, New York,
New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market Funds since 1990; Vice President of the
Administrator since 1990; Investment Services Consultant and Bank
Services Executive of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the American Finance
Association, the Western Finance Association and the Society of
Quantitative Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995; Counsel to the
Administrator and the Distributor since 1995; formerly a Legal
Associate for Oppenheimer Management Corporation, 1993-1995.
Compensation of Trustees
The Trust does not pay fees to Trustees affiliated with
the Administrator or Adviser or to any of the Trust's officers.
During the fiscal year ended September 30, 1995, the Trust paid
$69,415 in fees and reimbursement of expenses to its other
Trustees. The Trust is one of the 13 funds in the Aquilasm Group
of Funds, which consist of tax-free municipal bond funds, money
market funds and an equity fund. The following table lists the
compensation of all Trustees who received compensation from the
Trust and the compensation each received during the Trust's
fiscal year from all funds in the Aquilasm Group of Funds and the
number of such funds. None of such Trustees has any pension or
retirement benefits from the Trust or any of the other funds in
the Aquila group.
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Trust Group serves
Vernon R.
Alden $8,427 $30,638 6
Warren C.
Coloney $8,654 $8,654 1
James A.
Gardner $6,675 $6,675 1
Ann R.
Leven $6,350 $14,300 3
Raymond H.
Lung $7,886 $7,886 1
Richard C.
Ross $7,885 $7,885 1
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Additional Information as to the Advisory Agreement
The Investment Advisory Agreement (the "Advisory Agreement")
between the Trust and Qualivest Capital Management, Inc. (the
"Adviser") contains the provisions described below, in addition
to those described in the Prospectus.
The Advisory Agreement may be terminated by the Adviser at
any time without penalty upon giving the Trust sixty days'
written notice, and may be terminated by the Trust at any time
without penalty upon giving the Adviser sixty days' written
notice, provided that such termination by the Trust shall be
directed or approved by the vote of a majority of all its
Trustees in office at the time or by the vote of the holders of a
majority (as defined in the 1940 Act) of its voting securities at
the time outstanding and entitled to vote; it automatically
terminates in the event of its assignment (as so defined).
The Advisory Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, the Adviser is not
liable for any loss sustained by the adoption of any investment
policy or the purchase, sale or retention of any security and
permits the Adviser to act as investment adviser for any other
person, firm or corporation. The Trust agrees to indemnify the
Adviser to the full extent permitted under the Trust's
Declaration of Trust.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Advisory Agreement states that it is agreed that the
Adviser shall have no responsibility or liability for the
accuracy or completeness of the Trust's Registration Statement
under the Securities Act of 1933 and the 1940 Act, except for the
information supplied by the Adviser for inclusion therein.
The Advisory Agreement contains the following provisions as
to the Trust's portfolio transactions. In connection with its
duties to arrange for the purchase and sale of the Trust's
portfolio securities, the Adviser shall select such
broker-dealers ("dealers") as shall, in the Adviser's judgment,
implement the policy of the Trust to achieve "best execution,"
i.e., prompt, efficient and reliable execution of orders at the
most favorable net price. The Adviser shall cause the Trust to
deal directly with the selling or purchasing principal or market
maker without incurring brokerage commissions unless the Adviser
determines that better price or execution may be obtained by
paying such commissions; the Trust expects that most transactions
will be principal transactions at net prices and that the Trust
will incur little or no brokerage costs. The Trust understands
that purchases from underwriters include a commission or
concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread
between the bid and asked price. In allocating transactions to
dealers, the Adviser is authorized to consider, in determining
whether a particular dealer will provide best execution, the
dealer's reliability, integrity, financial condition and risk in
positioning the securities involved, as well as the difficulty of
the transaction in question, and thus need not pay the lowest
spread or commission available if the Adviser determines in good
faith that the amount of commission is reasonable in relation to
the value of the brokerage and research services provided by the
dealer, viewed either in terms of the particular transaction or
the Adviser's overall responsibilities as to the accounts as to
which it exercises investment discretion. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Adviser is authorized, in making such
allocation, to consider (i) whether a dealer has provided
research services, as further discussed below; and (ii) whether a
dealer has sold shares of the Trust or any other investment
company or companies having the Adviser as its investment adviser
or having the same sub-adviser, Administrator or principal
underwriter as the Trust. Such research may be in written form or
through direct contact with individuals and may include
quotations on portfolio securities and information on particular
issuers and industries, as well as on market, economic or
institutional activities. The Trust recognizes that no dollar
value can be placed on such research services or on execution
services, that such research services may or may not be useful to
the Trust and/or other accounts of the Adviser and that research
received by such other accounts may or may not be useful to the
Trust.
During the fiscal year ended September 30, 1995, all of the
Trust's transactions were principal transactions and no brokerage
commissions were paid.
For the three fiscal years ended September 30, 1995, 1994
and 1993, respectively, fees of $729,908, $819,214 and $714,343
were paid or accrued to the Adviser.
Additional Information as to the Administration Agreement
In addition to the provisions of the Administration
Agreement (the "Administration Agreement") between the
Administrator and the Trust described in the Prospectus, the
Administration Agreement contains the provisions described below.
Subject to the control of the Trust's Board of Trustees, the
Administrator provides all administrative services to the Trust
other than those relating to its investment portfolio and the
maintenance of its accounting books and records (see below for
discussion); as part of such duties, the Administrator (i)
provides office space, personnel, facilities, and equipment for
the performance of the following functions and for the
maintenance of the Trust's headquarters; (ii) oversees all
relationships between the Trust and its transfer agent,
custodian, legal counsel, auditors and principal underwriter,
including the negotiation, subject to the approval of the Trust's
Board of Trustees, of agreements in relation thereto, the
supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters
which are necessary or desirable for effective operation and for
the sale, servicing, or redemption of the Trust's shares; (iii)
provides to the Adviser and to the Trust statistical and other
factual information and advice regarding economic factors and
trends, but does not generally furnish advice or make
recommendations regarding the purchase or sale of securities;
(iv) maintains the Trust's books and records (other than
accounting books and records), and prepares (or assists counsel
and auditors in the preparation of) all required proxy
statements, reports to shareholders and Trustees, reports to and
other filings with the Securities and Exchange Commission and any
other governmental agencies, and tax returns, and oversees the
Trust's insurance relationships; (v) prepares, on the Trust's
behalf and at its expense, such applications and reports as may
be necessary to register or maintain the Trust's registration or
that of its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time; (vi)
responds to any inquiries or other communications from
shareholders and broker-dealers, or if any such inquiry or
communication is more properly to be responded to by the Trust's
shareholder servicing and transfer agent or distributor, oversees
such shareholder servicing and transfer agent's or distributor's
response thereto. Since the Trust pays its own legal and audit
expenses, to the extent that the Trust's counsel and accountants
prepare or assist in the preparation of prospectuses, proxy
statements and reports to shareholders, the costs of such
preparation or assistance are paid by the Trust.
The expense limitation referred to in the Prospectus, if in
effect, is implemented monthly so that at no time is there any
unpaid liability under the limitation, subject to readjustment
during the year.
The Administration Agreement may be terminated at any time
without penalty by the Administrator upon sixty days' written
notice to the Trust and the Adviser; it may be terminated by the
Trust at any time without penalty upon giving the Administrator
sixty days' written notice, provided that such termination by the
Trust shall be directed or approved by a vote of a majority of
the Trustees in office at the time, including a majority of the
Trustees who are not interested persons of the Trust. In either
case the notice provision may be waived.
The Administration Agreement provides that the Administrator
shall not be liable for any error in judgement or for any loss
suffered by the Trust in connection with the matters to which the
Administration Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence of the
Administrator in the performance of its duties, or from reckless
disregard by it of its obligations and duties under the
Administration Agreement. The Trust agrees to indemnify the
Administrator to the full extent permitted by the Declaration of
Trust.
For the three fiscal years ended September 30, 1995, 1994
and 1993, respectively, fees of $729,908, $819,214 and $714,343
were paid or accrued to the Administrator.
Glass-Steagall Act
Federal banking laws and regulations presently prohibit a
national bank or any affiliate thereof from sponsoring,
organizing or controlling a registered, open-end investment
company continuously engaged in the issuance of its shares, and
generally from underwriting, selling or distributing securities,
such as shares of the Trust.
The Adviser is a subsidiary of a national bank and is an
affiliate of a bank holding company. Therefore, it is subject to
applicable federal banking laws and regulations. The Adviser has
been advised by its counsel, Miller, Nash, Wiener, Hager &
Carlsen, that the Adviser may perform the advisory services for
the Trust required by the Advisory Agreement, without violating
federal banking laws and regulations. Moreover, such counsel have
advised that changes in federal banking laws and regulations
related to the permissible activities of national banks,
subsidiaries of national banks, and national banks and their
subsidiaries that are affiliates of a bank holding company, as
well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations,
could prevent the Adviser from continuing to serve as investment
adviser to the Trust or could restrict the services which the
Adviser is permitted to perform for the Trust.
In the event that the Adviser is prohibited from acting as
the Trust's investment adviser, it is probable that the Board of
Trustees of the Business Trust would either recommend to the
shareholders the selection of another qualified adviser or, if
that course of action appeared impractical, that the Trust be
liquidated.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Trust's shares is determined as
of 4:00 p.m., New York time, on each day that the New York Stock
Exchange is open, by dividing the value of the Trust's net assets
by the total number of its shares then outstanding. However,
Futures and options on them are valued at the last sales price on
the principal commodities exchange on which the Future or option
is traded or, if there are no sales, at the mean between the bid
and asked prices as of the close of that exchange; such close may
be later than 4:00 p.m., New York time. Securities having a
remaining maturity of less than sixty days when purchased and
securities originally purchased with maturities in excess of
sixty days but which currently have maturities of sixty days or
less are valued at cost adjusted for amortization of premiums and
accretion of discounts. All other portfolio securities are valued
at the mean between bid and asked quotations which, for Oregon
Obligations, may be obtained from a reputable pricing service or
from one or more broker-dealers dealing in Oregon Obligations,
either of which may, in turn, obtain quotations from
broker-dealers or banks which deal in specific issues. However,
since Oregon Obligations are ordinarily purchased and sold on a
"yield" basis by banks or dealers which act for their own account
and do not ordinarily make continuous offerings, quotations
obtained from such sources may be subject to greater fluctuations
than is warranted by prevailing market conditions. Accordingly,
some or all of the Oregon Obligations in the Trust's portfolio
may be priced, with the approval of the Trust's Board of
Trustees, by differential comparisons to the market in other
municipal bonds under methods which include consideration of the
current market value of tax-free debt instruments having varying
characteristics of quality, yield and maturity. Any securities or
assets for which market quotations are not readily available are
valued at their fair value as determined in good faith under
procedures established by and under the general supervision and
responsibility of the Trust's Board of Trustees. In the case of
Oregon Obligations, such procedures may include "matrix"
comparisons to the prices for other tax-free debt instruments on
the basis of the comparability of their quality, yield, maturity
and other special factors, if any, involved. With the approval of
the Trust's Board of Trustees, the Adviser may at its own expense
and without reimbursement from the Trust employ a pricing
service, bank or broker-dealer experienced in such matters to
perform any of the above described functions.
As indicated above, the net asset value per share of the
Trust's shares will be determined on each day that the New York
Stock Exchange is open. That Exchange annually announces the days
on which it will not be open. The most recent announcement
indicates that it will not be open on the following days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, that Exchange may close on days not included in that
announcement.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a
number of instances in which the Trust's shares are sold or
issued on a basis other than the maximum public offering price,
that is, the net asset value plus the highest sales charge. Some
of these relate to lower or eliminated sales charges for larger
purchases, whether made at one time or over a period of time as
under a Letter of Intent or right of accumulation. (See the table
of sales charges in the Prospectus.) The reasons for these
quantity discounts are, in general, that (i) they are traditional
and have long been permitted in the industry and are therefore
necessary to meet competition as to sales of shares of other
funds having such discounts; and (ii) they are designed to avoid
an unduly large dollar amount of sales charge on substantial
purchases in view of reduced selling expenses. Quantity discounts
are made available to certain related persons ("single
purchasers") for reasons of family unity and to provide a benefit
to tax-exempt plans and organizations.
The reasons for the other instances in which there are
reduced or eliminated sales charges are as follows. Exchanges at
net asset value are permitted because a sales charge has already
been paid on the shares exchanged. Sales without sales charge are
permitted to Trustees, officers and certain others due to reduced
or eliminated selling expenses and/or since such sales may
encourage incentive, responsibility and interest and an
identification with the aims and policies of the Trust. Limited
reinvestments of redemptions at no sales charge are permitted to
attempt to protect against mistaken or incompletely informed
redemption decisions. Shares may be issued at no sales charge in
plans of reorganization due to reduced or eliminated sales
expenses and since, in some cases, such issuance is exempted in
the 1940 Act from the otherwise applicable restrictions as to
what sales charge must be imposed. In no case in which there is a
reduced or eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Trust
receives the net asset value per share of all shares sold or
issued.
AUTOMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases shares of the Trust
having a net asset value of at least $5,000 may establish an
Automatic Withdrawal Plan under which he or she will receive a
monthly or quarterly check in a stated amount, not less than $50.
Stock certificates will not be issued for shares held under an
Automatic Withdrawal Plan. All dividends and distributions must
be reinvested. Shares will be redeemed on the last business day
of the month or quarter as may be necessary to meet withdrawal
payments.
Redemption of shares for withdrawal purposes may reduce or
even liquidate the account. Monthly or quarterly payments paid to
shareholders may not be considered as a yield or income on
investment.
ADDITIONAL TAX INFORMATION
Any investor who incurs a sales commission on purchase of
shares of one mutual fund (the original fund) and who then sells
such shares or exchanges them for shares of a different mutual
fund without having held them at least 91 days must reduce the
tax basis for the shares sold or exchanged to the extent that the
standard sales commission charged for acquiring shares in the
exchange or later acquiring shares of the original fund or
another fund is reduced because of the shareholder's having owned
the original fund shares. The effect of the rule is to increase
the investor's gain or reduce his or her loss on the original
fund shares. The amount of the basis reduction on the original
fund shares, however, is added on the investor's basis for the
fund shares acquired in the exchange or later acquired. The
provision applies to commissions charged after October 3, 1989.
CONVERSION OF CLASS C SHARES
Level Payment Class ("Class C Shares") of the Trust,
which you hold will automatically convert to Front Payment
("Class A Shares") of the Trust based on the relative net asset
values per share of the two classes as of the close of business
on the first business day of the month in which the sixth
anniversary of the your initial purchase of such Class C Shares
occurs. For these purposes, the date of your initial purchase
shall mean (1) the first business day of the month in which such
Class C Shares were issued to you, or (2) for Class C Shares of
the Trust you have obtained through an exchange or series of
exchanges under the Exchange Privilege (see "Exchange Privilege"
in the Prospectus.), the first business day of the month in
which you made the original purchase of Class C Shares so
exchanged. For conversion purposes, Class C Shares purchased
through reinvestment of dividends or other distributions paid in
respect of Class C Shares will be held in a separate sub-
account. Each time any Class C Shares in your regular account
(other than those in the sub-account) covert to Class A Shares, a
pro-rata portion of the Class C Shares in the sub-account will
also convert to Class A Shares. The portion will be determined by
the ratio that your Class B Shares then converting to Class A
Shares bears to the total of your Class C Shares not acquired
through reinvestment of dividends and distributions.
The availability of the conversion feature is subject to
the continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the
dividends and other distributions paid on Class A and Class C
Shares will not result in "preferential dividends" under the
Code; and (2) the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available,
the Class C Shares of the Trust would not be converted and would
continue to be subject to the higher ongoing expenses of the
Class C Shares beyond six years from the date of purchase. The
Trust has no reason to believe that these conditions for the
availability of the conversion feature will not continue to be
met.
If the Trust implements any amendments to its
Distribution Plan that would increase materially the costs that
may be borne under such Distribution Plan by Class A
shareholders, Class C Shares will stop converting into Class A
Shares unless a majority of Class C shareholders, voting
separately as a class, approve the proposal.
GENERAL INFORMATION
Additional Series
Shares of each Series of the Business Trust created by the
Board of Trustees are entitled to vote as a Series only to the
extent permitted by the 1940 Act (see below) or as permitted by
the Board of Trustees. Income and operating expenses are
allocated among Series in a manner acceptable to the Board of
Trustees.
Under Rule 18f-2 under the 1940 Act, as to any investment
company which has two or more Series outstanding, on any matter
required to be submitted to shareholder vote, such matter is not
deemed to have been effectively acted upon unless approved by the
holders of a "majority" (as defined in that Rule) of the voting
securities of each Series affected by the matter. Such separate
voting requirements do not apply to the election of trustees or
the ratification of the selection of accountants. Rule 18f-2
contains special provisions for cases in which an advisory
contract is approved by one or more, but not all, Series. A
change in investment policy may go into effect as to one or more
Series whose holders so approve the change, even though the
required vote is not obtained as to the holders of other affected
Series.
Indemnification of Shareholders and Trustees
Under Massachusetts law, shareholders of a trust such as the
Business Trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust.
For shareholder protection, however, an express disclaimer of
shareholder liability for acts or obligations of the Business
Trust is contained in the Declaration of Trust which requires
that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Business
Trust or the Trustees. The Declaration of Trust provides for
indemnification out of the Business Trust's property of any
shareholder held personally liable for the obligations of the
Business Trust. The Declaration of Trust also provides that the
Business Trust shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of
the Business Trust and satisfy any judgment thereon. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to the relatively remote
circumstances in which the Business Trust itself would be unable
to meet its obligations. If any Series of the Business Trust were
to be unable to meet the obligations attributable to it (which,
as is the case with the Trust, is relatively remote), the other
Series would be subject to such obligations, with a corresponding
increase in the risk of the shareholder liability mentioned in
the prior sentence.
The Declaration of Trust further indemnifies the Trustees of
the Business Trust out of the property of the Trust and provides
that they will not be liable for errors of judgment or mistakes
of fact or law; but nothing in the Declaration of Trust protects
a Trustee against any liability to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of the office of Trustee.
Custodian and Auditors
The Trust's Custodian, Bank One Trust Company, N.A., is
responsible for holding the Trust's assets.
The Trust's auditors, KPMG Peat Marwick LLP, perform an
annual audit of the Trust's financial statements.
The financial statements of the Trust for the fiscal year
ended September 30, 1995, which are contained in the Annual
Report for that fiscal year, are hereby incorporated by reference
into the Additional Statement. Those financial statements have
been audited by KPMG Peat Marwick LLP, independent auditors,
whose report thereon is incorporated herein by reference.
Underwriting Commissions
During the Trust's fiscal year ended September 30, 1995, the
aggregate dollar amount of sales charges on the sales of the
Trust's shares was $652,963 and the amount retained by the
Distributor was $85,550.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation
rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment
may take into consideration obligors such as guarantors, insurers
or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit
in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of
the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization
or other arrangement under the laws of bankruptcy and
other laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the
highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than in higher rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt
being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and
risk.
Moody's Investors Service. A brief description of the
applicable Moody's Investors Service rating symbols and their
meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge".
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium
grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
Moody's Short Term Loan Ratings - There are four rating
categories for short-term obligations, all of which define an
investment grade situation. These are designated Moody's
Investment Grade as MIG 1 through MIG 4. In the case of variable
rate demand obligations (VRDOs), two ratings are assigned; one
representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the other
representing an evaluation of the degree of risk associated with
the demand feature. The short-term rating assigned to the demand
feature of VRDOs is designated as VMIG. When no rating is applied
to the long or short-term aspect of a VRDO, it will be designated
NR. Issues or the features associated with MIG or VMIG ratings
are identified by date of issue, date of maturity or maturities
or rating expiration date and description to distinguish each
rating from other ratings. Each rating designation is unique with
no implication as to any other similar issue of the same obligor.
MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issuer's
specific structural or credit features.
MIG1/VMIG1 This designation denotes best quality. There
is present strong protection by established
cash flows, superior liquidity support or
demonstrated broad-based access to the market
for refinancing.
MIG2/VMIG2 This designation denotes high quality.
Margins of protection are ample although not
so large as in the preceding group.
MIG3/VMIG3 This designation denotes favorable quality.
All security elements are accounted for but
there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow
protection may be narrow and market access
for refinancing is likely to be less well
established.
MIG4/VMIG4 This designation denotes adequate quality.
Protection commonly regarded as required of
an investment security is present and
although not distinctly or predominantly
speculative, there is specific risk.
<PAGE>
INVESTMENT ADVISER
Qualivest Capital Mangement, Inc.
A subsidiary of U.S. Bancorp and its subsidiary
United States National Bank of Oregon
111 S.W. Fifth Avenue
U.S. Bancorp Tower
Portland, Oregon 97204
ADMINISTRATOR
Aquila Mangement Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
James A. Gardner
Diana P. Herrmann
Ann R. Leven
Raymond H. Lung
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
W. Dennis Cheroutes, Senior Vice President
Sally Wilson Church, Vice President
Nancy Kayani, 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
Coloumbus, 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, NY 10176
TAX-FREE TRUST
OF OREGON
[LOGO]
A tax-free
income investment
STATEMENT OF
ADDITIONAL
INFORMATION
[EAGLE LOGO]
One of The
Aquilasm Group of Funds
<PAGE>
THE CASCADES TRUST
PART C: OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
Tax-Free Trust of Oregon Portfolio:
Included in Part A:
Financial Highlights
Incorporated by reference into Part B:
Report of Independent Auditors
Statement of Assets and Liabilities as of
September 30, 1995
Statement of Operations for the year ended
September 30, 1995
Statement of Changes in Net Assets for the
years ended September 30, 1995 and 1994
Statement of Investments as of
September 30, 1995
Notes to Financial Statements
Included in Part C:
Consent of Independent Auditors
(b) Exhibits:
(1) Supplemental Declaration of Trust Amending and
Restating the Declaration of Trust (xi)
(2) By-laws (xi)
(3) Not applicable
(4) (a) Specimen share certificate for
Cascades Cash Fund Portfolio (iv)
(b) Specimen share certificate for
Tax-Free Trust of Oregon Portfolio (ii)
(5) (a) Investment Advisory Agreement for Cascades
Cash Fund Portfolio (vii)
(b) Investment Advisory Agreement for Tax-Free
Trust of Oregon Portfolio (x)
(6) (a) Distribution Agreement for Cascades Cash
Fund Portfolio (iv)
(b) Assistance Agreement for Cascades Cash
Fund Portfolio, with related
contemporaneous correspondence (v)
(c) Distribution Assistance Agreement for Cas-
cades Cash Fund Portfolio, with related
contemporaneous correspondence (v)
(d) Distribution Agreement for Tax-Free Trust
of Oregon Portfolio (i)
(e) Sales Agreement for Brokerage Firms for
Tax-Free Trust of Oregon Portfolio
(vi)
(f) Sales Agreement for Financial Institutions
for Tax-Free Trust of Oregon Portfolio
(vi)
(g) Sales Agreement for Investment Advisers for
Tax-Free Trust of Oregon Portfolio (ix)
(h) Services Agreement (xi)
(7) Not applicable
(8) (a) Custody Agreement for Cascades Cash Fund
Portfolio (iv)
(b) Custody Agreement for Tax-Free Trust of
Oregon Portfolio (x)
(9) (a) Transfer Agency Agreement for Cascades Cash
Fund Portfolio (iv)
(b) Administration Agreement for Cascades Cash
Fund Portfolio (x)
(c) Transfer Agency Agreement for Tax-Free
Trust of Oregon Portfolio (iii)
(d) Administration Agreement for Tax-Free Trust
of Oregon Portfolio (ix)
(10) (a) Opinion and consent of counsel to the Trust
for Cascades Cash Fund Portfolio (iv)
(10) (b) Opinion and consent of Trust counsel for
Tax-Free Trust of Oregon Portfolio (xi)
(11) (a) Opinion and consent of counsel to the
Adviser for Cascades Cash Fund
Portfolio (v)
(b) Opinion and consent of counsel to the
Adviser for Tax-Free Trust of Oregon
Portfolio (ii)
(12) Not applicable
(13) Agreement with initial shareholder (ii)
(14) Not applicable
(15) (a) Distribution Plan for Cascades Cash Fund
Portfolio (viii)
(15) Distribution Plan for Tax-Free Trust of Oregon (xi)
(15) (a) Services Plan (xi)
(16) Schedule for computation of performance
quotations (x)
(17) Financial Data Schedule (xi)
(18) Plan Pursuant to Rule 18f-3 (xi)
(i) Filed as an exhibit to Registrant's Initial
Registration Statement dated March 27, 1986 and
incorporated herein by reference.
(ii) Filed as an exhibit to Registrant's Pre-Effective
Amendment No. 1 dated June 6, 1986 and
incorporated herein by reference.
(iii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 6 dated May 30, 1989 and incorpo-
rated herein by reference.
(iv) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 7 dated August 7, 1989 and incorporated
herein by reference.
(v) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 8 dated Dec. 26, 1989 and incorporated
herein by reference.
(vi) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 10 dated Nov. 30, 1990 and incorporated
herein by reference.
(vii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 14 dated Nov. 30, 1992 and incorporated
herein by reference.
(viii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 15 dated Dec. 2, 1993 and incorporated
herein by reference.
(ix) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 16 dated November 30, 1994 and
incorporated herein by reference.
(x) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 17 dated Janaury 31, 1996 and
incorporated herein by reference.
(xi) Filed herewith.
ITEM 25. Persons Controlled By Or Under Common Control With
Registrant
None
ITEM 26. Number of Holders of Securities
As of January 30, 1996, Registrant had 0 holders
of record of its shares in its Cascades Cash Fund
portfolio which ceased operations on September 30,
1994 and 5,726 holders of record of its shares
in its Tax-Free Trust of Oregon portfolio.
ITEM 27. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of
Registrant's Amended and Restated Declaration of
Trust, filed as Exhibit 1 to Registrant's Post-
Effective Amendment No. 10 dated November 30, 1990,
is incorporated herein by reference.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted
to Trustees, officers, and controlling persons of
Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in that Act and is, therefore, unenforce-
able. In the event that a claim for indemnifica-
tion against such liabilities (other than the pay-
ment by Registrant of expenses incurred or paid by
a Trustee, officer, or controlling person of Regis-
trant in the successful defense of any action,
suit, or proceeding) is asserted by such Trustee,
officer, or controlling person in connection with
the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against pub-
lic policy as expressed in the Act and will be go-
verned by the final adjudication of such issue.
ITEM 28. Business and Other Connections of Investment
Adviser
Qualivest Capital Management, Inc., Registrant's
investment adviser, performs investment advisory
services for mutual fund and non-mutual fund cli-
ents. For information as to the business, profes-
sion, vocation, or employment of a substantial na-
ture of its Directors and officers, reference is
made to the Form ADV filed by it under the Invest-
ment Advisers Act of 1940.
ITEM 29. Principal Underwriters
(a) Aquila Distributors, Inc. serves as principal un-
derwriter to Aquila Rocky Mountain Equity Fund, Ca-
pital Cash Management Trust, Churchill Cash Re-
serves Trust, Churchill Tax-Free Fund of Kentucky,
Hawaiian Tax-Free Trust, Narragansett Insured Tax-
Free Income Fund, Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust,
Pacific Capital U.S. Treasuries Cash Assets Trust,
Prime Cash Fund, Short Term Asset Reserves, Tax-
Free Fund for Utah, Tax-Free Fund of Colorado, and
Tax-Free Trust of Arizona, in addition to serving
as the Registrant's principal underwriter.
(b) For information about the Directors and officers of
Aquila Distributors, Inc., reference is made to the
Form BD filed by it under the Securities Exchange
Act of 1934.
(c) Not applicable.
ITEM 30. Location of Accounts and Records
All such accounts, books, and other documents are
maintained by the adviser, the administrator, the
custodian, and the transfer agent, whose addresses
appear on the back cover pages of the Prospectus
and the Statement of Additional Information.
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) If the information called for by Item 5A is
contained in the Registrant's latest annual report
to shareholders, the Registrant undertakes to furnish
each person to whom a prospectus is delivered with a
copy of the Registrant's latest Annual Report to
Shareholders, upon request and without charge.
<PAGE>
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Independent Auditors' Consent
To the Trustees and Shareholders of
Tax-Free Trust of Oregon:
We consent to the use of our report dated October 25, 1995
incorporated herein by reference and to the reference to our firm
under the heading "Financial Highlights" in the Prospectus.
New York, New York KPMG Peat Marwick LLP
April 3, 1996 /s/KPMG Peat Marwick LLP
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, the Registrant
certifies that it meets all the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, and has caused this
Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of New York and State of New York, on the 4th day of April, 1996.
THE CASCADES TRUST
(Registrant)
/s/Lacy B. Herrmann
By____________________________
Lacy B. Herrmann, President
and Chairman of the Board
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement or Amendment has been signed
below by the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/Lacy B. Herrmann 4/4/96
______________________ President, Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Vernon R. Alden 4/4/96
______________________ Trustee ___________
Vernon R. Alden
/s/Warren C. Coloney 4/4/96
______________________ Trustee ___________
Warren C. Coloney
/s/James A. Gardner 4/4/96
______________________ Trustee ___________
James A. Gardner
/s/Diana P. Herrmann 4/4/96
______________________ Trustee ___________
Diana P. Herrmann
/s/Ann R. Leven 4/4/96
______________________ Trustee ___________
Ann R. Leven
/s/Raymond H. Lung 4/4/96
______________________ Trustee ___________
Raymond H. Lung
/s/Richard C. Ross 4/4/96
______________________ Trustee ___________
Richard C. Ross
/s/Rose F. Marotta 4/4/96
______________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
THE CASCADES TRUST
EXHIBIT INDEX
Exhibit Exhibit Page
Number Name Number
1 Supplemental Declaration of Trust Amending and
Restating the Declaration of Trust
2 Bylaws
6 Services Agreement
10 Opinion and Consent of Trust Counsel
15 Distribution Plan
15(a) Services Plan
18 Plan pursuant to Rule 18f-3
Correspondence
THE CASCADES TRUST
SUPPLEMENTAL DECLARATION OF TRUST
AMENDING AND RESTATING THE DECLARATION OF TRUST
SUPPLEMENTAL DECLARATION OF TRUST made March 6, 1996 to the
DECLARATION OF TRUST (the "Present Declaration of Trust") of THE
CASCADES TRUST, formerly named Tax-Free Trust of Oregon (the
"Trust").
WHEREAS, paragraph 12 of Article EIGHTH of the Present
Declaration of Trust permits the Trustees of the Trust to amend
or otherwise supplement the Present Declaration of Trust by
making a Supplemental Declaration of Trust, if authorized by vote
of the Trustees and the Shareholders; and
WHEREAS, the making of this Supplemental Declaration of
Trust was duly authorized by the Trustees on June 9, 1995, and by
the shareholders on November 27, 1995 such approval having been
by the vote of the holders of a majority of the shares issued,
outstanding and entitled to vote; and in addition by the vote of
a majority as defined in the investment Company Act of 1940 of
the holders of the shares of each outstanding series of the
Trust; and
WHEREAS, the officer of the Trust executing this
Supplemental Declaration of Trust has been authorized and
directed to do so by the Trustees of the Trust and the
shareholders of the Trust on behalf of the Trustees and the
Trust;
NOW, THEREFORE, the Present Declaration of Trust is amended
and restated so that the Declaration of Trust of the Trust
(hereinafter referred to as the "Declaration of Trust") shall
read in its entirety as follows:
<PAGE>
WHEREAS, the Trustees desire to establish a trust fund under
the laws of the Commonwealth of Massachusetts, for the investment
and reinvestment of funds contributed thereto;
NOW THEREFORE, the Trustees declare that all money and
property contributed to the trust fund hereunder shall be held
and managed under this Declaration of Trust IN TRUST as herein
set forth below.
FIRST: This Trust shall be known as The Cascades Trust.
SECOND: Whenever used herein, unless otherwise required by
the context or specifically provided:
1. All terms used in this Declaration of Trust which are
defined in the 1940 Act shall have the meanings given to them in
the 1940 Act.
2. The "Trust" refers to The Cascades Trust.
3. "Shareholder" means a record owner of Shares of the
Trust.
4. The "Trustees" refer to the individual trustees in
their capacity as trustees hereunder of the Trust and their
successor or successors for the time being in office as such
trustees.
5. "Shares" means the equal proportionate units of
interest into which the beneficial interest in the Trust shall be
divided from time to time and includes fractions of Shares as
well as whole Shares.
6. The "1940 Act" refers to the Investment Company Act of
1940, as amended from time to time.
7. "Commission" means the Securities and Exchange
Commission.
8. "Board" or "Board of Trustees" means the Board of
Trustees of the Trust.
THIRD: The purpose or purposes for which the Trust is
formed and the business or objects to be transacted, carried on
and promoted by it are as follows:
1. To hold, invest and reinvest its funds, and in
connection therewith to hold part or all of its funds in cash,
and to purchase or otherwise acquire, hold for investment or
otherwise, sell, sell short, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize
upon, securities (which term "securities" shall for the purposes
of this Declaration of Trust, without limitation of the
generality thereof, be deemed to include any stocks, shares,
bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the
same, or evidencing or representing any other rights or interests
therein, or in any property or assets) created or issued by any
issuer (which term "issuer" shall for the purposes of this
Declaration of Trust, without limitation of the generality
thereof be deemed to include any persons, firms, associations,
corporations, syndicates, combinations, organizations,
governments, or subdivisions thereof); and to exercise, as owner
or holder of any securities, all rights, powers and privileges in
respect thereof; and to do any and all acts and things for the
preservation, protection, improvement and enhancement in value of
any or all such securities.
2. To borrow money and pledge assets in connection with
any of the objects or purposes of the Trust, and to issue notes
or other obligations evidencing such borrowings, to the extent
permitted by the 1940 Act and by the Trust's fundamental
investment policies under the 1940 Act.
3. To issue and sell its Shares in such amounts and on
such terms and conditions, for such purposes and for such amount
or kind of consideration (including without limitation thereto,
securities) now or hereafter permitted by the laws of the
Commonwealth of Massachusetts and by this Declaration of Trust,
as the Trustees may determine.
4. To purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or
consent of the Shareholders of the Trust) its Shares, in any
manner and to the extent now or hereafter permitted by the laws
of the Commonwealth of Massachusetts and by this Declaration of
Trust.
5. To conduct its business in all its branches at one or
more offices in the Commonwealth of Massachusetts and elsewhere
in any part of the world, without restriction or limit as to
extent.
6. To carry out all or any of the foregoing objects and
purposes as principal or agent, and alone or with associates or,
to the extent now or hereafter permitted by the laws of the
Commonwealth of Massachusetts, as a member of, or as the owner or
holder of any stock of, or share of interest in, any issuer, and
in connection therewith to make or enter into such deeds or
contracts with any issuers and to do such acts and things and to
exercise such powers, as a natural person could lawfully make,
enter into, do or exercise.
7. To do any and all such further acts and things and to
exercise any and all such further powers as may be necessary,
incidental, relative, conducive, appropriate or desirable for the
accomplishment, carrying out or attainment of all or any of the
foregoing purposes or objects.
The foregoing objects and purposes shall, except as
otherwise expressly provided, be in no way limited or restricted
by reference to, or inference from, the terms of any other clause
of this or any other Articles of this Declaration of Trust, and
shall each be regarded as independent and construed as powers as
well as objects and purposes, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or the
general powers of the Trust now or hereafter conferred by the
laws of the Commonwealth of Massachusetts, nor shall the
expression of one thing be deemed to exclude another, though it
be of like nature, not expressed; provided, however, that the
Trust shall not carry on any business, or exercise any powers, in
any state, territory, district or country except to the extent
that the same may lawfully be carried on or exercised under the
laws thereof.
FOURTH: The beneficial interest in the Trust shall at all
times be divided into an unlimited number of transferable Shares,
each such Share having a par value of one cent per Share, each of
which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or
preference over another, subject to the further provisions of
this Article FOURTH. The Trustees may from time to time divide
or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the
Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a
Share or multiple thereof.
Subject to the further provisions of Article FOURTH, the
Board of Trustees may, without obtaining any authorization or
vote of the Shareholders of any series or class of Shares,
classify unissued Shares into one or more additional series and
classes which shall, together with the issued Shares of
beneficial interest of the Trust, have such designations as the
Board may determine (but which shall in the case of a series
include the word "Series" and in the case of a class include the
word "Class"). Subject to the distinctions permitted among
classes of the same series established by the Board of Trustees
consistent with the requirements of the 1940 Act and any rule,
regulation or order of the Commission, each Share of a series of
the Trust shall represent an equal interest in the net assets of
the series, and each holder of Shares of a series shall be
entitled to receive such holder's pro-rata share of distributions
of income and capital gains, if any, made with respect to such
series. Upon redemption of the Shares of any series, the
applicable Shareholder shall be paid solely out of funds and
property of such series of the Trust.
All references to Shares in this Declaration of Trust shall
be deemed to be to Shares of any or all series or classes
thereof, as the context may require.
Series and classes shall, subject to any applicable rule,
regulation or order of the Commission or other applicable law or
regulation, have the characteristics set forth in (a) through and
including (h) below.
(a) All consideration received by the Trust for the
issue or sale of Shares of each such series, together with all
income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably
belong to the series of Shares with respect to which such assets,
payments, or funds were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled
upon the books of account of the Trust. Such assets, income,
earnings, profits and proceeds thereof, and any asset derived
from any reinvestment of such proceeds, in whatever form the same
may be, are herein referred to as "assets belonging to" such
series.
(b) Dividends or distributions on Shares of any such
series, whether payable in Shares or cash, shall be paid only out
of earnings, surplus or other assets belonging to such series.
(c) In the event of the liquidation or dissolution of
the Trust, Shareholders of each such series shall be entitled to
receive, as a series, out of the assets of the Trust available
for distribution to Shareholders, but other than general assets
not belonging to any particular series, the assets belonging to
such series; and the assets so distributable to the Shareholders
of any such series shall be distributed among such Shareholders
in proportion to the number of Shares of such series held by them
and recorded on the books of the Trust. In the event that there
are any general assets not belonging to any particular series of
Shares and available for distribution, such distribution shall be
made to the holders of Shares of all series in proportion to the
asset value of the Shares.
(d) The assets belonging to any such series of Shares
shall be charged with the liabilities in respect to such series
and shall be charged with their share of the general liabilities
of the Trust, in proportion to the asset value of the respective
series. The determination of the Board of Trustees shall be
conclusive as to the amount of liabilities, including accrued
expenses and reserves, and as to the allocation of the same as to
a given series, and as to whether the same, or general assets of
the Trust, are allocable to one or more series. The liabilities
so allocated to a series are herein referred to as "liabilities
belonging to" such series.
(e) The Board of Trustees may without the requirement
of Shareholder approval, classify Shares of any series or divide
the Shares of any series into classes, each class having such
different dividend, liquidation, voting and other rights as the
Trustees may determine, and may establish and designate the
specific classes of Shares of each series. The fact that a
series shall have initially been established and designated
without any specific establishment or designation of classes
(i.e., that all Shares of such series are initially of a single
class), or that a series shall have more than one established and
designated class, shall not limit the authority of the Trustees
to establish and designate separate classes, or one or more
further classes, of said series without approval of the holders
of the initial class thereof, or previously established and
designated class or classes thereof, provided that the
establishment and designation of such further separate classes
would not adversely affect the rights of the holders of the
initial or previously established and designated class or
classes.
(f) At all meetings of Shareholders, each Shareholder
of each Share of each such series or class of the Trust shall be
entitled to one vote for each dollar of net asset value
represented by such Share, determined as provided in the then
current Prospectus of such series or class, as of the record date
for such meeting, irrespective of series or class, standing in
his name on the books of the Trust, except that where a vote of
the holders of the Shares of any series or class, or of more than
one series or class, voting by series or class, is required by
the 1940 Act, any rule, regulation or order of the Commission or
other applicable law or regulation as to any proposal, only the
holders of such series or series, or class or classes, voting by
series or class, shall be entitled to vote upon such proposal and
the holders of any other series or class or classes shall not be
entitled to vote thereon. Any fractional Share, if any such
fractional Shares are outstanding, shall carry proportionately
all the rights of a whole Share, including the right to vote and
the right to receive dividends. There shall be no cumulative
voting rights with respect to any Shares or series or class of
Shares of the Trust.
(g) The provisions of Article FIFTH relating to voting
shall apply when the Trust has only one series or class of Shares
outstanding or when the Trust has more than one series or class
of Shares outstanding but which differ only as to their dividend
rights. Otherwise, the provisions of Article FIFTH shall be
subject to the provisions of this Article FOURTH.
(h) When the Trust has more than one series or class
of Shares outstanding: (i) the redemption rights provided to the
holders of the Trust's Shares shall be deemed to apply only to
the assets belonging to the series or class of Shares in
question; and (ii) the net asset value per Share computation as
provided for in Article SEVENTH shall be applied as if each such
series or class of Shares were the Trust as referred to in such
computation, but with its assets limited to the assets belonging
to such series or class and its liabilities limited to the
liabilities belonging to such series or class.
(i) The ownership of Shares shall be recorded in the
books of the Trust or a transfer agent. The Trustees may make
such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust or any
transfer agent, as the case may be, shall be conclusive as to who
are the holders of Shares and as to the number of Shares held
from time to time by each.
(j) The Trustees shall accept investments in the Trust
from such persons and on such terms as they may from time to time
authorize.
(k) Shareholders shall have no pre-emptive or other
right to subscribe to any additional Shares or other securities
issued by the Trust or the Trustees.
(l) The dividends payable to Shareholders shall,
subject to any applicable rule, regulation or order of the
Commission or other applicable law or regulation, be determined
by the Board and need not be individually declared but may be
declared and paid in accordance with a formula adopted by the
Board.
FIFTH: The following provisions are hereby adopted with
respect to voting Shares of the Trust and certain other rights:
1. The Shareholders shall have power to vote (i) for
the election of Trustees, (ii) with respect to the amendment
of this Declaration of Trust, (iii) to the same extent as
the shareholders of a Massachusetts business corporation, as
to whether or not a court action, proceeding or claim should
be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders, and (iv) with
respect to such additional matters relating to the Trust as
may be required by the 1940 Act or authorized by law, by
this Declaration of Trust, or the By-Laws of the Trust or
any registration statement of the Trust with the Commission
or any State, or as the Trustees may consider desirable.
2. At all meetings of Shareholders each Shareholder
shall be entitled to one vote for each dollar of net asset
value for each Share (determined in the manner described in
the current Prospectus or Prospectuses, if more than one
class or series is outstanding) standing in his name on the
books of the Trust on the date, fixed in accordance with the
By-Laws, for determination of Shareholders entitled to vote
at such meeting except (if so determined by the Board of
Trustees) for Shares redeemed prior to the meeting. Any
fractional Share shall carry proportionately all the rights
of a whole Share, including the right to vote and the right
to receive dividends. The presence in person or by proxy of
the holders of Shares outstanding and entitled to vote
thereat representing one-third of the net asset value of the
Trust as so determined shall constitute a quorum at any
meeting of the Shareholders. If at any meeting of the
Shareholders there shall be less than a quorum present, the
Shareholders present at such meeting may, without further
notice, adjourn the same from time to time until a quorum
shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been
lawfully transacted had the meeting not been adjourned.
3. Each Shareholder, upon request to the Trust in
proper form determined by the Trust, shall be entitled to
require the Trust to redeem all or any part of the Shares
standing in the name of such Shareholder. The method of
computing such net asset value, the time at which such net
asset value shall be computed and the time within which the
Trust shall make payment therefor, shall be determined as
hereinafter provided in Article SEVENTH of this Declaration
of Trust. Notwithstanding the foregoing, the Trustees, when
permitted or required to do so by the 1940 Act, may suspend
the right of the Shareholders to require the Trust to redeem
Shares.
4. No Shareholder shall, as such holder, have any
right to purchase or subscribe for any security of the Trust
which it may issue or sell, other than such right, if any,
as the Trustees, in their discretion, may determine.
5. All persons who shall acquire Shares shall acquire
the same subject to the provisions of this Declaration of
Trust.
SIXTH: Each Trustee shall hold office until the annual
meeting of Shareholders next succeeding his election or until his
successor is duly elected and qualifies. The persons who shall
act as Trustees until the first annual meeting or until their
successors are duly chosen and qualify were the initial Trustees
who executed the Declaration of Trust or any counterpart thereof.
However, the By-Laws of the Trust may fix the number of
Trustees at a number greater than that of the number of initial
Trustees and may authorize the Trustees, by the vote of a
majority of the entire number of Trustees, to increase or
decrease the number of Trustees fixed by this Declaration of
Trust or by the By-Laws within limits specified in the By-Laws,
provided that in no case shall the number of Trustees be less
than three, and to fill the vacancies created by any such
increase in the number of Trustees. Unless otherwise provided by
the By-Laws of the Trust, the Trustees need not be Shareholders.
SEVENTH: The following provisions are hereby adopted for
the purpose of defining, limiting and regulating the powers of
the Trust and of the Trustees and Shareholders.
1. As soon as any Trustee is duly elected by the
Shareholders or the Trustees and shall have accepted this
trust, the Trust estate shall vest in the new Trustee or
Trustees, together with the continuing Trustees, without any
further act or conveyance, and he shall be deemed a Trustee
hereunder.
2. The death, declination, resignation, retirement,
removal, or incapacity of the Trustees, or any one of them
shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this
Declaration of Trust.
3. The assets of the Trust shall be held separate and
apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any
successor Trustees. All of the assets of the Trust shall at
all times be considered as vested in the Trustees. Except
as provided in this Declaration of Trust, no Shareholder
shall have, as such holder of beneficial interest in the
Trust, any authority, power or right whatsoever to transact
business for or on behalf of the Trust, or on behalf of the
Trustees, in connection with the property or assets of the
Trust, or in any part thereof, except the rights to receive
the income and distributable amounts arising therefrom as
set forth herein.
4. The Trustees in all instances shall act as
principals, and are and shall be free from the control of
the Shareholders. The Trustees shall have full power and
authority to do any and all acts and to make and execute any
and all contracts and instruments that they may consider
necessary or appropriate in connection with the management
of the Trust. The Trustees shall not in any way be bound or
limited by present or future laws or customs in regard to
Trust investments, but shall have full authority and power
to make any and all investments which they, in their
uncontrolled discretion, shall deem proper to accomplish the
purposes of this Trust. Subject to any applicable
limitation in this Declaration of Trust or in the By-Laws of
the Trust, the Trustees shall have power and authority:
(a) to adopt By-laws not inconsistent with this
Declaration of Trust providing for the conduct of the
business of the Trust and to amend and repeal them to the
extent that they do not reserve that right to the
Shareholders;
(b) to elect and remove such officers and appoint
and terminate such officers as they consider appropriate
with or without cause;
(c) to employ a bank or trust company as
custodian of any assets of the Trust subject to any
conditions set forth in this Declaration of Trust or in the
By-Laws;
(d) to retain a transfer agent and Shareholder
servicing agent, or both;
(e) to provide for the distribution of Shares
either through a principal underwriter or the Trust itself
or both;
(f) to set record dates in the manner provided
for in the By-Laws of the Trust;
(g) to delegate such authority as they consider
desirable to any officers of the Trust and to any agent,
custodian or underwriter;
(h) to vote or give assent, or exercise any
rights of ownership, with respect to stock or other
securities or property held in trust hereunder; and to
execute and deliver powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(i) to exercise powers and rights of subscription
or otherwise which in any manner arise out of ownership of
securities held in trust hereunder;
(j) to hold any security or property in a form
not indicating any trust, whether in bearer, unregistered or
other negotiable form; or either in its own name or in the
name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual
practice of Massachusetts business trusts or investment
companies;
(k) to consent to or participate in any plan for
the reorganization, consolidation or merger of any
corporation or concern, any security of which is held in the
Trust; to consent to any contract, lease, mortgage,
purchase, or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to
any security held in the Trust;
(l) to compromise, arbitrate, or otherwise adjust
claims in favor of or against the Trust or any matter in
controversy including, but not limited to, claims for taxes;
(m) to make, in the manner provided in the
By-Laws, distributions of income and of capital gains to
Shareholders;
(n) to borrow money to the extent and in the
manner permitted by the 1940 Act and the Trust's fundamental
policy thereunder as to borrowing; and
(o) to enter into investment advisory or
management contracts, subject to the 1940 Act, with any one
or more corporations, partnerships, trusts, associations or
other persons; if the other party or parties to any such
contract are authorized to enter into securities
transactions on behalf of the Trust, such transactions shall
be deemed to have been authorized by all of the Trustees.
5. No one dealing with the Trustees shall be under
any obligation to make any inquiry concerning the authority
of the Trustees, or to see to the application of any
payments made or property transferred by the Trustees or
upon their order.
6. (a) The Trustees shall have no power to bind any
Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time
personally agree to pay by way of subscription to any Shares
or otherwise. Every note, bond, contract or other
undertaking issued by or on behalf of the Trust or the
Trustees relating to the Trust shall include a recitation
limiting the obligation represented thereby to the Trust and
its assets (but the omission of such a recitation shall not
operate to bind any Shareholder).
(b) Except as otherwise provided in this
Declaration of Trust or the By-Laws, whenever this
Declaration of Trust calls for or permits any action to be
taken by the Trustees hereunder, such action shall mean that
taken by the Board of Trustees by vote of the majority of a
quorum of Trustees as set forth from time to time in the
By-Laws of the Trust or as required pursuant to the
provisions of the 1940 Act and the rules and regulations
promulgated thereunder.
(c) The Trustees shall possess and exercise any
and all such additional powers as are reasonably implied
from the powers herein contained such as may be necessary or
convenient in the conduct of any business or enterprise of
the Trust, to do and perform anything necessary, suitable,
or proper for the accomplishment of any of the purposes, or
the attainment of any one or more of the objects, herein
enumerated, or which shall at any time appear conducive to
or expedient for the protection or benefit of the Trust, and
to do and perform all other acts or things necessary or
incidental to the purposes herein before set forth, or that
may be deemed necessary by the Trustees.
(d) The Trustees shall have the power to
determine conclusively whether any moneys, securities, or
other properties of the Trust property are, for the purposes
of this Trust, to be considered as capital or income and in
what manner any expenses or disbursements are to be borne as
between capital and income whether or not in the absence of
this provision such moneys, securities, or other properties
would be regarded as capital or income and whether or not in
the absence of this provision such expenses or disbursements
would ordinarily be charged to capital or to income.
7. The By-Laws of the Trust may divide the Trustees
into classes and prescribe the tenure of office of the
several classes, but no class shall be elected for a period
shorter than that from the time of the election following
the division into classes until the next annual meeting and
thereafter for a period shorter than the interval between
annual meetings or for a period longer than five years, and
the term of office of at least one class shall expire each
year.
8. The Shareholders shall have the right to inspect
the records, documents, accounts and books of the Trust,
subject to reasonable regulations of the Trustees, not
contrary to Massachusetts law, as to whether and to what
extent, and at what times and places, and under what
conditions and regulations, such right shall be exercised.
9. Any Trustee, or any officer elected or appointed
by the Trustees or by any committee of the Trustees or by
the Shareholders or otherwise, may be removed at any time,
with or without cause, in such lawful manner as may be
provided in the By-Laws of the Trust.
10. If the By-Laws so provide, the Trustees shall have
power to hold their meetings, to have an office or offices
and, subject to the provisions of the laws of the
Commonwealth of Massachusetts, to keep the books of the
Trust outside of said Commonwealth at such places as may
from time to time be designated by them.
11. Securities held by the Trust shall be voted in
person or by proxy by the President or a Vice-President, or
such officer or officers of the Trust as the Trustees shall
designate for the purpose, or by a proxy or proxies
thereunto duly authorized by the Trustees, except as
otherwise ordered by vote of the holders of a majority of
the Shares outstanding and entitled to vote in respect
thereto.
12. (a) Subject to the provisions of the 1940 Act,
any Trustee, officer or employee, individually, or any
partnership of which any Trustee, officer or employee may be
a member, or any corporation or association of which any
Trustee, officer or employee may be an officer, director,
trustee, employee or stockholder, may be a party to, or may
be pecuniarily or otherwise interested in, any contract or
transaction of the Trust, and in the absence of fraud no
contract or other transaction shall be thereby affected or
invalidated; provided that in case a Trustee, or a
partnership, corporation or association of which a Trustee
is a member, officer, director, trustee, employee or
stockholder is so interested, such fact shall be disclosed
or shall have been known to the Trustees or a majority
thereof; and any Trustee who is so interested, or who is
also a director, officer, trustee, employee or stockholder
of such other corporation or association or a member of such
partnership which is so interested, may be counted in
determining the existence of a quorum at any meeting of the
Trustees which shall authorize any such contract or
transaction, and may vote thereat to authorize any such
contract or transaction, with like force and effect as if he
were not such director, officer, trustee, employee or
stockholder of such other trust or corporation or
association or a member of a partnership so interested.
(b) Specifically, but without limitation of the
foregoing, the Trust may enter into a management, investment
advisory, sub-advisory, administration or underwriting
contract and other contracts with, and may otherwise do
business with any manager, investment adviser, sub-adviser,
or administrator for the Trust, or principal underwriter of
the Shares of the Trust, or any subsidiary or affiliate of
any such manager, investment adviser, sub-adviser or
administrator and/or principal underwriter and may permit
any such firm or corporation to enter into any contracts or
other arrangements with any other firm or corporation
relating to the Trust notwithstanding that the Board of
Trustees of the Trust may be composed in part of partners,
directors, officers or employees of any such firm or
corporation, and officers of the Trust may have been or may
be or become partners, directors, officers or employees of
any such firm or corporation, and in the absence of fraud
the Trust and any such firm or corporation may deal freely
with each other, and no such contract or transaction between
the Trust and any such firm or corporation shall be
invalidated or in any wise affected thereby, nor shall any
Trustee or officer of the Trust be liable to the Trust or to
any Shareholder or creditor thereof or to any other person
for any loss incurred by it or him solely because of the
existence of any such contract or transaction; provided that
nothing herein shall protect any Trustee or officer of the
Trust against any liability to the Trust or to its security
holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office.
(c) (1) As used in this paragraph the following
terms shall have the meanings set forth below:
(i) the term "indemnitee" shall mean any
present or former Trustee, officer or
employee of the Trust, any present or former
Trustee or officer of another trust or
corporation whose securities are or were
owned by the Trust or of which the Trust is
or was a creditor and who served or serves in
such capacity at the request of the Trust,
any present or former investment adviser,
sub-adviser, administrator or principal
underwriter of the Trust and the heirs,
executors, administrators, successors and
assigns of any of the foregoing; however,
whenever conduct by an indemnitee is referred
to, the conduct shall be that of the original
indemnitee rather than that of the heir,
executor, administrator, successor or
assignee;
(ii) the term "covered proceeding" shall
mean any threatened, pending or completed
action, suit or proceeding, whether civil,
criminal, administrative or investigative, to
which an indemnitee is or was a party or is
threatened to be made a party by reason of
the fact or facts under which he or it is an
indemnitee as defined above;
(iii) the term "disabling conduct" shall
mean willful misfeasance, bad faith, gross
negligence or reckless disregard of the
duties involved in the conduct of the office
in question;
(iv) the term "covered expenses" shall mean
expenses (including attorney's fees),
judgments, fines and amounts paid in
settlement actually and reasonably incurred
by an indemnitee in connection with a covered
proceeding; and
(v) the term "adjudication of liability"
shall mean, as to any covered proceeding and
as to any indemnitee, an adverse
determination as to the indemnitee whether by
judgment, order, settlement, conviction or
upon a plea of nolo contendere or its
equivalent.
(d) The Trust shall not indemnify any indemnitee
for any covered expenses in any covered proceeding if there
has been an adjudication of liability against such
indemnitee expressly based on a finding of disabling
conduct.
(e) Except as set forth in (d) above, the Trust
shall indemnify any indemnitee for covered expenses in any
covered proceeding, whether or not there is an adjudication
of liability as to such indemnitee, if a determination has
been made that the indemnitee was not liable by reason of
disabling conduct by (i) a final decision of the court or
other body before which the covered proceeding was brought;
or (ii) in the absence of such decision, a reasonable
determination, based on a review of the facts, by either (a)
the vote of a majority of a quorum of Trustees who are
neither "interested persons," as defined in the 1940 Act nor
parties to the covered proceeding or (b) an independent
legal counsel in a written opinion; provided that such
Trustees or counsel, in reaching such determination, may but
need not presume the absence of disabling conduct on the
part of the indemnitee by reason of the manner in which the
covered proceeding was terminated.
(f) Covered expenses incurred by an indemnitee in
connection with a covered proceeding shall be advanced by
the Trust to an indemnitee prior to the final disposition of
a covered proceeding upon the request of the indemnitee for
such advance and the undertaking by or on behalf of the
indemnitee to repay the advance unless it is ultimately
determined that the indemnitee is entitled to
indemnification thereunder, but only if one or more of the
following is the case: (i) the indemnitee shall provide a
security for such undertaking; (ii) the Trust shall be
insured against losses arising out of any lawful advances;
or (iii) there shall have been a determination, based on a
review of the readily available facts (as opposed to a full
trial-type inquiry) that there is a reason to believe that
the indemnitee ultimately will be found entitled to
indemnification by either independent legal counsel in a
written opinion or by the vote of a majority of a quorum of
trustees who are neither "interested persons" as defined in
the 1940 Act nor parties to the covered proceeding.
(g) Nothing herein shall be deemed to affect the
right of the Trust and/or any indemnitee to acquire and pay
for any insurance covering any or all indemnitees to the
extent permitted by the 1940 Act or to affect any other
indemnification rights to which any indemnitee may be
entitled to the extent permitted by the 1940 Act.
13. For purposes of the computation of net asset
value, as in this Declaration of Trust referred to, the
following rules shall apply:
(a) The net asset value of each Share of the
Trust tendered to the Trust for redemption shall be
determined as of the close of business on the New York Stock
Exchange next succeeding the tender of such Share;
(b) The net asset value of each Share of the
Trust for the purpose of the issue of such Shares shall be
determined as of the close of business on the New York Stock
Exchange next succeeding the receipt of an order to purchase
such Shares;
(c) The net asset value of each Share of the
Trust, as of time of valuation on any day, shall be the
quotient obtained by dividing the value, as at such time, of
the net assets of the Trust (i.e., the value of the assets
of the Trust less its liabilities exclusive of its surplus)
by the total number of Shares outstanding at such time. The
assets and liabilities of the Trust shall be determined in
accordance with generally accepted accounting principles;
provided, however, that in determining the liabilities of
the Trust there shall be included such reserves for taxes or
contingent liabilities as may be authorized or approved by
the Trustees, and provided further that in determining the
value of the assets of the Trust for the purpose of
obtaining the net asset value, each security listed on the
New York Stock Exchange shall be valued on the basis of the
closing sale at the time of valuation on the business day as
of which such value is being determined; if there be no sale
on such day, then the security shall be valued on the basis
of the mean between closing bid and asked prices on such
day; if no bid and asked prices are quoted for such day,
then the security shall be valued by such method as the
Trustees shall deem in good faith to reflect its fair market
value; securities not listed on the New York Stock Exchange
shall be valued in like manner on the basis of quotations on
any other stock exchange which the Trustees may from time to
time approve for that purpose; readily marketable securities
traded in the over-the-counter market shall be valued at the
mean between their bid and asked prices, or, if the Trustees
shall so determine, at their bid prices; and all other
assets of the Trust and all securities as to which the Trust
might be considered an "underwriter" (as that term is used
in the Securities Act of 1933), whether or not such
securities are listed or traded in the over-the-counter
market, shall be valued by such method as they shall deem in
good faith to reflect their fair market value. In
connection with the accrual of any fee or refund payable to
or by an investment adviser of the Trust, the amount of
which accrual is not definitely determinable as of any time
at which the net asset value of each Share of the Trust is
being determined due to the contingent nature of such fee or
refund, the Trustees are authorized to establish from time
to time formulae for such accrual, on the basis of the
contingencies in question to the date of such determination,
or on such other basis as the Trustees may establish.
(1) Shares to be issued shall be deemed to
be outstanding as of the time of the determination
of the net asset value per share applicable to
such issuance and the net price thereof shall be
deemed to be an asset of the Trust;
(2) Shares to be redeemed by the Trust shall
be deemed to be outstanding until the time of the
determination of the net asset value applicable to
such redemption and thereupon and until paid the
redemption price thereof shall be deemed to be a
liability of the Trust; and
(3) Shares voluntarily purchased or
contracted to be purchased by the Trust pursuant
to the provisions of paragraph 13(d) of this
Article SEVENTH shall be deemed to be outstanding
until whichever is the later of (i) the time of
the making of such purchase or contract of
purchase, and (ii) the time as of which the
purchase price is determined, and thereupon and
until paid, the purchase price thereof shall be
deemed to be a liability of the Trust.
(d) The net asset value of each Share of the
Trust, as of any time other than the close of business on
the New York Stock Exchange of any day, may be determined by
applying to the net asset value as of the close of business
on that Exchange on the preceding business day, computed as
provided in this Article SEVENTH, such adjustments as are
authorized by or pursuant to the direction of the Trustees
and designed reasonably to reflect any material changes in
the market value of securities and other assets held and any
other material changes in the assets or liabilities of the
Trust and in the number of its outstanding Shares which
shall have taken place since the close of business on such
preceding business day.
(e) In addition to the foregoing, the Trustees
are empowered, in their absolute discretion, to establish
other bases or times, or both, for determining the net asset
value of each Share of the Trust in accordance with the 1940
Act and to authorize the voluntary purchase by the Trust,
either directly or through an agent, of Shares of the Trust
upon such terms and conditions and for such consideration as
the Trustees shall deem advisable in accordance with any
such provision, rule or regulation.
(f) Payment of the net asset value of Shares of
the Trust properly surrendered to it for redemption shall be
made by the Trust within seven days after tender of such
Shares to the Trust for such purpose plus any period of time
during which the right of the holders of the Shares of the
Trust to require the Trust to redeem such Shares has been
suspended. Any such payment may be made in portfolio
securities of the Trust and/or in cash, as the Trustees
shall deem advisable, and no Shareholder shall have a right,
other than as determined by the Trustees, to have his Shares
redeemed in kind.
EIGHTH:
1. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of
his being or having been a Shareholder and not because of
his acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case
of a corporation or other entity, its corporate or other
general successor) shall be entitled out of the Trust estate
to be held harmless from and indemnified against all loss
and expense arising from such liability. This Trust shall,
upon request by the Shareholder, assume the defense of any
claim made against any Shareholder for any act or obligation
of the Trust and satisfy any judgment thereon.
2. It is hereby expressly declared that a trust and
not a partnership is created hereby. No Trustee hereunder
shall have any power to bind personally either the Trust's
officers or any Shareholder. All persons extending credit
to, contracting with or having any claim against the Trust
or the Trustees shall look only to the assets of the Trust
for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of their
agents, whether past, present or future, shall be personally
liable therefor. Nothing in this Declaration of Trust shall
protect a Trustee against any liability to which such
Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the
office of Trustee hereunder.
3. The exercise by the Trustees of their powers and
discretion hereunder in good faith and with reasonable care
under the circumstances then prevailing, shall be binding
upon everyone interested. Subject to the provisions of
paragraph 2 of this Article EIGHTH, the Trustees shall not
be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts
with respect to the meaning and operations of this
Declaration of Trust, and subject to the provisions of
paragraph 2 of this Article EIGHTH, shall be under no
liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any
surety if a bond is required.
4. This Trust shall continue without limitation of
time but subject to the provisions of sub-sections (a), (b)
and (c) of this paragraph 4.
(a) The Trustees, with the favorable vote of the
holders of more than 50% of the outstanding Shares entitled
to vote and if the Trust has outstanding Shares of more than
one series or class, such vote shall be in accordance with
the provisions of Article FIFTH section (2), may sell and
convey the assets of the Trust (which sale may be subject to
the retention of assets for the payment of liabilities and
expenses) to another issuer for a consideration which may be
or include securities of such issuer. Upon making provision
for the payment of liabilities, by assumption by such issuer
or otherwise, the Trustees shall distribute the remaining
proceeds ratably among the holders of the Shares of the
Trust then outstanding.
(b) The Trustees, with the favorable vote of the
holders of more than 50% of the outstanding Shares entitled
to vote, and if the Trust has outstanding Shares of more
than one series or class, such vote shall be in accordance
with the provisions of Article FIFTH section (2), may at any
time sell and convert into money all the assets of the
Trust. Upon making provision for the payment of all
outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Trust, the Trustees shall
distribute the remaining assets of the Trust ratably among
the holders of the outstanding Shares.
(c) Upon completion of the distribution of the
remaining proceeds or the remaining assets as provided in
sub-sections (a) and (b), the Trust shall terminate and the
Trustees shall be discharged of any and all further
liabilities and duties hereunder and the right, title and
interest of all parties shall be cancelled and discharged.
5. The original or a copy of this instrument and of
each declaration of trust supplemental hereto shall be kept
at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each
supplemental declaration of trust shall be filed with the
Massachusetts Secretary of State, as well as any other
governmental office where such filing may from time to time
be required. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not
any such supplemental declarations of trust have been made
and as to any matters in connection with the Trust
hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such
supplemental declaration of trust. In this instrument or in
any such supplemental declaration of trust, references to
this instrument, and all expressions like "herein," "hereof"
and "hereunder" shall be deemed to refer to this instrument
as amended or affected by any such supplemental declaration
of trust. This instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
6. The trust set forth in this instrument is created
under and is to be governed by and construed and
administered according to the laws of the Commonwealth of
Massachusetts. The Trust shall be of the type commonly
called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust.
7. The Board of Trustees is empowered to cause the
redemption of the Shares held in any account if the
aggregate net asset value of such Shares (taken at cost or
value, as determined by the Board) has been reduced by a
Shareholder to $500 or less upon such notice to the
Shareholders in question, with such permission to increase
the investment in question and upon such other terms and
conditions as may be fixed by the Board of Trustees in
accordance with the 1940 Act.
8. In the event that any person advances the
organizational expenses of the Trust, such advances shall
become an obligation of the Trust subject to such terms and
conditions as may be fixed by, and on a date fixed by, or
determined in accordance with criteria fixed by the Board of
Trustees, to be amortized over a period or periods to be
fixed by the Board.
9. Whenever any action is taken under this
Declaration of Trust under any authorization to take action
which is permitted by the 1940 Act, such action shall be
deemed to have been properly taken if such action is in
accordance with the construction of the 1940 Act then in
effect as expressed in "no action" letters of the staff of
the Commission or any release, rule, regulation or order
under the 1940 Act or any decision of a court of competent
jurisdiction, notwithstanding that any of the foregoing
shall later be found to be invalid or otherwise reversed or
modified by any of the foregoing.
10. Any action which may be taken by the Board of
Trustees under this Declaration of Trust or its By-Laws may
be taken by the description thereof in the then effective
prospectus relating to the Shares under the Securities Act
of 1933 or in any proxy statement of the Trust rather than
by formal resolution of the Board.
11. Whenever under this Declaration of Trust, the
Board of Trustees is permitted or required to place a value
on assets of the Trust, such action may be delegated by the
Board, and/or determined in accordance with a formula
determined by the Board, to the extent permitted by the 1940
Act.
12. If authorized by vote of the Trustees and the
favorable vote of the holders of more than 50% of the
outstanding Shares entitled to vote, and if the Trust has
outstanding shares of more than one class, such vote shall
be in accordance with the provisions of Article FIFTH
section (2), or by any larger vote which may be required by
applicable law in any particular case, the Trustees shall
amend or otherwise supplement this instrument, by making a
declaration of trust supplemental hereto, which thereafter
shall form a part hereof; however, any such supplemental
declaration of trust may be authorized by the vote of a
majority of the Trustees then in office without any
shareholder vote if the sole purpose of such supplemental
declaration of trust is to change the name of the Trust; any
supplemental declaration of trust may be executed by and on
behalf of the Trust and the Trustees by any officer or
officers of the Trust.
[balance of page intentionally left blank]
<PAGE>
13. The address of the Trust is 380 Madison Avenue,
Suite 2300, New York, NY 10017. The agent of the Trust in
the Commonwealth of Massachusetts is United Corporate
Services, Inc., 9 Crestway Road, East Boston, Massachusetts
02128.
IN WITNESS WHEREOF, the undersigned have executed
this Supplemental Declaration of Trust on behalf of the Trust and
the Trustees as of the date first above written.
THE CASCADES TRUST
______________________________
Lacy B. Herrmann
President, Chairman of the
Board of Trustees and Trustee
Attest:
______________________________
Patricia A. Craven
Assistant Secretary
THE UNDERSIGNED, President, Chairman of the Board of
Trustees and Trustee of The Cascades Trust who executed on behalf
of said Trust and its Trustees the foregoing Supplemental
Declaration of Trust, hereby acknowledges, in the name and on
behalf of said Trust and its Trustees, the foregoing Supplemental
Declaration of Trust to be the act of said Trust and its Trustees
and further certifies that to the best of his information,
knowledge and belief, the matters and facts set forth therein
with respect to the approval thereof are true in all material
respects, under penalties of perjury.
________________________________
Lacy B. Herrmann
Dated: April __, 1996
THE CASCADES TRUST
BY-LAWS
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the
Shareholders (which term as used herein shall, together with all
other terms defined in the Declaration of Trust, have the same
meaning as in the Declaration of Trust) shall be held at the
principal office of the Trust or at such other place as may from
time to time be designated by the Board of Trustees and stated in
the notice of meeting.
Section 1A. Shareholder Voting. At any meeting of
Shareholders, Shareholders are entitled to one (1) vote for each
dollar of net asset value (determined as of the record date for
the meeting) per Share held (and fractional votes for fractional
dollar amounts.)
Section 2. Annual Meeting. In any year in which the
Trustees determine that a meeting of the Shareholders of the
Trust shall be held for the purpose of electing Trustees, that
meeting shall be held on such date and at such time as may be
determined by the Board of Trustees and as shall be designated in
the notice of meeting for the purpose of electing Trustees until
the next meeting for such purpose and for the transaction of such
other business as may properly be brought before the meeting.
Section 3. Special or Extraordinary Meetings. Special or
extraordinary meetings of Shareholders for any purpose or
purposes may be called by the Chairman of the Board of Trustees,
if any, or by the President or by the Board of Trustees and shall
be called by the Secretary upon receipt of the request in writing
signed by holders of Shares representing not less than ten
percent (10%) of the votes eligible to be cast thereat. Such
request shall state the purpose or purposes of the proposed
meeting.
Section 4. Notice of Meetings of Shareholders. Not less
than ten days' and not more than ninety days' written or printed
notice of every meeting of Shareholders, stating the time and
place thereof (and the general nature of the business proposed to
be transacted at any special or extraordinary meeting), shall be
given to each Shareholder entitled to vote thereat by leaving the
same with him or at his residence or usual place of business or
by mailing it, postage prepaid and addressed to him at his
address as it appears upon the books of the Trust.
No notice of the time, place or purpose of any meeting of
Shareholders need be given to any Shareholder who attends in
person or by proxy or to any Shareholder who, in writing executed
and filed with the records of the meeting, either before or after
the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Trustees may fix,
in advance, a date, not exceeding ninety days and not less than
ten days preceding the date of any meeting of Shareholders, and
not exceeding ninety days preceding any dividend payment date or
any date for the allotment of rights, as a record date for the
determination of the Shareholders entitled to receive such
dividends or rights, as the case may be; and only Shareholders of
record on such date shall be entitled to notice of and to vote at
such meeting or to receive such dividends or rights, as the case
may be.
Section 6. Quorum, Adjournment of Meetings. The presence
in person or by proxy of the holders of record of outstanding
Shares of the Trust representing at least one-third of the votes
eligible to be cast thereat shall constitute a quorum at all
meetings of Shareholders. If at any meeting of the Shareholders
there shall be less than a quorum present, the Shareholders
present at such meeting may, without further notice, adjourn the
same from time to time until a quorum shall attend, but no
business shall be transacted at any such adjourned meeting except
such as might have been lawfully transacted had the meeting not
been adjourned.
Section 7. Voting and Inspectors. At all meetings of
Shareholders every Shareholder of record entitled to vote thereat
shall be entitled to vote at such meeting either in person or by
proxy appointed by instrument in writing subscribed by such
Shareholder or his duly authorized attorney-in-fact.
All elections of Trustees shall be had by a plurality of the
votes cast and all questions shall be decided by a majority of
the votes cast, in each case at a duly constituted meeting,
except as otherwise provided in the Declaration of Trust or in
these By-Laws or by specific statutory provision superseding the
restrictions and limitations contained in the Declaration of
Trust or in these By-Laws.
At any election of Trustees, the Board of Trustees prior
thereto may, or, if they have not so acted, the Chairman of the
meeting may, and upon the request of the holders of the
outstanding Shares of the Trust representing 10% of its net asset
value entitled to vote at such election shall, appoint two
inspectors of election who shall first subscribe an oath or
affirmation to execute faithfully the duties of inspectors at
such election with strict impartiality and according to the best
of their ability, and shall after the election make a certificate
of the result of the vote taken. No candidate for the office of
Trustee shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be
taken upon any election or matter, and such vote shall be taken
upon the request of the holders of the outstanding Shares of the
Trust representing 10% of its net asset value entitled to vote on
such election or matter.
Section 8. Conduct of Shareholders' Meetings. The meetings
of the Shareholders shall be presided over by the Chairman of
the Board of Trustees, if any, or if he shall not be present, by
the President, or if he shall not be present, by a Vice-
President, or if neither the Chairman of the Board of Trustees,
the President nor any Vice-President is present, by a chairman to
be elected at the meeting. The Secretary of the Trust, if
present, shall act as Secretary of such meetings, or if he is not
present, an Assistant Secretary shall so act; if neither the
Secretary nor an Assistant Secretary is present, then the meeting
shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At
every meeting of the Shareholders, all proxies shall be received
and taken in charge of and all ballots shall be received and
canvassed by the secretary of the meeting, who shall decide all
questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed as provided in
Section 7, in which event such inspectors of election shall
decide all such questions.
ARTICLE II
BOARD OF TRUSTEES
Section 1. Number and Tenure of Office. The business and
property of the Trust shall be conducted and managed by a Board
of Trustees consisting of the number of initial Trustees, which
number may be increased or decreased as provided in Section 2 of
this Article. Each Trustee shall, except as otherwise provided
herein, hold office until the annual meeting of Shareholders of
the Trust next succeeding his election or until his successor is
duly elected and qualifies. Trustees need not be Shareholders.
Section 2. Increase or Decrease in Number of Trustees;
Removal. The Board of Trustees, by the vote of a majority of the
entire Board, may increase the number of Trustees to a number not
exceeding fifteen, and may elect Trustees to fill the vacancies
created by any such increase in the number of Trustees until the
next annual meeting or until their successors are duly elected
and qualify; the Board of Trustees, by the vote of a majority of
the entire Board, may likewise decrease the number of Trustees to
a number not less than two but the tenure of office of any
Trustee shall not be affected by any such decrease. Vacancies
occurring other than by reason of any such increase shall be
filled as provided for a Massachusetts business corporation. In
the event that after proxy material has been printed for a
meeting of Shareholders at which Trustees are to be elected any
one or more management nominees dies or becomes incapacitated,
the authorized number of Trustees shall be automatically reduced
by the number of such nominees, unless the Board of Trustees
prior to the meeting shall otherwise determine. Any Trustee at
any time may be removed either with or without cause by
resolution duly adopted by the affirmative votes of the holders
of the majority of the Shares of the Trust present in person or
by proxy at any meeting of Shareholders at which such vote may be
taken, provided that a quorum is present, or by such larger vote
as may be required by Massachusetts law. Any Trustee at any
time may be removed for cause by resolution duly adopted at any
meeting of the Board of Trustees provided that notice thereof is
contained in the notice of such meeting and that such resolution
is adopted by the vote of at least two thirds of the Trustees
whose removal is not proposed. As used herein, "for cause" shall
mean any cause which under Massachusetts law would permit the
removal of a Trustee of a business trust.
Section 3. Place of Meeting. The Trustees may hold their
meetings, have one or more offices, and keep the books of the
Trust outside Massachusetts, at any office or offices of the
Trust or at any other place as they may from time to time by
resolution determine, or, in the case of meetings, as they may
from time to time by resolution determine or as shall be
specified or fixed in the respective notices or waivers of notice
thereof.
Section 4. Regular Meetings. Regular meetings of the Board
of Trustees shall be held at such time and on such notice, if
any, as the Trustees may from time to time determine.
The annual meeting of the Board of Trustees shall be held as
soon as practicable after the annual meeting of the Shareholders
for the election of Trustees.
Section 5. Special Meetings. Special meetings of the Board
of Trustees may be held from time to time upon call of the
Chairman of the Board of Trustees, if any, the President or two
or more of the Trustees, by oral or telegraphic or written notice
duly served on or sent or mailed to each Trustee not less than
one day before such meeting. No notice need be given to any
Trustee who attends in person or to any Trustee who, in writing
executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Such notice or
waiver of notice need not state the purpose or purposes of such
meeting.
Section 6. Quorum. One-third of the Trustees then in
office shall constitute a quorum for the transaction of business,
provided that a quorum shall in no case be less than two
Trustees. If at any meeting of the Board there shall be less
than a quorum present (in person or by open telephone line, to
the extent permitted by the 1940 Act), a majority of those
present may adjourn the meeting from time to time until a quorum
shall have been obtained. The act of the majority of the
Trustees present at any meeting at which there is a quorum shall
be the act of the Board, except as may be otherwise specifically
provided by statute, by the Declaration of Trust or by these By-
Laws.
Section 7. Executive Committee. The Board of Trustees may,
by the affirmative vote of a majority of the entire Board, elect
from the Trustees an Executive Committee to consist of such
number of Trustees as the Board may from time to time determine.
The Board of Trustees by such affirmative vote shall have power
at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Trustees. When
the Board of Trustees is not in session, the Executive Committee
shall have and may exercise any or all of the powers of the
Board of Trustees in the management of the business and affairs
of the Trust (including the power to authorize the seal of the
Trust to be affixed to all papers which may require it) except as
provided by law and except the power to increase or decrease the
size of, or fill vacancies on the Board. The Executive Committee
may fix its own rules of procedure, and may meet, when and as
provided by such rules or by resolution of the Board of Trustees,
but in every case the presence of a majority shall be necessary
to constitute a quorum. In the absence of any member of the
Executive Committee the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a member of
the Board of Trustees to act in the place of such absent member.
Section 8. Other Committees. The Board of Trustees, by the
affirmative vote of a majority of the entire Board, may appoint
other committees which shall in each case consist of such number
of members (not less than two) and shall have and may exercise
such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee
may determine its action, and fix the time and place of its
meetings, unless the Board of Trustees shall otherwise provide.
The Board of Trustees shall have power at any time to change the
members and powers of any such committee, to fill vacancies, and
to discharge any such committee.
Section 9. Informal Action by and Telephone Meetings of
Trustees and Committees. Any action required or permitted to be
taken at any meeting of the Board of Trustees or any committee
thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such
committee, as the case may be. Trustees or members of a
committee of the Board of Trustees may participate in a meeting
by means of a conference telephone or similar communications
equipment; such participation shall, except as otherwise required
by the 1940 Act, have the same effect as presence in person.
Section 10. Compensation of Trustees. Trustees shall be
entitled to receive such compensation from the Trust for their
services as may from time to time be voted by the Board of
Trustees.
Section 11. Dividends. Dividends or distributions payable
on the Shares may, but need not be, declared by specific
resolution of the Board as to each dividend or distribution; in
lieu of such specific resolutions, the Board may, by general
resolution, determine the method of computation thereof, the
method of determining the Shareholders to which they are payable
and the methods of determining whether and to which Shareholders
they are to be paid in cash or in additional Shares.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of
the Trust shall be chosen by the Board of Trustees as soon as may
be practicable after the annual meeting of the Shareholders.
These may include a Chairman of the Board of Trustees, and shall
include a President, one or more Vice-Presidents (the number
thereof to be determined by the Board of Trustees), a Secretary
and a Treasurer. The Chairman of the Board of Trustees, if any,
and the President may, but need not be, selected from among the
Trustees. The Board of Trustees may also in its discretion
appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and
perform such duties as the Board or the Executive Committee may
determine. The Board of Trustees may fill any vacancy which may
occur in any office. Any two offices, except those of President
and Vice-President, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law or
these By-Laws to be executed, acknowledged or verified by two or
more officers.
Section 2. Term of Office. The term of office of all
officers shall be one year and until their respective successors
are chosen and qualify; however, any officer may be removed from
office at any time with or without cause by the vote of a
majority of the entire Board of Trustees.
Section 3. Powers and Duties. The officers of the Trust
shall have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as may from
time to time be conferred by the Board of Trustees or the
Executive Committee.
ARTICLE IV
SHARES
Section 1. Certificates of Shares. Each Shareholder of the
Trust may be issued a certificate or certificates for his Shares
in such form as the Board of Trustees may from time to time
prescribe, but only if and to the extent and on the conditions
prescribed by the Board.
Section 2. Transfer of Shares. Shares shall be
transferable on the books of the Trust by the holder thereof in
person or by his duly authorized attorney or legal
representative, upon surrender and cancellation of certificates,
if any, for the same number of Shares, duly endorsed or
accompanied by proper instruments of assignment and transfer,
with such proof of the authenticity of the signature as the
Trust or its agent may reasonably require; in the case of Shares
not represented by certificates, the same or similar requirements
may be imposed by the Board of Trustees.
Section 3. Stock Ledgers. The stock ledgers of the Trust,
containing the name and address of the Shareholders and the
number of Shares held by them respectively, shall be kept at the
principal offices of the Trust or, if the Trust employs a
transfer agent, at the offices of the transfer agent of the
Trust.
Section 4. Lost, Stolen or Destroyed Certificates. The
Board of Trustees may determine the conditions upon which a new
certificate may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their
discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety to the Trust
and the transfer agent, if any, to indemnify it and such transfer
agent against any and all loss or claims which may arise by
reason of the issue of a new certificate in the place of the one
so lost, stolen or destroyed.
ARTICLE V
SEAL
The Board of Trustees shall provide a suitable seal of the
Trust, in such form and bearing such inscriptions as it may
determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Trust shall be fixed by the Board of
Trustees.
ARTICLE VII
AMENDMENT OF BY-LAWS
The By-Laws of the Trust may be altered, amended, added to
or repealed by the Shareholders or by majority vote of the entire
Board of Trustees, but any such alteration, amendment, addition
or repeal of the By-Laws by action of the Board of Trustees may
be altered or repealed by the Shareholders.
draft 3/22/96
SHAREHOLDER SERVICING AGREEMENT
Aquila Distributors, Inc. (the "Distributor")
380 Madison Avenue
Suite 2300
New York, NY 10017
Dear Sirs:
Tax-Free Trust of Oregon (the "Fund") confirms its agreement
with Aquila Distributors, Inc. (the "Distributor") with respect
to the servicing of shareholder accounts representing shares of
the Level-Payment Class of the Fund. This Agreement is entered
into pursuant to the Fund's Shareholder Services Plan dated
, 1996 (the "Plan").
Section 1. Compensation and Services to be Rendered
(a) The Fund will pay the Distributor an annual fee (the
"Service Fee") in compensation for its services in connection
with the servicing of shareholder accounts. The Service Fee paid
will be calculated daily and paid monthly by the Fund at the
annual rate of .25% of the average annual net assets of the Fund
represented by the Level-Payment ("Class C") Shares.
(b) The Service Fee will be used by the Distributor to
provide compensation for ongoing servicing and/or maintenance of
shareholder accounts and to cover an allocable portion of
overhead and other office expenses of the Distributor and/or
selected dealers related to the servicing and/or maintenance of
shareholder accounts. It is understood that compensation may be
paid by the Distributor to persons, including employees of the
Distributor, who respond to inquiries of Level-Payment
Shareholders of the Fund regarding their ownership of shares or
their accounts with the Fund or who provide other similar
services not otherwise required to be provided by the Fund's
investment manager, transfer agent or other agent of the Fund.
Section 2. Reports
While this Agreeement is in effect, the Distributor shall
provide the reports called for in Section 4 of the Plan.
Section 3. Approval of Trustees
This agreement has been approved by a majority vote of both
(a) the full Board of Trustees of the Fund and (b) those Trustees
who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or
this Agreement (the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on this Agreement.
Section 4. Continuance of Agreement
This Agreement will continue in effect for a period of more
than one year from the date of its effectiveness only so long as
its continuance is specifically approved annually by vote of the
Fund's Board of Trustees in the manner described in Section 3
above.
Section 5. Termination
(a) This agreement may be terminated at any time, without
the payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of a majority of the
outstanding Level-Payment Shares on not more than 60 days'
written notice to the Distributor.
(b) This Agreement will terminate automatically in the
event of its assignment.
Section 6. Selection of Certain Trustees
While this Agreement is in effect, the selection and
nomination of the Fund's Trustees who are not interested persons
of the Fund will be committed to the discretion of the Trustees
then in office who are not interested persons of the Fund.
Section 7. Amendments
No material amendment to this Agreement may be made unless
approved by the Fund's Board of Trustees in the manner described
in Section 3 above.
Section 8. Meaning of Certain Terms
As used in this Agreement, the terms "assignment,"
"interested person" and "majority of this outstanding voting
securities" will be deemed to have the same meaning that those
terms have under the Investment Company Act of 1940, as amended
(the "Act") and the rules and regulations under the Act, subject
to any exemption that may be granted to the Fund under the Act by
the Securities and Exchange Commission.
Section 9. Dates
This Agreement has been executed by the parties as of
________, 1996 and will become effective on _______, 1996.
If the terms and conditions described above are in
accordance with your understanding, kindly indicate your
acceptance of this Agreement by signing and returning to us the
enclosed copy of this Agreement.
Very truly yours,
TAX-FREE TRUST OF OREGON
By:________________________
Richard F. West,
Treasurer
Accepted:
AQUILA DISTRIBUTORS, INC.
By:_____________________________
Lacy B. Herrmann
Secretary
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
551 Fifth Avenue
New York, NY 10176
Tel: (212) 818-1110
FAX: (212) 818-0494
e-mail: [email protected]
April 3, 1996
The Cascades Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
Ladies and Gentlemen:
You have requested that we render an opinion to The Cascades
Trust (the "Business Trust") with respect post-effective
amendment No. 18 (the "Amendment") to the Registration Statement
of the Trust under the Securities Act of 1933 (the "1933 Act")
and No. 18 under the Investment Company Act of 1940 (the "1940
Act") which you propose to file with the Securities and Exchange
Commission (the "Commission"). The purpose of the Amendment is to
redesignate existing shares of the Trust's only active series,
Tax-Free Trust of Oregon (the "Trust") as Front-Payment Class
Shares ("Class A Shares") and to designate two new classes of
shares to be offered by the Trust as Level-Payment Class Shares
("Class C Shares") and Institutional Class Shares ("Class Y
Shares").
We have examined originals or copies, identified to our
satisfaction as being true copies, of those corporate records of
the Business Trust, certificates of public officials, and other
documents and matters as we have deemed necessary for the purpose
of this opinion. We have assumed without independent verification
the authenticity of the documents submitted to us as originals
and the conformity to the original documents of all documents
submitted to us as copies.
Upon the basis of the foregoing and in reliance upon such
other matters as we deem relevant under the circumstances, it is
our opinion that the Class A Shares, Class C Shares and Class Y
Shares of the Trust as described in the Amendment, when issued
and paid for in accordance with the terms set forth in the
prospectus and statement of additional information of the Trust
forming a part of its then effective Registration Statement as
heretofore, herewith and hereafter amended, will be duly issued,
fully-paid and non-assessable to the extent set forth therein.
This letter is furnished to you pursuant to your request and
to the requirements imposed upon you under the 1933 Act and 1940
Act and is intended solely for your use for the purpose of
completing the filing of the Amendment with the Commission. This
letter may not be used for any other purpose or furnished to or
relied upon by any other persons, or included in any filing made
with any other regulatory authority, without our prior written
consent.
We hereby consent to the filing of this opinion with the
Amendment.
Very truly yours,
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
/s/ W.L.D. Barrett
By:_________________________________
W. L. D. Barrett
Dated: , 1996
Tax-Free Trust of Oregon
DISTRIBUTION PLAN
1. The Plan. This amended and restated Plan (the "Plan") is
the written plan, contemplated by Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940 (the "1940 Act"), of Tax-Free
Trust of Oregon (the "Trust"), a portfolio of The Cascades Trust,
a Massachusetts business trust (referred to herein as the
"Business Trust"). Part I of the Plan applies solely to the
Front-Payment Class ("Class A") of shares of the Trust, Part II
solely to the Level-Payment Class ("Class C") and Part III to all
classes.
2. Disinterested Trustees. While any Part of this Plan is in
effect, the selection and nomination of those Trustees of the
Business Trust who are not "interested persons" of the Business
Trust shall be committed to the discretion of such disinterested
Trustees. Nothing herein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
Part I
Payments Involving Trust Assets Allocated to Front-Payment Shares
3. Applicability. This Part I of the Plan applies only to the
Front-Payment Class ("Class A") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
4. Definitions for Part I. As used in this Part I of the Plan,
"Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into
written agreements in connection with this Part I ("Class A Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's Front-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Front-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
5. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Business Trust, the Trust
may make payments ("Class A Permitted Payments") to Qualified
Recipients, which Class A Permitted Payments may be made
directly, or through the Distributor or shareholder servicing
agent as disbursing agent, which may not exceed, for any fiscal
year of the Trust (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) 0.05 of 1%
of the average annual net assets of the Trust represented by the
Front-Payment Class of shares up to $250 million and 0.15 of 1%
of such net assets above $250 million. Such payments shall be
made only out of the Trust assets allocable to the Front-Payment
Shares. The Distributor shall have sole authority (i) as to the
selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) the amount of Class A
Permitted Payments, if any, to each Qualified Recipient provided
that the total Class A Permitted Payments to all Qualified
Recipients do not exceed the amount set forth above. The
Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front-Payment Shares,
including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
6. Reports. While this Part I is in effect, the Trust's
Distributor shall report at least quarterly to the Business
Trust's Trustees in writing for their review on the following
matters: (i) all Class A Permitted Payments made under Section 5
of the Plan, the identity of the Qualified Recipient of each
payment, and the purposes for which the amounts were expended;
and (ii) all fees of the Trust to the Distributor paid or accrued
during such quarter. In addition, if any such Qualified
Recipient is an affiliated person, as that term is defined in the
Act, of the Trust, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Business Trust an accounting, in form and detail satisfactory to
the Board of Trustees, to enable the Board of Trustees to make
the determinations of the fairness of the compensation paid to
such affiliated person, not less often than annually.
7. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part I of the Plan has
been approved (i) by a vote of the Trustees, including those
Trustees (the "Independent Trustees") who, at the time of such
vote, were not "interested persons" (as defined in the 1940 Act)
of the Business Trust and had no direct or indirect financial
interest in the operation of this Plan or in any agreements
related to this Plan, with votes cast in person at a meeting
called for the purpose of voting on Part I of the Plan; and (ii)
by a vote of holders of at least a "majority" (as defined in the
1940 Act) of the outstanding voting securities of the Front-
Payment Class (or of any predecessor class or category of shares,
whether or not designated as a class) and a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Level-Payment Class and/or of any other class
whose shares are convertible into Front-Payment Shares. This
Part I is effective as of the date first above written and will,
unless terminated as hereinafter provided, continue in effect
until June 30 of each year only so long as such continuance is
specifically approved at least annually by the Business Trust's
Trustees and its Independent Trustees with votes cast in person
at a meeting called for the purpose of voting on such
continuance. This Part I may be terminated at any time by the
vote of a majority of the Independent Trustees or by shareholder
approval of the class or classes of shares affected by this Part
I as set forth in (ii) above. This Part I may not be amended to
increase materially the amount of payments to be made without
shareholder approval of the class or classes of shares affected
by this Part I as set forth in (ii) above, and all amendments
must be approved in the manner set forth in (i) above.
8. Class A Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Trust, the
Class A Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be
approved in accordance with, and contain the provisions required
by, the Rule. In the case of Qualified Recipients which are not
principal underwriters of the Trust, the Class A Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part I, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Trust in effect prior to the effective date of this Part I
and not terminated at or prior to such effective date are deemed
to be "Class A Plan Agreements" for purposes of this Part I and
that, as and to the extent necessary to give effect to this
proviso, defined terms used in such agreements shall be deemed to
have the meanings assigned to their appropriate counterparts in
this Part I and the provisions of such agreements, which shall
otherwise remain in full force and effect, are deemed to be
appropriately modified.
Part II
Payments Involving Trust Assets Allocated to Level-Payment Shares
9. Applicability. This Part II of the Plan applies only to the
Level-Payment Class ("Class C") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
10. Definitions for Part II. As used in this Part II of the
Plan, "Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into
written agreements in connection with this Part II ("Class C Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's Level-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
11. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Business Trust, the Trust
may make payments ("Class C Permitted Payments") to Qualified
Recipients, which Class C Permitted Payments may be made
directly, or through the Distributor or shareholder servicing
agent as disbursing agent, which may not exceed, for any fiscal
year of the Trust (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or
for any fiscal year which is not a full fiscal year) 0.75 of 1%
of the average annual net assets of the Trust represented by the
Level-Payment Class of shares. Such payments shall be made only
out of the Trust assets allocable to the Level-Payment Shares.
The Distributor shall have sole authority (i) as to the selection
of any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class C Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level-Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
12. Reports. While this Part II is in effect, the Trust's
Distributor shall report at least quarterly to the Business
Trust's Trustees in writing for their review on the following
matters: (i) all Class C Permitted Payments made under Section
11 of the Plan, the identity of the Qualified Recipient of each
payment, and the purposes for which the amounts were expended;
and (ii) all fees of the Trust to the Distributor paid or accrued
during such quarter. In addition, if any such Qualified
Recipient is an affiliated person, as that term is defined in the
Act, of the Trust, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Business Trust an accounting, in form and detail satisfactory to
the Board of Trustees, to enable the Board of Trustees to make
the determinations of the fairness of the compensation paid to
such affiliated person, not less often than annually.
13. Effectiveness, Continuation, Termination and Amendment.
This Part II has been approved (i) by a vote of the Trustees,
including the Independent Trustees, with votes cast in person at
a meeting called for the purpose of voting on Part II of the
Plan; and (ii) by a vote of holders of at least a "majority" (as
defined in the 1940 Act) of the outstanding voting securities of
the Level-Payment Class. This Part II is effective as of the
date first above written and will, unless terminated as
hereinafter provided, continue in effect until April 30 of each
year only so long as such continuance is specifically approved at
least annually by the Business Trust's Trustees and its
Independent Trustees with votes cast in person at a meeting
called for the purpose of voting on such continuance. This Part
II may be terminated at any time by the vote of a majority of the
Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of the Level-Payment Class. This Part II may not be
amended to increase materially the amount of payments to be made
without shareholder approval of the class or classes of shares
affected by this Part II as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
14. Class C Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Trust, the
Class C Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be
approved in accordance with, and contain the provisions required
by, the Rule. In the case of Qualified Recipients which are not
principal underwriters of the Trust, the Class C Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part II, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Trust in effect prior to the effective date of this Part II
and not terminated at or prior to such effective date are deemed
to be "Class C Plan Agreements" for purposes of this Part II and
that, as and to the extent necessary to give effect to this
proviso, defined terms used in such agreements shall be deemed to
have the meanings assigned to their appropriate counterparts in
this Part II and the provisions of such agreements, which shall
otherwise remain in full force and effect, are deemed to be
appropriately modified.
Part III
Defensive Provisions
15. Certain Payments Permitted. Whenever the Administrator of
the Trust (i) makes any payment directly or through the Trust's
Distributor for additional compensation to dealers in connection
with sales of shares of the Trust, which additional compensation
may include payment or partial payment for advertising of the
Trust's shares, payment of travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered
representatives and members of their families to locations within
or outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences, or other items described in the Trust's
prospectus, in amounts that will not exceed the amount of the
sales charges in respect of sales of shares of the Trust effected
through such participating dealers whether retained by the
Distributor or reallowed to participating dealers, or (ii) bears
the costs, not borne by the Distributor, of printing and
distributing all copies of the Trust's prospectuses, statements
of additional information and reports to shareholders which are
not sent to the Trust's shareholders, or the costs of
supplemental sales literature and advertising, such payments are
authorized.
It is recognized that, in view of the bearing by the
Administrator of certain distribution expenses, the profits, if
any, of the Administrator are dependent primarily on the
administration fees paid by the Trust to the Administrator and
that its profits, if any, would be less, or losses, if any, would
be increased due to the bearing by it of such expenses. If and to
the extent that any such administration fees paid by the Trust
might, in view of the foregoing, be considered as indirectly
financing any activity which is primarily intended to result in
the sale of shares issued by the Trust, the payment of such fees
is authorized by the Plan.
16. Certain Trust Payments Authorized. If and to the extent
that any of the payments listed below are considered to be
"primarily intended to result in the sale of" shares issued by
the Trust within the meaning of the Rule, such payments are
authorized under this Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Trust or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information, and the costs of printing
and mailing of all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of the
preparation, printing and mailing of all proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Trust's shares; (iv) all legal and accounting fees relating
to the preparation of any such reports, prospectuses, statements
of additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Trust and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Trust's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors.
17. Reports. While Part III of this Plan is in effect, the
Trust's sub-adviser, Administrator or Distributor shall report at
least quarterly to the Business Trust's Trustees in writing for
their review on the following matters: (i) all payments made
under Section 15 of this Plan; (ii) all costs of each item
specified in Section 16 of this Plan (making estimates of such
costs where necessary or desirable) during the preceding calendar
or fiscal quarter; and (iii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter.
18. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part III of the Plan
has, with respect to each class of shares outstanding, been
approved (i) by a vote of the Trustees of the Business Trust and
of the Independent Trustees, with votes cast in person at a
meeting called for the purpose of voting on this Plan; and (ii)
by a vote of holders of at least a "majority" (as defined in the
1940 Act) of the outstanding voting securities of such class and
a vote of holders of at least a "majority" (as so defined) of the
outstanding voting securities of any class whose shares are
convertible into shares of such class. This Part III is
effective as of the date first above written and will, unless
terminated as hereinafter provided, continue in effect with
respect to each class of shares to which it applies until April
30 of each year only so long as such continuance is specifically
approved with respect to that class at least annually by the
Business Trust's Trustees and its Independent Trustees with votes
cast in person at a meeting called for the purpose of voting on
such continuance. This Part III of the Plan may be terminated at
any time with respect to a given class by the vote of a majority
of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of that class. This Part III may not be amended to
increase materially the amount of payments to be made without
shareholder approval as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
--------------------------
19. Additional Terms and Conditions. This Plan and each Part of
it shall also be subject to all applicable terms and conditions
of Rule 18f-3 under the Act as now in force or hereafter amended.
Specifically, but without limitation, the provisions of Part III
shall be deemed to be severable, within the meaning of and to the
extent required by Rule 18f-3, with respect to each outstanding
class of shares of the Trust.
Dated: , 1996
TAX-FREE TRUST OF OREGON
SHAREHOLDER SERVICES PLAN
1. The Plan. This Shareholder Services Plan (the "Plan") is the
written plan of TAX-FREE TRUST OF OREGON (the "Trust") adopted to
provide for the payment by the Level-Payment Class of shares of
the Trust of ""service fees" within the meaning of Article III,
Section 26(b)(9) of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. This Plan applies only
to the Level-Payment Class ("Class C") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
2. Definitions. As used in this Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the
Trust, who have, pursuant to written agreements with the Trust or
the Distributor, agreed to provide personal services to Level-
Payment shareholders and/or maintenance of Level-Payment
shareholder accounts. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Level-Payment Shares beneficially owned
by such Qualified Recipient's customers, clients or other
contacts. "Administrator" shall mean Aquila Management
Corporation or any successor serving as sub-adviser or
administrator of the Trust.
3. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Trust, the Trust may make
payments ("Service Fees") to Qualified Recipients, which Service
Fees (i) may be paid directly or through the Distributor or
shareholder servicing agent as disbursing agent and (ii) may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year) 0.25 of 1% of the average annual net assets of the
Trust represented by the Level-Payment Class of shares. Such
payments shall be made only out of the Trust assets allocable to
the Level-Payment Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The
Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Level-Payment Shares,
including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years.
4. Reports. While this Plan is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor paid or accrued during such quarter. In addition, if
any Qualified Recipient is an "affiliated person," as that term
is defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the Trust, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Trust an accounting, in form and detail satisfactory to the Board
of Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
5. Effectiveness, Continuation, Termination and Amendment. This
Plan has been approved by a vote of the Trustees, including those
Trustees who, at the time of such vote, were not "interested
persons" (as defined in the 1940 Act) of the Trust and had no
direct or indirect financial interest in the operation of this
Plan or in any agreements related to this Plan (the "Independent
Trustees"), with votes cast in person at a meeting called for the
purpose of voting on this Plan. It is effective as of the date
first above written and will continue in effect for a period of
more than one year from such date only so long as such
continuance is specifically approved at least annually as set
forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
6. Additional Terms and Conditions. (a) This Plan shall also be
subject to all applicable terms and conditions of Rule 18f-3
under the Act as now in force or hereafter amended.
(b) While this Plan is in effect, the selection and nomination
of those Trustees of the Trust who are not "interested persons"
of the Trust, as that term is defined in the 1940 Act, shall be
committed to the discretion of such disinterested Trustees.
Nothing herein shall prevent the involvement of others in such
selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
TAX-FREE TRUST OF OREGON
Rule 18f-3
Multiple Class Plan
TAX-FREE TRUST OF OREGON (the "Trust") has elected to
rely on Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), in offering multiple classes of shares
with differing distribution arrangements, voting rights and
expense allocations.
Pursuant to Rule 18f-3, the Board of Trustees of the
Trust has approved and adopted this written plan (the "Plan")
specifying all of the differences among the classes of shares to
be offered by the Trust. Prior to such offering, the Plan will
be filed as an exhibit to the Trust's registration statement.
The Plan sets forth the differences among the classes, including
shareholder services, distribution arrangements, expense
allocations, and conversion or exchange options.
I. Attributes of Share Classes
This section discusses the attributes of the various classes
of shares. Each share of the Trust represents an equal pro rata
interest in the Trust and has identical voting rights, powers,
qualifications, terms and conditions, and in proportion to each
share's net asset value, liquidation rights and preferences.
Each class differs in that: (a) each class has a different class
designation; (b) only the Front-Payment Shares are subject to a
front-end sales charge ("FESC"); (c) only the Level-Payment
Shares are subject to a contingent deferred sales charge
("CDSC"); (d) only the Front-Payment Shares and Level-Payment
Shares (as described below) are subject to distribution fees
under a plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), the distribution fee for the Level-Payment
Class being higher than that for the Front-Payment Class; (e)
only the Level-Payment Shares are subject to a shareholder
servicing fee under a non-Rule 12b-1 shareholder services plan (a
"Shareholder Services Plan"); (f) to the extent that one class
alone is affected by a matter submitted to a vote of the
shareholders, then only that class has voting power on the
matter, provided, however, that any class whose shares convert
automatically to shares of another class also votes separately
with respect to class-specific Rule 12b-1 matters applying to the
latter class; (g) the expenses attributable to a specific class
("Class Expenses")* are borne only by shares of that class on a
pro-rata basis; and (h) exchange privileges may vary among the
classes.
* Class Expenses are limited to (i) transfer agency fees;
(ii) preparation and mailing expenses for shareholder
communications required by law, sent to current
shareholders of a class; (iii) state Blue Sky
registration fees; (iv) Securities and Exchange
Commission ("SEC") registration fees; (v) trustees'
fees; (vi) expenses incurred for periodic meetings of
trustees or shareholders; and (vii) legal and
accounting fees, other than fees for income tax return
preparation or income tax advice.
A. Front-Payment Shares
Front-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Front-Payment
Shares under the exchange privileges of the Trust. Shares
of the Trust outstanding on the date that the three classes
of shares are first made available will be redesignated
Front-Payment Shares. Front-Payment Shares will also be
issued upon automatic conversion of Level-Payment Shares, as
described below.
1. Sales Loads. Front-Payment Shares are sold
subject to the current maximum FESC (with scheduled
variations or eliminations of the sales charge, as
permitted by the 1940 Act).
2. Distribution and Service Fees. Front-Payment
Shares are subject to a distribution fee pursuant to
Part I of the Trust's Rule 12b-1 Plan. They are not
subject to charges applicable to a Shareholder Services
Plan.
3. Class Expenses. Class Expenses that are
attributable to the Front-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Front-Payment Shares are exchangeable for Front-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
Front-Payment Shares have no conversion features.
B. Level-Payment Shares
Level-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Level-Payment
Shares under the exchange privileges of the Trust.
1. Sales Loads. Level-Payment Shares are sold
without the imposition of any FESC, but are subject to
a CDSC (with scheduled variations or eliminations of
the sales charge, as permitted by the 1940 Act).
2. Distribution and Service Fees. Level-Payment
Shares are subject to a distribution fee pursuant to
Part II of the Trust's Rule 12b-1 Plan and to a
shareholder servicing fee under a Shareholder Services
Plan not to exceed .25% of the average daily net assets
of the Level-Payment Class.
3. Class Expenses. Class Expenses that are
attributable to the Level-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Level-Payment Shares are exchangeable for Level-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
After a period of no greater than six years, Level-
Payment Shares automatically convert to Front-Payment
Shares on the basis of the relative net asset values of
the two classes without the imposition of any sales
charge, fee, or other charge, provided, however, that
the expenses, including distribution fees, for Front-
Payment Shares are not higher than the expenses,
including distribution fees, for Level-Payment Shares.
If the amount of expenses, including distribution fees,
for the Front-Payment Class is increased materially
without approval of the shareholders of the Level-
Payment Class, a new class will be established -- on
the same terms as apply to the Front-Payment Class
prior to such increase -- as the class into which
Level-Payment Shares automatically convert.
C. Institutional Shares
Institutional Shares are not offered to retail
customers but are sold only to (1) institutional investors
investing funds held in a fiduciary, advisory, agency,
custodial or other similar capacity and (2) persons entitled
to exchange into Institutional Shares under the exchange
privileges of the Trust.
1. Sales Loads. Institutional Shares are sold
without the imposition of any FESC, CDSC or any other
sales charge.
2. Distribution and Service Fees. Institutional
Shares are not subject to any distribution fee or
shareholder servicing fee.
3. Class Expenses. Class Expenses that are
attributable to the Institutional Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Institutional Shares are exchangeable for Institutional
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
Institutional Shares have no conversion features.
D. Additional Classes
In the future, the Trust may offer additional classes
of shares which differ from the classes discussed above.
However, any additional classes of shares must be approved
by the Board, and the Plan must be amended to describe those
classes.
II. Approval of Multiple Class Plan
The Board of the Trust, including a majority of the
independent Trustees, must approve the Plan initially. In
addition, the Board must approve any material changes to the
classes and the Plan prior to their implementation. The Board
must find that the Plan is in the best interests of each class
individually and the Trust as a whole. In making its findings,
the Board should focus on, among other things, the relationships
among the classes and examine potential conflicts of interest
among classes regarding the allocation of fees, services, waivers
and reimbursements of expenses, and voting rights. Most
significantly, the Board should evaluate the level of services
provided to each class and the cost of those services to ensure
that the services are appropriate and that the allocation of
expenses is reasonable. In accordance with the foregoing
provisions of this Section II, the Board of the Trust has
approved and adopted this Plan as of the date written below.
III. Dividends and Distributions
Because of the differences in fees paid under a Rule
12b-1 Plan and Shareholder Services Plan and the special
allocation of Class Expenses among the classes of shares of the
Trust, the dividends payable to shareholders of a class will
differ from the dividends payable to shareholders of the other
classes. Dividends paid to each class of shares in the Trust
will, however, be declared and paid at the same time and, except
for the differences in expenses listed above, will be determined
in the same manner and paid in the same amounts per outstanding
shares.
IV. Expense Allocations
The methodology and procedures for calculating the net
asset value and dividends and distributions of the various
classes of shares and the proper allocation of income and
expenses among the various classes of shares are set forth in the
Memorandum (together with exhibits) of Richard F. West,
Treasurer, dated November 24, 1995 and entitled "Methodologies
Used In Accounting For Multiple Class Shares."
Dated: December 1, 1995
