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 AND FOUNDER
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
Further information is contained in the Prospectus,
which must precede or accompany this report.
ANNUAL
REPORT
SEPTEMBER 30, 1996
TAX-FREE TRUST OF
OREGON
A TAX-FREE INCOME INVESTMENT
(Tax-Free Trust of Oregon LOGO--logo of tree, snow-capped mountain and sun)
(Aquila Group of Funds LOGO--logo of Eagle Head)
ONE OF THE
AQUILAsm GROUP OF FUNDS
<PAGE>
(Tax-Free Trust of Oregon LOGO--logo of tree, snow-capped mountain and sun)
TAX-FREE TRUST OF OREGON
ANNUAL REPORT
"FLUCTUATIONS, YET HIGH STABILITY"
November 20, 1996
<TABLE>
<CAPTION>
9/30/96 9/30/95
<S> <C> <C>
SHARE NET ASSET VALUE $10.49 $10.55
DISTRIBUTION YIELD 4.93%* 5.16%*
</TABLE>
Dear Investor:
We live in an ever changing world.
As the above table illustrates, the price of the Trust's shares can
and does move up and down over time. Also, the rate of DOUBLE TAX-FREE
income return distributed to shareholders can and will change. Movements in
these two key areas reflect the changes in market conditions that occurred
over the time period of this past fiscal year.
Yet, while changes have occurred, looking at these numbers in a
broader perspective, there has tended to be a relatively high level of
stability to the Trust's performance results. Indeed, these results compare
favorably to what occurred in the municipal securities market itself during
this same time period.
MARKET FORCES
As we have indicated in prior communications to you, changes in share
price and income return are influenced considerably by market forces. Market
forces are governed by several main factors in the area of fixed-income
securities, which includes the tax-free municipal securities in which the
Trust invests.
Key among these factors is action taken by the Federal Reserve Board.
This Federal government organization has the power to raise and lower
interest rates in key areas which, in turn, can have an effect on all types
of fixed-income securities. The Fed can also control the supply of money in
our financial system - increasing or decreasing the amount of dollars in
circulation. This, in turn, can affect the market.
______________
*INDICATES TRAILING 12 MONTH YIELD DISTRIBUTED TO SHAREHOLDERS AS
MEASURED AGAINST SHARE MAXIMUM PUBLIC OFFERING PRICE. AT THESE SAME
TIME PERIODS THE SEC YIELD (A STANDARDIZED YIELD FORMULATED BY THE
SECURITIES AND EXCHANGE COMMISSION) WAS 4.25% AND 4.84% RESPECTIVELY.
<PAGE>
The other key factor influencing market action is the psychology of
investors. By psychology of investors, we mean the level of confidence that
investors as a whole have toward what is happening in our country's overall
financial activities. We now live in a world that is not only ever changing,
but also one that is very global in nature. Consequently, the psychology
factor within market activity is influenced not only by the confidence level,
or lack thereof, which investors in Oregon and the United States have, but
also by the confidence level that investors all around the world have toward
the handling of major financial affairs in our country.
Altogether, then, what happens to the share price and distribution
return of the Trust is very much driven by market forces. This is an
important factor which shareholders in the Trust must appreciate and come to
understand. And, this is the case whether investors own Oregon individual
municipal securities directly, or whether they do so through a portfolio of
such municipal securities as the Trust provides to shareholders. It is also
the reason why we say that an investment in the Trust should be viewed as
long-term in nature.
THE VALUE THE TRUST PROVIDES
While accepting the fact that market forces can and do have an effect
upon the Trust's performance, it must also be recognized that Tax-Free Trust
of Oregon does bring to bear very specific factors to dampen the extremes of
such market forces.
Most significant of these factors is the professional investment
management team of the Trust's Investment Adviser, Qualivest Capital
Management, Inc. Under the guidance of the Trust's management and the
Trustees, the Investment Adviser oversees, on a continuing basis, the
investments of the Trust. And, in doing so, the Investment Adviser does
employ various investment management techniques that do moderate forces that
can or might cause anxieties with investors. A very special element that the
professional investment management team brings to bear is the implementation
of the Trust's investment approach.
QUALITY FACTOR
A key moderation factor in containing damage from market forces is
quality - quality of the municipal issues within the Trust's investment
portfolio. Quality of issues tends to be a distinctly positive factor when
it comes to capital preservation.
That is why the Trust has chosen to invest in only those municipal
securities within the TOP FOUR CREDIT RATINGS, or equivalent.
It is noteworthy that at the September 30, 1996 fiscal year end,
97.7% of the Trust's holdings carried a credit rating of AAA, AA OR A - the
top three ratings.
Moreover, 92.5% of the Trust's investments were rated AAA OR AA.
DIVERSIFICATION FACTOR
Another very important factor in moderating market forces is
diversification among portfolio holdings.
At September 30, 1996, the Trust had 193 SEPARATE ISSUES within the
investment portfolio, representing many different municipal projects within
numerous communities throughout Oregon.
MATURITY FACTOR
Through creating a variety of different maturities among the
securities in the Trust's portfolio, it is possible to avoid extremes in
volatility that can come about with market fluctuations. As you are
<PAGE>
aware, short maturity securities possess little fluctuation in price, but pay
low yields. On the other hand, long maturity securities give higher yields,
but possess considerable price volatility due to the uncertainties involved
over the time between the present and the specified maturity date. The Trust
seeks an average intermediate maturity within the investment portfolio.
Currently, at September 30, 1996, the average maturity was at the
intermediate level of 15 YEARS, so as to provide an adequate income return,
yet only moderate volatility in share price.
__________
We believe that the combination of quality, diversification, and
maturity works well in dampening the volatility of the Trust's share price.
As you can see from the chart below, which illustrates the price of the
Trust's shares at the end of each six-month period since the Trust commenced
operations on June 16, 1986, the Trust's share price has been reasonably
stable. Although you will note some price fluctuations over this period, the
share price has generally centered around the $10.00 level, with movements
above and below this level being relatively moderate.
(Graphic of Bar Chart with the following information:)
<TABLE>
<CAPTION>
SHARE NET ASSET VALUE
Date Net Asset Value (In Dollars)
<C> <C>
6/16/86 9.6
9/30/86 9.82
3/31/87 10.12
9/30/87 9.11
3/31/88 9.56
9/30/88 9.67
3/31/89 9.61
9/30/89 9.76
3/31/90 9.76
9/30/90 9.67
3/31/91 9.93
9/30/91 10.15
3/31/92 10.19
9/30/92 10.48
3/31/93 10.7
9/30/93 10.95
3/31/94 10.35
9/30/94 10.2
3/31/95 10.37
9/30/95 10.55
3/31/96 10.5
9/30/96 10.49
</TABLE>
INCOME RETURN
As the table on page one illustrates, the trailing 12-month yield
distributed to shareholders, as measured against average maximum public
offering price, was running at the rate of 4.93% at September 30, 1996.
This was somewhat lower than it was a year earlier due to two
factors. The average maturity of the Trust declined slightly during the year
and more importantly a number of bonds were called or matured during the
12-month period. These were bonds issued in a much higher interest rate
environment in the 1980s and the proceeds had to be reinvested at lower
market yields.
Despite the modest decline in yield to shareholders, it must be
remembered that this income amount was the DOUBLE TAX-FREE return that
shareholders received from the Trust.
It is especially worth noting from the below chart that one would
have had to earn a substantially higher income return from a TAXABLE
investment in order to match the DOUBLE TAX-FREE amount distributed by the
Trust.
<PAGE>
(Graphic of Bar Chart with the following information:)
<TABLE>
<CAPTION>
TAX-FREE TRUST OF OREGON'S DOUBLE TAX-FREE DISTRIBUTION
RATE* AS COMPARED TO THE TAXABLE EQUIVALENT RATE AN
INVESTOR WOULD HAVE TO EARN AT VARIOUS TAX BRACKETS
Tax Bracket Taxable Equivalent Rate Double Tax-Free Distribution Rate
<C> <C> <C>
28% 7.53% 4.93%
31% 7.86% 4.93%
36% 8.47% 4.93%
39.6% 8.98% 4.93%
<FN>
* For the period 10/1/95-9/30/96
</FN>
</TABLE>
As you will note, if one were in the 28% Federal income tax bracket,
a TAXABLE return of 7.53% would have to be achieved to match the 4.93% DOUBLE
TAX-FREE return of the Trust. In the highest Federal income tax bracket of
39.6%, the equivalent return would have had to have been 8.98%. In general,
it would not have been possible for an investor to obtain such levels of
taxable return unless additional risk was taken in the form of lesser quality
or longer maturity securities, or both such elements.
COMMITMENT TO CONSISTENCY
Management is committed to providing shareholders with as consistent
results from Tax-Free Trust of Oregon as are possible to achieve, considering
prevailing market forces.
You should be aware that we are not able to eliminate completely the
market forces that swirl around us on a continuing basis.
However, as indicated, a number of investment management techniques
are used by the Trust to moderate market forces.
YOUR CONFIDENCE APPRECIATED
We again wish to emphasize that your confidence in Tax-Free Trust of
Oregon is greatly appreciated. You can be assured that management will do
everything in its power to merit your continued trust.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
<PAGE>
MANAGEMENT DISCUSSION OF TRUST PERFORMANCE
The graph below illustrates the value of $10,000 invested in Class A
shares of Tax-Free Trust of Oregon at inception of the Trust in June, 1986
and maintaining this investment through the Trust's latest fiscal year end,
September 30, 1996, as compared with a hypothetical similar size investment
in the Lehman Brothers Municipal Bond Index (the "Index") of municipal
securities and the Consumer Price Index (a cost of living index) over that
same period. The total return of the investment in the Trust is shown after
deduction of the maximum sales charge of 4% at the time of initial
investment. It also reflects deduction of the Trust's annual operating
expenses and reinvestment of monthly dividends and capital gains
distributions without sales charge. On the other hand, the Index does not
reflect any sales charge nor operating expenses but does reflect reinvestment
of interest. The performance of the Trust's other classes, first offered on
April 5, 1996, may be greater or less than the Class A shares performance
indicated on this graph, depending on whether greater or lesser sales charges
and fees were incurred by shareholders investing in the other classes.
It should also be specifically noted that the Index is nationally
oriented and consisted, over the period covered by the graph, of an unmanaged
mix of between 8,000 to 33,000 investment-grade long-term municipal
securities of issuers throughout the United States. However, the Trust's
investment portfolio consisted of a significantly lesser number of
investment-grade tax-free municipal obligations, principally of Oregon
issuers, over the same period. The maturities, market prices, and behavior of
the individual securities in the Trust's investment portfolio can be affected
by local and regional factors which might well result in variances from the
market action of the securities in the Index.
Consequently, much of the difference in performance of the Index
versus the Trust can be attributed to the lack of application of annual
operating expenses and initial sales charge to the Index. Additionally, a
portion of the difference in performance can be attributed to the different
characteristics in the single-state market of the securities in the Trust's
portfolio as compared with the national orientation of the securities in the
Index.
Since its inception, the Trust has been managed to provide as stable
a share value as possible consistent with producing a competitive income
return to shareholders. It has not been managed for maximum total return,
since one of the aims of management in structuring the portfolio of the Trust
is to reduce fluctuations in the price of the Trust's shares resulting from
changes in interest rates.
As can be observed, however, the pattern of the Trust's results and
that of the Index over the period since inception of the Trust track quite
similarly, even though they are not entirely comparable in character.
(Graphic of Line Chart with the following information:)
<TABLE>
PERFORMANCE COMPARISON
Lehman Brothers Trust After Sales Cost of
Municipal Bond Index Charge and Expenses Living Index
<C> <C> <C>
10,000 9,600 10,000
10,538 9,990 10,055
10,592 9,931 10,494
11,966 11,288 10,932
13,082 12,178 11,417
13,971 12,852 12,121
15,813 14,386 12,532
17,467 15,740 12,907
19,692 17,446 13,254
19,103 17,136 13,656
21,241 18,767 14,004
22,525 19,658 14,424
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS
(Graphic of Table with the following information:)
<TABLE>
<CAPTION>
Trust's average annual total return
For the Period Ended Life of Trust
September 30, 1996 1 Year 5 Years 10 Years Since 6/16/96
<S> <C> <C> <C> <C>
Including Sales
Charge and Expenses 0.56% 5.57% 6.57% 6.78%
</TABLE>
MANAGEMENT DISCUSSION OF TRUST PERFORMANCE (CONTINUED)
September 30, 1996 represented the end of the Trust's tenth full
fiscal year. During the twelve month period, interest rates tended to be
somewhat volatile as judged by the yield on the 30-year treasury bond with
the bias towards rising rates. At the beginning of October, 1995, the
30-year bond was yielding about 6.45 percent while at the end of the fiscal
year it was yielding about 6.90 percent, but the range for the 12-month
period was between about 6 percent on the low side to about 7.2 percent on
the high side.
In anticipation of the Federal Reserve raising short-term interest
rates in September of this year, investors were selling all types of bonds
during the late summer, and interest rates were rising. However, after there
was no increase announced when the Fed met, immediately there was a reversal
of psychology as investors again began to focus on the lack of major
inflationary pressures in the economy as well as the moderate level of
corporate business.
Similar to what we discussed in this report one year ago, private
investors have not been eager to add to their holdings of municipal bonds
whether in the form of individual bonds or in the form of bond funds.
(Casualty insurance companies for some time have been the major purchaser of
municipal debt.) The primary reason for this lack of interest appears to be
the continued rise in equity values based on steady corporate earnings in a
slow growth environment. Yields on the major blue chip equity indexes are
around 2 percent or less, but as yet, this has not caused investors to
"rediscover" bonds.
The emphasis in managing the Trust during the year was to try to
enhance relative value within the portfolio. The longest end of the yield
curve (25-30 years) was avoided due to the lack of sufficient yield pick-up
between 15-20 year bonds and 25-30 year paper. Most new purchases were in
the 15-20 year range with emphasis on bonds rated AA and AAA.
In a climate of relative low interest rates and slow growth,
municipal bonds should provide a good stable total return particularly when
adjusted for taxable equivalent returns.
<PAGE>
KPMG Peat Marwick LLP
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Tax-Free Trust of Oregon:
We have audited the accompanying statement of assets and liabilities of
Tax-Free Trust of Oregon, including the statement of investments, as of
September 30, 1996, the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used,
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Tax-Free Trust of Oregon as of September 30, 1996, the results
of its operations for the year then ended, the changes in its net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
November 8, 1996
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF OREGON
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 1996
RATING
FACE STATE OF OREGON GENERAL MOODY'S/
AMOUNT OBLIGATION BONDS (52.3%) S&P VALUE
<C> <S> <C> <C>
City of Albany (MBIA
Corporation Insured)
$ 150,000 6.400%, 11/01/1999 Aaa/AAA $ 150,320
460,000 6.500%, 11/01/2000 Aaa/AAA 460,961
2,195,000 6.625%, 11/01/2009 Aaa/AAA 2,197,722
Port of Astoria (MBIA
Corporation Insured)
410,000 6.200%, 02/01/2004 Aaa/AAA 427,938
1,250,000 6.600%, 09/01/2011 Aaa/AAA 1,364,062
City of Beaverton
910,000 5.950%, 04/01/2003 Aa/AA- 958,912
520,000 6.600%, 06/01/2003 NR/A- 540,800
960,000 6.050%, 04/01/2004 Aa/AA- 1,014,000
560,000 6.600%, 06/01/2004 NR/AA- 582,400
1,020,000 6.150%, 04/01/2005 Aa/AA- 1,077,375
500,000 5.000%, 06/01/2005 Aa/AA- 493,750
1,080,000 6.250%, 04/01/2006 Aa/AA- 1,140,750
Clackamas County School
District #115 (AMBAC Indemnity
Corporation Insured)
600,000 5.600%, 06/01/2006 Aaa/AAA 623,250
615,000 5.700%, 06/01/2007 Aaa/AAA 638,831
1,000,000 6.150%, 06/01/2014 Aaa/AAA 1,050,000
Clackamas and Washington
County School District #3J
2,000,000 5.850%, 08/01/2006 A1/AA- 2,095,000
5,000,000 5.875%, 08/01/2009 A1/AA- 5,162,500
1,150,000 5.875%, 10/01/2009 A1/AA- 1,197,438
Clackamas, Multnomah and
Washington County School
District #7J
1,000,000 7.100%, 06/15/2009 Aaa/NR 1,090,000
250,000 7.100%, 06/15/2010 Aaa/NR 272,500
1,500,000 5.700%, 06/15/2010 Aa/NR 1,530,000
Columbia Gorge Community
College District (Financial
Security Assurance Insured)
1,200,000 5.400%, 06/01/2013 Aaa/AAA 1,195,500
Deschutes and Jefferson County
School District #2J
(MBIA Corporation Insured)
3,700,000 5.600%, 06/01/2009 Aaa/AAA 3,746,250
<PAGE>
Hood River County School
District (AMBAC Indemnity
Corporation Insured)
2,000,000 5.650%, 06/01/2008 Aaa/AAA 2,057,500
Jackson County School District
#549C (Financial Security
Assurance Insured)
1,150,000 5.300% 06/01/2008 Aaa/AAA 1,148,562
Jackson County School District
#5 (Ashland) (Financial
Security Assurance Insured)
1,400,000 5.100% 06/01/2005 Aaa/AAA 1,408,750
Jefferson County School District
#509J (Financial Security
Assurance Insured)
1,750,000 5.500%, 06/15/2013 Aaa/AAA 1,747,812
Josephine County School District
#7 (Grants Pass) (Financial
Guaranty Insurance Corporation
Insured)
2,700,000 5.700% 06/01/2013 Aaa/AAA 2,720,250
Lane County School District #4J
2,000,000 5.375%, 07/01/2009 Aa/NR 2,005,000
Lane County School District
#52J (Financial Guaranty
insurance Corporation Insured)
750,000 6.400%, 12/01/2009 Aaa/AAA 812,812
Lincoln County School District
(Financial Guaranty
Insurance Corporation)
1,245,000 5.250%, 06/15/2009 Aaa/NR 1,212,318
Lincoln County (MBIA Corporation
Insured)
1,000,000 5.375%, 02/01/2010 Aaa/AAA 987,500
Malheur County Jail Bonds
(MBIA Corporation Insured)
1,345,000 6.300%, 12/01/2012 Aaa/AAA 1,435,788
Marion and Clackamas County
School District #7J (Financial
Security Assurance Insured)
1,340,000 6.000%, 06/01/2013 Aaa/AAA 1,405,325
Multnomah County
1,245,000 5.100%, 10/01/2007 Aa1/NR 1,237,219
1,000,000 5.200%, 10/01/2008 Aa1/NR 993,750
Multnomah County School
District #1
3,225,000 6.500%, 12/15/2000 Aa/A+ 3,275,148
1,180,000 6.600%, 12/15/2001 Aa/A+ 1,198,491
3,725,000 6.800%, 12/15/2004 Aa/A+ 3,780,726
<PAGE>
Multnomah County School
District #4
1,330,000 5.900%, 01/01/2005 A1/A+ 1,393,175
Multnomah County School
District #40
4,100,000 5.625%, 06/01/2012 NR/AA- 4,135,875
Metropolitan Service District
Refunding (Oregon
Convention Center)
4,320,000 6.250%, 01/01/2013 Aa/AA+ 4,487,400
Oak Lodge Water District
(AMBAC Indemnity
Corporation Insured)
215,000 7.300%, 12/01/2005 Aaa/AAA 250,206
215,000 7.300%, 12/01/2006 Aaa/AAA 248,594
215,000 7.400%, 12/01/2007 Aaa/AAA 248,325
State of Oregon
5,000,000 7.000%, 12/01/2011 Aa/AA 5,350,000
State of Oregon Alternate
Energy Project Series A
1,530,000 4.900%, 01/01/2004 Aa/AA 1,528,088
1,000,000 6.400%, 01/01/2008 Aa/AA 1,040,000
State of Oregon Board of
Higher Education
900,000 6.200%, 10/15/2007 Aa/AA 948,375
3,195,000 6.400%, 10/01/2011 Aa/AA 3,334,781
2,000,000 6.250%, 10/15/2012 Aa/AA 2,072,500
2,150,000 6.500%, 10/01/2017 Aa/AA 2,268,250
2,890,000 6.000%, 10/15/2018 Aa/AA 2,958,638
State of Oregon Elderly &
Disabled Housing
725,000 6.250%, 08/01/2013 Aa/AA 759,437
State of Oregon Veterans' Welfare
900,000 11.250%, 04/01/1998 Aa/AA 991,125
505,000 9.000%, 04/01/2008 Aa/AA 612,312
700,000 9.200%, 10/01/2008 Aa/AA 943,250
565,000 8.000%, 11/01/2012 Aa/AA 598,142
7,150,000 6.875%, 12/01/2013 Aa/AA 7,632,625
500,000 6.875%, 12/01/2014 Aa/AA 534,375
1,000,000 7.000%, 12/01/2015 Aa/AA 1,072,500
Pacific Communities Hospital
District (Financial Guaranty
Insurance Corporation Insured)
200,000 6.500%, 12/01/2003 Aaa/AAA 200,968
380,000 6.500%, 12/01/2005 Aaa/AAA 381,839
<PAGE>
Polk County School District #2
(Financial Security Assurance
Insured)
1,000,000 5.400%, 06/01/2012 Aaa/AAA 978,750
Polk, Marion, and Benton County
School District #13J (Financial
Guaranty Insurance Corporation
Insured)
1,000,000 5.500%, 12/01/2008 Aaa/AAA 1,020,000
City of Portland
1,625,000 4.500%, 11/01/2004 Aaa/NR 1,564,063
1,480,000 5.100%, 10/01/2009 Aaa/NR 1,455,950
2,000,000 7.125%, 10/01/2010 Aaa/NR 2,152,500
2,790,000 5.750%, 06/01/2013 Aaa/NR 2,859,750
2,500,000 5.250%, 06/01/2015 Aa/NR 2,471,875
2,000,000 5.600%, 06/01/2015 Aa/NR 2,012,500
Portland Community College
District
3,500,000 6.000%, 07/01/2012 A1/AA 3,600,625
Port of Portland
1,000,000 4.500%, 03/01/2006 Aa/AA+ 938,750
City of Salem
1,000,000 5.875%, 01/01/2007 A1/A+ 1,027,500
Tri-County Metropolitan
Transportation District
6,100,000 6.000%, 07/01/2012 Aa/AA+ 6,290,625
Tualatin Hills Park and
Recreation District
(MBIA Corporation Insured)
2,970,000 5.750%, 03/01/2012 Aaa/AAA 3,018,263
2,000,000 5.750%, 03/01/2015 Aaa/AAA 2,025,000
Umatilla County School District
#8R (AMBAC Indemnity
Corporation Insured)
700,000 6.100%, 12/01/2012 Aaa/AAA 728,875
Washington County
2,500,000 6.200%, 12/01/2007 Aa/AA 2,640,625
2,110,000 6.000%, 12/01/2013 Aa/AA 2,189,125
Washington County School
District #88J (Financial
Security Assurance Insured)
2,900,000 6.100%, 06/01/2012 Aaa/AAA 3,048,625
Washington and Clackamas County
School District #23J
1,675,000 6.625%, 01/01/2005 NR/NR* 1,781,781
1,000,000 5.650%, 06/01/2015 A1/NR 1,003,750
720,000 6.625%, 01/01/2008 NR/NR* 765,900
2,000,000 5.400%, 01/01/2010 A1/NR 1,975,000
<PAGE>
Washington & Multnomah County
School District #48J
1,175,000 5.500%, 06/01/2006 Aa/AA- 1,205,844
1,440,000 4.500%, 09/01/2006 Aa/AA- 1,346,400
1,130,000 5.600%, 06/01/2007 Aa/AA- 1,162,488
1,000,000 6.150%, 06/01/2008 Aa/AA- 1,045,000
1,415,000 5.700%, 06/01/2008 Aa/AA- 1,455,681
525,000 6.300%, 09/01/2009 Aaa/AAA 565,031
1,440,000 6.000%, 06/01/2011 Aa/AA- 1,495,800
2,010,000 6.500%, 09/01/2011 Aaa/AAA 2,180,850
250,000 5.750%, 09/01/2012 Aaa/AAA 259,688
Washington & Yamhill County
School District #58J
(AMBAC Indemnity Corporation
Insured)
70,000 6.600%, 11/01/2004 Aaa/AAA 70,094
80,000 6.600%, 11/01/2005 Aaa/AAA 80,097
90,000 6.600%, 11/01/2006 Aaa/AAA 90,106
Wolf Creek Highway Water Disrtict
505,000 6.900%, 12/01/2005 NR/AA 534,669
Yamhill County School District
#29J (Financial Security
Assurance Insured)
2,000,000 5.350%, 06/01/2006 Aaa/AAA 2,032,500
500,000 6.100%, 06/01/2011 Aaa/AAA 525,625
Total State of Oregon General
Obligation Bonds 160,027,695
STATE OF OREGON
REVENUE BONDS (45.6%)
Airport Revenue Bonds (2.5%)
Port of Portland Airport
(Financial Guaranty
Insurance Corporation Insured)
500,000 5.500%, 07/01/2006 Aaa/AAA 510,000
Port of Portland Airport
(MBIA Corporation Insured)
600,000 6.400%, 07/01/2003 Aaa/AAA 642,750
3,530,000 6.750%, 07/01/2009 Aaa/AAA 3,812,400
2,425,000 6.750%, 07/01/2015 Aaa/AAA 2,631,125
Total Airport Revenue Bonds 7,596,275
<PAGE>
Certificate of Participation
Revenue Bonds (10.0%)
Oregon State Department Of
Administration Services (AMBAC
Indemnity Corporation Insured)
5,805,000 5.500%, 11/01/2020 Aaa/AAA 5,667,131
Multnomah County Certificate of
Participation Health Facilities
Lease Purchase Program
1,000,000 5.200%, 07/01/2005 Aa/NR 1,015,000
Multnomah County Certificate
of Participation Juvenile
Justice Center
3,100,000 6.000%, 08/01/2012 Aa/A 3,162,000
Oregon State Department of
General Services (AMBAC
Indemnity Corporation Insured)
3,100,000 7.500%, 09/01/2015 Aaa/AAA 3,487,500
Oregon State Department of
General Services (MBIA
Corporation Insured)
2,150,000 7.050%, 01/15/2006 Aaa/AAA 2,327,375
1,250,000 5.700%, 01/15/2010 Aaa/AAA 1,259,375
2,750,000 6.200%, 11/01/2012 Aaa/AAA 2,866,875
1,150,000 7.200%, 01/15/2015 Aaa/AAA 1,265,000
1,000,000 5.500%, 01/15/2015 Aaa/AAA 985,000
550,000 5.500%, 01/15/2015 Aaa/AAA 541,750
500,000 5.800%, 03/01/2015 Aaa/AAA 503,125
600,000 7.200%, 03/01/2015 Aaa/AAA 657,000
1,000,000 5.800%, 03/01/2015 Aaa/AAA 1,006,250
2,000,000 6.250%, 11/01/2019 Aaa/AAA 2,100,000
Southwestern Oregon Community
College District (AMBAC
Indemnity Corporation Insured)
1,000,000 5.600%, 06/01/2016 Aaa/AAA 1,001,250
City of Portland Certificate
of Participation
1,100,000 7.250%, 04/01/2008 NR/NR* 1,174,250
Washington County Educational
Services, Certificates of
Participation
645,000 5.625%, 06/01/2016 A1/NR 632,906
Washington County Educational
Services, Certificates of
Participation (MBIA Corporation
Insured)
830,000 5.750%, 06/01/2025 Aaa/AAA 831,038
Total Certificate of
Participation Revenue Bonds 30,482,825
<PAGE>
Hospital Revenue Bonds (4.7%)
Clackamas Hospital Facilities
Authority (Adventist Health
System/West) (MBIA Corporation
Insured)
2,000,000 6.350%, 03/01/2009 Aaa/AAA 2,117,500
Clackamas Hospital Facilites
Authority (Kaiser Permanente)
2,400,000 6.500%, 04/01/2011 Aa3/AA 2,520,000
Clackamas Hospital Facilites
Authority (Sisters of
Providence Hospital)
500,000 6.375%, 10/01/2004 A1/AA- 541,875
Douglas County Hospital Facilities
Authority (Catholic Health)
(MBIA Corporation Insured)
535,000 5.600%, 11/15/2005 Aaa/AAA 547,038
Medford Hosptial Facilities
Authority (Rogue Valley
Health Services) (MBIA
Corporation Insured)
500,000 6.800%, 12/01/2011 Aaa/AAA 541,250
1,685,000 6.750%, 12/01/2020 Aaa/AAA 1,809,269
Western Lane County Hospital
Facilities Authority
(Sisters of St. Joseph Hospital)
(MBIA Corporation Insured)
1,000,000 5.625%, 08/01/2007 Aaa/AAA 1,025,000
1,450,000 7.125%, 08/01/2017 Aaa/AAA 1,584,125
3,765,000 5.750%, 08/01/2019 Aaa/AAA 3,774,413
Total Hospital Revenue Bonds 14,460,470
Housing, Educational, and
Cultural Revenue Bonds (8.1%)
State of Oregon Housing Finance
Agency,
1,000,000 6.800%, 07/01/2013 A1/A+ 1,043,750
State of Oregon Housing and
Community Services,
490,000 5.100%, 07/01/2007 Aa/NR 480,812
1,670,000 5.200%, 07/01/2009 Aa/NR 1,628,250
870,000 6.750%, 07/01/2012 Aa/NR 915,675
705,000 5.900%, 07/01/2012 Aa/NR 707,644
500,000 6.700%, 07/01/2013 Aa/NR 518,125
490,000 6.350%, 07/01/2014 Aa/NR 503,475
1,045,000 6.800%, 07/01/2016 Aa/NR 1,095,944
1,915,000 6.750%, 07/01/2016 Aa/NR 1,970,056
3,500,000 6.875%, 07/01/2028 Aa/NR 3,666,250
<PAGE>
State of Oregon Housing and
Community Services
(MBIA Corporation Insured),
1,500,000 5.450%, 07/01/2024 Aaa/AAA 1,410,000
State of Oregon Housing,
Educational and Cultural
Facilities Authority
(Lewis & Clark College)
(MBIA Corporation Insured)
1,130,000 7.125%, 07/01/2020 Aaa/AAA 1,252,887
State of Oregon Housing,
Educational and Cultural
Facilities Authority
(Reed College),
2,145,000 6.750%, 07/01/2021 NR/A+ 2,372,906
Oregon Health Sciences University
Revenue (AMBAC Indemnity
Corporation Insured)
4,500,000 5.250%, 07/15/2015 Aaa/AAA 4,314,375
City of Salem Educational
Facilities (Willamette
University),
1,000,000 6.000%, 04/01/2010 A/NR 1,033,750
1,740,000 6.750%, 04/01/2011 NR/NR 1,898,775
Total Housing, Educational,
and Cultural Revenue Bonds 24,812,674
Transportation Revenue
Bonds (2.9%) Port of Morrow,
2,600,000 6.375%, 04/01/2008 Aaa/NR 2,814,500
State of Oregon Department of
Transportation (Light Rail)
(MBIA Corporation Insured),
2,000,000 6.000%, 06/01/2005 Aaa/AAA 2,122,500
Port of St. Helens,
95,000 7.750%, 02/01/2006 Baa1/NR 103,788
Tri-County Metropolitan
Transportation District
3,680,000 5.700%, 08/01/2013 A1/AA 3,698,400
Total Transportation
Revenue Bonds 8,739,188
Urban Renewal Revenue Bonds (.6%)
Keiser Urban Renewal Agency,
950,000 5.400%, 07/01/2008 NR/A- 926,250
City of Portland Urban Renewal
300,000 9.000%, 12/01/2002 A/NR 306,675
City of Wilsonville Urban Renewal
500,000 5.850%, 06/01/2004 Baa1/NR 500,320
Total Urban Renewal
Revenue Bonds 1,733,245
<PAGE>
Utility Revenue Bonds (5.1%)
Emerald Peoples Utility District
(AMBAC Indemnity Corporation
Insured),
700,000 6.700%, 11/01/2005 Aaa/AAA 763,875
145,000 7.200%, 11/01/2006 Aaa/AAA 145,309
35,000 7.200%, 11/01/2006 Aaa/AAA 35,100
3,860,000 7.350%, 11/01/2013 Aaa/AAA 3,868,492
Emerald Peoples Utility District
Electic Systems (Financial
Security Assurance Insured)
1,000,000 6.750%, 11/01/2016 Aaa/AAA 1,098,750
City of Eugene Electric Utility
610,000 6.650%, 08/01/2009 A1/AA 639,737
660,000 6.650%, 08/01/2010 A1/AA 690,525
1,000,000 6.000%, 08/01/2011 A1/AA 1,017,500
700,000 6.700%, 08/01/2011 A1/AA 730,625
500,000 5.000%, 08/01/2017 A1/AA 460,000
1,400,000 5.800%, 08/01/2019 A1/AA 1,414,000
City of Eugene Trojan Nuclear
Project
3,865,000 5.900%, 09/01/2009 Aa1/AA- 3,865,000
Northern Wasco County Public
Utility Developement (AMBAC
Indemnity Corporation Insured),
1,000,000 5.625%, 12/01/2022 Aaa/AAA 991,250
Total Utility Revenue Bonds 15,720,163
Water and Sewer Revenue Bonds (9.3%)
City of Canby Sewer (Financial
Security Assurance Insured),
500,000 6.250%, 12/01/2017 Aaa/AAA 522,500
City of Eugene Water,
780,000 6.550%, 08/01/2004 A1/AA- 800,194
365,000 6.600%, 08/01/2005 A1/AA- 374,486
City of Klamath Falls Water
(Financial Security
Assurance Insured),
1,100,000 6.100%, 06/01/2014 Aaa/AAA 1,153,625
City of Oregon City Sewer,
750,000 6.875%, 10/01/2019 NR/NR* 769,688
<PAGE>
City of Portland Sewer,
2,150,000 5.100%, 03/01/2007 A1/A+ 2,133,875
1,500,000 6.050%, 06/01/2009 A1/A+ 1,584,375
City of Portland Sewer
(Financial Guaranty Insurance
Corporation Insured),
2,725,000 6.000%, 10/01/2008 Aaa/AAA 2,857,844
500,000 6.000%, 10/01/2012 Aaa/AAA 518,125
2,855,000 6.250%, 06/01/2015 Aaa/AAA 3,015,594
Portland Water System Revenue
3,000,000 5.550%, 08/01/2014 Aa1/NR 3,003,750
1,440,000 5.550%, 08/01/2015 Aa1/NR 1,436,400
Washington County Unified Sewer
Agency (AMBAC
Indemnity Corporation Insured),
1,040,000 6.800%, 11/01/2004 Aaa/AAA 1,112,800
2,120,000 5.900%, 10/01/2006 Aaa/AAA 2,228,650
1,115,000 5.900%, 10/01/2006 Aaa/AAA 1,172,144
2,500,000 6.125%, 10/01/2012 Aaa/AAA 2,612,500
750,000 6.125%, 10/01/2012 Aaa/AAA 783,750
Washington County Unified
Sewer Agency
2,195,000 7.000%, 11/01/2009 Aaa/AAA 2,359,625
Total Water and Sewer
Revenue Bonds 28,439,925
Other Revenue Bonds (2.4%)
Baker County Pollution Control
(Ash Grove Cement West Project)
(Small Business Administration
Insured),
355,000 6.200%, 07/01/2004 Aaa/NR 366,339
380,000 6.300%, 07/01/2005 Aaa/NR 392,130
Multnomah County School
District #1J
1,000,000 5.000%, 03/01/2007 Aa/A+ 981,250
State of Oregon Bond Bank
500,000 6.800%, 01/01/2011 Aaa/NR 536,250
1,000,000 6.700%, 01/01/2011 Aaa/NR 1,070,000
Oregon Economic Development
Commission (Consolidated
Freightways)
1,500,000 7.000%, 04/01/2004 Aa3/BBB- 1,506,885
<PAGE>
City of Portland
2,465,000 4.650%, 04/01/2004 Aa/NR 2,421,863
Total Other Revenue Bonds 7,274,717
Total State of Oregon
Revenue Bonds 139,259,482
Total State of Oregon 299,287,177
PUERTO RICO
Puerto Rico Housing Finance
Corporation (GNMA Collateralized)
25,000 7.800%, 10/15/2021 Aaa/AAA 26,031
Total Puerto Rico 26,031
Total Municipal Bonds - 97.9%
(Cost - $289,372,613**) 299,313,208
Other assets in excess of
liabilities - 2.1% 6,361,526
Net Assets - 100% $ 305,674,734
<FN>
(*) Any security not rated must be determined by the Investment
Adviser to have sufficient quality to be ranked in the top four
credit ratings if a credit rating were to be assigned by a rating
service.
</FN>
<FN>
(**) Cost for Federal tax purposes is $288,213,238.
</FN>
See accompanying notes to financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF OREGON
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
<S> <C>
ASSETS
Investments at value (identified cost - $289,372,613) $ 299,313,208
Cash 590,995
Interest receivable 5,494,490
Receivable for Trust shares sold 872,312
Other assets 6,227
Total assets 306,277,232
LIABILITIES
Payable for Trust shares redeemed 202,544
Dividends payable 160,706
Distribution fees payable 116,176
Adviser and Administrator fees payable 99,633
Accrued expenses 23,439
Total liabilities 602,498
NET ASSETS $ 305,674,734
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares,
par value $.01 per share $ 291,368
Additional paid-in capital 293,801,410
Undistributed net investment income 1,641,361
Net unrealized appreciation on investments 9,940,595
$ 305,674,734
CLASS A
Net Assets $ 305,096,492
Capital shares outstanding 29,081,652
Net asset value and redemption price per share $ 10.49
Offering price per share (100/96 of $10.49 adjusted
to nearest cent) $ 10.93
CLASS C
Net Assets $ 336,314
Capital shares outstanding 32,075
Net asset value and offering price per share $ 10.49
Redemption price per share (*varies by length of
time shares are held) $ *
CLASS Y
Net Assets $ 241,928
Capital shares outstanding 23,053
Net asset value, offering and redemption price per share $ 10.49
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF OREGON
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
<S> <C> <C>
INVESTMENT INCOME:
Interest income $18,016,548
Expenses:
Investment Adviser fees (note B) $615,409
Administrator fees (note B) 615,409
Distribution fees (note B) 462,368
Transfer and shareholder servicing agent fees 188,506
Legal fees 87,898
Trustees' fees and expenses (note G) 83,145
Shareholders' reports and proxy statements 67,508
Audit and accounting fees 28,350
Custodian fees (note F) 26,118
Registration fees and dues 16,161
Insurance 5,167
Miscellaneous 41,362
2,237,401
Expenses paid indirectly (note F) (26,118)
Net expenses 2,211,283
Net investment income 15,805,265
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from securities transactions 455,992
Change in unrealized appreciation on investments (2,192,001)
Net realized and unrealized gain (loss) on
investments (1,736,009)
Net increase in net assets resulting from
operations $ 14,069,256
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF OREGON
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended September 30,
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 15,805,265 $ 16,542,189
Net realized gain from securities
transactions 455,992 301,287
Change in unrealized appreciation
on investments (2,192,001) 11,027,760
Change in net assets resulting
from operations 14,069,256 27,871,236
DISTRIBUTIONS TO SHAREHOLDERS (NOTE E):
Class A Shares:
Net investment income (15,347,445) (16,257,162)
Net realized gain on investments (677,856) (1,341,034)
Class C Shares:
Net investment income (3,382) -
Net realized gain on investments (425) -
Class Y Shares:
Net investment income (4,572) -
Net realized gain on investments (306) -
Change in net assets from
distributions (16,033,986) (17,598,196)
CAPITAL SHARE TRANSACTIONS (NOTE H):
Proceeds from shares sold 22,749,791 24,616,407
Reinvested dividends and distributions 9,312,627 10,024,851
Cost of shares redeemed (34,977,054) (50,676,823)
Change in net assets from capital
share transactions (2,914,636) (16,035,565)
Change in net assets (4,879,366) (5,762,525)
NET ASSETS:
Beginning of period 310,554,100 316,316,625
End of period $ 305,674,734 $ 310,554,100
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Tax-Free Trust of Oregon (the "Trust") is a separate portfolio of the
Cascades Trust. The Cascades Trust (the "Business Trust") is an open-end
investment company, which was organized on October 17, 1985, as a
Massachusetts business trust and is authorized to issue an unlimited number
of shares. The Trust is a non-diversified portfolio which commenced
operations on June 16, 1986 and until April 5, 1996, offered only one class
of shares. On that date, the Trust began offering two additional classes of
shares, Class C and Class Y shares. All shares outstanding prior to that date
were designated as Class A shares and, as was the case since its commencement
of operations, are sold with a front-payment sales charge and bear a service
fee. Class C shares are sold with no front-payment sales charge but are
assessed a contingent deferred sales charge if redeemed within one year from
the date of purchase and a level-payment charge for service and distribution
fees from date of purchase through six years thereafter. Class Y shares are
offered only to institutions acting for investors in a fiduciary, advisory,
agency, custodial or similar capacity, are not offered directly to retail
customers, and are sold at net asset value with no sales charge, no redemption
fee, no contingent deferred sales charge and no service or distribution
fees. All classes of shares represent interests in the same portfolio of
investments and are identical as to rights and privileges but differ with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on
matters affecting a single class and the exchange privileges of each class.
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
(1) PORTFOLIO VALUATION: Municipal securities which have remaining
maturities of more than 60 days are valued each business day based
upon information provided by a nationally prominent independent
pricing service and periodically verified through other pricing
services; in the case of securities for which market quotations are
readily available, securities are valued at the mean of bid and
asked quotations and, in the case of other securities, at fair
value determined under procedures established by and under the
general supervision of the Board of Trustees. Securities which
mature in 60 days or less are valued at amortized cost if their
term to maturity at purchase was 60 days or less, or by amortizing
their unrealized appreciation or depreciation on the 61st day prior
to maturity, if their term to maturity at purchase exceeded 60
days.
(2) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and
losses from securities transactions are reported on the identified
cost basis. Interest income is recorded daily on the accrual basis
and is adjusted for amortization of premiums and accretion of
discounts of securities purchased at other than par with less than
60 days to maturity.
(3) FEDERAL INCOME TAXES: It is the policy of the Trust to qualify as a
regulated investment company by complying with the provisions of
the Internal Revenue Code applicable to certain investment
companies. The Trust intends to make distributions of income and
securities profits sufficient to relieve it from all, or
substantially all, Federal income and excise taxes.
<PAGE>
(4) ALLOCATION OF EXPENSES: Expenses, other than class-specific
expenses, are allocated daily to each class of shares based on the
relative net assets of each class. Class-specific expenses, which
include distribution and service fees and any other items that are
specifically attributed to a particular class, are charged directly
to such class.
(5) USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
NOTE B - MANAGEMENT ARRANGEMENTS AND FEES AND OTHER TRANSACTIONS WITH
AFFILIATES:
Management affairs of the Trust are conducted through two separate
management arrangements.
Qualivest Capital Management, Inc. (the "Adviser"), became Investment
Adviser to the Trust in June, 1986. In this role, under an Investment
Advisory Agreement, the Adviser supervises the Trust's investments and
provides various services to the Trust, including maintenance of the Trust's
accounting books and records, for which it is entitled to receive a fee which
is payable monthly and computed as of the close of business each day at the
annual rate of 0.20 of 1% of the net assets of the Trust.
The Trust also has an Administration Agreement with Aquila Management
Corporation (the "Administrator"), the Trust's founder and sponsor. Under
this Agreement, the Administrator provides all administrative services, other
than those relating to the management of the Trust's investments. These
include providing the office of the Trust and all related services as well as
overseeing the activities of all the various support organizations to the
Trust such as the shareholder servicing agent, custodian, legal counsel,
auditors and distributor. For its services, the Administrator is entitled to
receive a fee which is payable monthly and computed as of the close of
business each day at the annual rate of 0.20 of 1% of the net assets of the
Trust.
Specific details as to the nature and extent of the services provided by
the Adviser and the Administrator are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
The Adviser and the Administrator each agrees that the above fees 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 payment of the above fees at the end of any month will
be reduced or postponed so that at no time will there be any accrued but
unpaid liability under this expense limitation. No such reduction in fees was
required during the year ended September 30, 1996.
<PAGE>
For the year ended September 30, 1996, the Trust incurred fees under the
Advisory Agreement and Administration Agreement of $615,409 and $615,409,
respectively.
Under a Distribution Agreement, Aquila Distributors, Inc. (the
"Distributor") serves as the exclusive distributor of the Trust's shares.
Through agreements between the Distributor and various broker-dealer firms
("dealers"), the Trust's shares are sold primarily through the facilities of
these dealers having offices within Oregon, with the bulk of sales
commissions inuring to such dealers. For the year ended September 30, 1996,
the Distributor received sales commissions in the amount of $69,664.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part
of the Plan, with respect to Class A Shares, the Trust is authorized to make
service fee payments to 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 contemplated by the
Rule and which have rendered assistance in the distribution and/or retention
of the Trust's shares or servicing of shareholder accounts ("Qualified
Recipients"). The Trust makes payment of this service fee at the annual rate
of 0.15% of the Trust's average net assets represented by Class A Shares. For
the year ended September 30, 1996, service fees on Class A Shares amounted to
$461,538, of which the Distributor received $9,987.
Under another part of the Plan, the Trust is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Trust's Class C shares
or servicing of shareholder accounts. These payments are made at the annual
rate of 0.75% of the Trust's net assets represented by Class C Shares and for
the period April 5, 1996 through September 30, 1996, amounted to $623, of
which the Distributor received $623.
In addition, under a Shareholder Services Plan, the Trust is authorized
to make service fee payments with respect to Class C Shares to Qualified
Recipients for providing personal services and/or maintenance of shareholder
accounts. These payments are made at the annual rate of 0.25% of the Trust's
net assets represented by Class C Shares and for the period April 5, 1996
through September 30, 1996, amounted to $207, of which the Distributor
received $207.
Specific details about the Plans are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
NOTE C - PURCHASES AND SALES OF SECURITIES:
During the year ended September 30, 1996, purchases of securities and
proceeds from the sales of securities aggregated $30,246,084 and $30,243,326,
respectively.
At September 30, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $11,861,153 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to
$761,183 for a net unrealized appreciation of $11,099,970.
<PAGE>
NOTE D - PORTFOLIO ORIENTATION:
Since the Trust invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Oregon, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Oregon and whatever
effects these may have upon Oregon issuers' ability to meet their
obligations. One such development, Measure 5, a 1990 amendment to the the
Oregon Constitution, limits the taxing and spending authority of certain
Oregon governmental entities. Although it may have an adverse effect on the
general financial condition of these entities and may impair the ability of
certain Oregon issuers' to pay interest and principal on their obligations,
experience over the history of the amendment would indicate a low probability
of this happening.
NOTE E - DISTRIBUTIONS:
The Trust declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share or in
cash, at the shareholder's option. Net realized capital gains, if any, are
distributed annually.
The Trust intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net
investment income to be exempt from regular Federal and State of Oregon
income taxes. However, due to differences between financial reporting and
Federal income tax reporting requirements, distributions made by the Trust
may not be the same as the Trust's net investment income, and/or net realized
securities gains. Further, a small portion of the dividends may, under some
circumstances, be subject to ordinary income taxes. Also, annual capital
gains distributions, if any, are taxable.
NOTE F - CUSTODIAN FEES:
The Trust has negotiated an expense offset arrangement with its
custodian, wherein it receives credit toward the reduction of custodian fees
whenever there are uninvested cash balances. During the year ended September
30, 1996, the Trust's custodian fees amounted to $26,118, all of which was
offset by such credits. The Trust could have invested its cash balances in an
income-producing asset if it had not agreed to a reduction in fees under the
expense offset arrangement with the custodian.
NOTE G - TRUSTEES' FEES AND EXPENSES:
During the fiscal year from October 1, 1995 through September 30, 1996,
there were eight Trustees. Trustees' fees paid during the year were at the
annual rate of $6,000 for carrying out their responsibilities and attendance
at regularly scheduled Board Meetings. If additional or special meetings are
scheduled for the Trust, separate meeting fees are paid for each such meeting
to those Trustees in attendance. The Trust also reimburses Trustees for
expenses such as travel, accommodations, and meals incurred in connection
with attendance at regularly scheduled or special Board Meetings and at the
Annual Meeting and outreach meetings of Shareholders. For the fiscal year
ended September 30, 1996 such reimbursements averaged approximately $5,400
per Trustee. Two of the Trustees, who are affiliated with the Administrator,
are not paid any Trustee fees.
<PAGE>
NOTE H - CAPITAL SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
Transactions in Capital Shares of the Trust were as follows:
Year Ended Year Ended
September 30, 1996 September 30, 1995
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from
shares sold 2,096,132 $ 22,163,379 2,396,282 $ 24,616,407
Reinvested
dividends and
distributions 882,366 9,306,631 978,995 10,024,851
Cost of shares
redeemed (3,319,853) (34,956,474) (4,963,693) (50,676,823)
Net change (341,355) $ (3,486,464) (1,588,416) $ (16,035,565)
<CAPTION>
Period Ended
September 30, 1996*
Shares Amount
<S> <C> <C>
CLASS C SHARES:
Proceeds from shares
sold 32,006 $ 331,098
Reinvested dividends
and distributions 69 724
Cost of shares
redeemed - -
Net change 32,075 $ 331,822
<CAPTION>
Period Ended
September 30, 1996*
Shares Amount
<S> <C> <C>
CLASS Y SHARES:
Proceeds from shares
sold 24,548 $ 255,314
Reinvested dividends
and distributions 505 5,272
Cost of shares redeemed (2,000) (20,580)
Net change 23,053 $ 240,006
<S> <C> <C> <C> <C>
Total transactions in
Trust shares (286,227) $ (2,914,636)(1,588,416) $ (16,035,565)
<FN>
* From April 5, 1996 (date of inception) through September 30, 1996.
</FN>
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
Class C(2)Class Y(2) Class A(1)
Period ended Year ended September 30,
September 30, 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value,
Beginning of
Period $10.34 $10.34 $10.55 $10.20 $10.95 $10.48 $10.15
Income from
Investment
Operations:
Net investment
income 0.22 0.27 0.54 0.55 0.56 0.58 0.65
Net gain (loss)
on securities
(both realized
and unrealized) 0.15 0.15 (0.05) 0.39 (0.75) 0.50 0.29
Total from
Investment
Operations 0.37 0.42 0.49 0.94 (0.19) 1.08 0.94
Less Distributions:
Dividends from
net investment
income (0.22) (0.27) (0.54) (0.55) (0.56) (0.58) (0.61)
Distributions from
capital gains - - (0.01) (0.04) - (0.03) -
Total Distributions (0.22) (0.27) (0.55) (0.59) (0.56) (0.61) (0.61)
Net Asset Value,
End of Period $10.49 $10.49 $10.49 $10.55 $10.20 $10.95 $10.48
Total Return
(not reflecting
sales charge) (%) 3.61# 4.14# 4.76 9.52 (1.77) 10.64 9.51
Ratios/Supplemental
Data
Net Assets,
End of Period
($ thousands) 336 242 305,096 310,554 316,317 331,018 249,953
Ratio of Expenses
to Average
Net Assets (%) 1.56* 0.57* 0.72 0.71 0.68 0.66 0.66
Ratio of Net
Investment Income
to Average Net
Assets (%) 4.18* 5.36* 5.16 5.38 5.28 5.46 5.87
Portfolio Turnover
Rate (%) 10 10 10 13 11 8 11
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary waiver
of fees and the expense offset in custodian fees for uninvested cash balances
would have been:
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment
Income ($) 0.22 0.27 0.54 0.55 0.56 0.58 0.65
Ratio of Expenses
to Average Net
Assets (%) 1.56* 0.58* 0.73 0.73 0.70 0.68 0.66
Ratio of Net
Investment Income
to Average Net
Assets (%) 4.17* 5.35* 5.15 5.37 5.26 5.44 5.87
<FN>
(1) Designated as Class A Shares on April 5, 1996.
</FN>
<FN>
(2) New Class of Shares established on April 5, 1996.
</FN>
<FN>
# Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement of
the Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF SHAREHOLDERS
IS REQUIRED.
For the fiscal year ended September 30, 1996, of the total amount of
dividends paid by Tax-Free Trust of Oregon from net investment income, 99.50%
was "exempt-interest dividends" and the balance was ordinary dividend income.
The Fund hereby designates $15,278,307 as an exempt-interest dividend for
its fiscal year ended September 30, 1996. The Fund also designates $678,587
as a capital gain dividend for Federal income tax purposes, for its fiscal
year ended September 30, 1996 which is taxable as a long-term capital gain.
Prior to January 31, 1997, shareholders will be mailed IRS Form 1099-DIV
which will contain information on the status of distributions paid for the
1996 CALENDAR YEAR.
REPORT ON THE ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS (UNAUDITED)
SPECIAL MEETINGS. A Special Meeting of Shareholders of the Tax-Free Trust of
Oregon (the "Trust") was held on November 27, 1995.1 At the meeting, the
shareholders voted upon and approved an amendment to the Trust's Declaration
of Trust to authorize the creation of additional classes of shares (votes
for: 14,788,047 (88.3%); votes against: 933,138 (5.6%); abstentions:
1,029,891 (6.1%); broker non-votes: 0 (0.0%)).
Special Meetings of the Trust's Class C and Class Y Shareholders were held on
April 4, 1996.2 At the Special Meeting of Class C Shareholders of the Trust,
the Class C Shareholders voted on and unanimously approved amendments to the
Trust's Distribution Plan affecting the interests of the Class C Shareholders
of the Trust. At the Special Meeting of Class Y Shareholders of the Trust,
the Class Y Shareholders voted on and unanimously approved amendments to the
Trust's Distribution Plan affecting the interests of the Class Y Shareholders
of the Trust.
ANNUAL MEETING. The Annual Meeting of Shareholders of the Trust was held on
April 22, 1996. At the meeting, the following matters were submitted to a
shareholder vote3 and approved: (i) the election of Lacy B. Herrmann, Vernon
R. Alden, Warren C. Coloney, James A. Gardner, Diana P. Herrmann, Ann R.
Leven, Raymond H. Lung, and Richard C. Ross as Trustees to hold office until
the next annual meeting of the Trust's shareholders or until his or her
successor is duly elected (each Trustee received at least 20,616,921
affirmative votes (96.06%); no more than 846,258 votes (3.94%) were withheld
for any Trustee), and (ii) the ratification of the selection of KPMG Peat
Marwick LLP as the Trust's independent auditors for the fiscal year ending
September 30, 1996 (votes for: 20,587,167 (95.92%); votes against: 63,210
(0.29%); abstentions: 812,802 (3.79%); broker non-votes: 0 (0.00%)).
______________________
1 On the record date for this meeting, 29,441,928 shares of the Trust were
outstanding and entitled to vote and the holders of 16,751,076 shares (56.9%)
entitled to vote were present in person or by proxy at the meeting.
2 On the record dates for the Special Meetings, the total net asset values
of the Class C and Class Y Shares of the Trust outstanding and entitled to
vote were $100 and $100, respectively. The holders of all Class C and Class Y
Shares entitled to vote were present in person at the meetings.
3 On the record date for this meeting, 29,147,020 shares of the Trust were
outstanding and entitled to vote. The holders of 21,463,179 shares (73.64%)
entitled to vote were present in person or by proxy at the meeting.
