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
Class A Shares
Class C Shares April 5, 1996
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 of 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 & 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, insurance agency and credit life insurance services,
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 17.
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the redemption
proceeds of the shares (or on the original price, whichever is lower)
if redeemed during the first 12 months after purchase.
</FN>
<FN>
(3) Estimated based upon amounts incurred by the 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 the ability of 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.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By purchasing
Class C Shares, you will pay a sales charge over a period of six
years after purchase but without paying anything at time of
purchase, much as goods can be purchased on an installment plan.
You are subject to a conditional deferred sales charge, described
below, but only if you redeem your Class C Shares before they have
been held 12 months from your purchase. (See "Computation of
Holding Periods for Class C Shares.")
Class A Shares, "Front-Payment Class Shares," are offered
to anyone at net asset value plus a sales charge, paid at
the time of purchase, at the maximum rate of 4.0% of the
public offering price, with lower rates for larger
purchases. Under the 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.")
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, whichever is less. The amount of any CDSC
will be paid to the Distributor. The CDSC does not apply
to shares acquired through the reinvestment of dividends
on Class C Shares or to any Class C Shares held for more
than 12 months after purchase. 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 the 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. "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. "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 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 at 0.40 of 1%
of such net asset value; see below.) 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's 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 December 31, 1995, the Adviser had under management
nearly $8.8 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 Fund or into shares of the
Money-Market Funds. Class C Shares can be exchanged only into Class
C Shares of any Bond or Equity Fund that offers Class C Shares or
into shares of the Money-Market Funds. At the date of the
Prospectus, it is expected that all of the Bond and Equity Funds
will offer Class C Shares by April 30, 1996.
Class A Shares Exchange Privilege
Under the Class A Shares exchange privilege, once any
applicable sales charge has been paid on Class A Shares of any Bond
or Equity Fund, those shares (and any shares acquired as a result
of reinvestment of dividends and/or distributions) may be exchanged
any number of times between Money-Market Funds and Bond or Equity
Funds without the payment of any additional sales charge.
CDSC Class A Shares of the 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 Shares exchange privilege, Class C Shares
(and any shares acquired as a result of reinvestment of dividends
and/or distributions) may be exchanged any number of times between
Money-Market Funds and for Class C Shares of Bond or Equity Funds.
Class C Shares will not be subject to a contingent deferred sales
charge at the time of exchange, but the contingent deferred sales
charge will be payable upon redemption which occurs before the
expiration of the applicable holding period of any Class C Shares
or any shares of a Money-Market Fund received on exchange for Class
C Shares. (The contingent deferred sales charge does not apply to
any shares acquired as a result of reinvestment of dividends and/or
distributions.) For purposes of computing the time period for the
applicable contingent deferred sales charge or for the conversion
of Class C Shares into Class A Shares, the length of time of
ownership of Class C shares will be determined by time of original
purchase and not by the time of the exchange. Any period of 30 days
or more during which any Money-Market shares received on an
exchange of Class C Shares are held is not counted in computing the
period of ownership of Class C Shares. (See "Alternative Purchase
Plans.")
Eligible Shares
The "Class A Eligible Shares" of any Bond or Equity Fund are
those Class A Shares which were (a) acquired by direct purchase
with payment of any applicable sales charge, or which were received
in exchange for shares of another Bond or Equity Fund on which any
applicable sales charge was paid; (b) acquired by exchange for
shares of a Money-Market Fund with payment of the applicable sales
charge; (c) acquired in one or more exchanges between shares of a
Money-Market Fund and a Bond or Equity Fund so long as the shares
of the Bond or Equity Fund were originally purchased as set forth
in (a) or (b); (d) acquired on conversion of Class C Shares or (e)
acquired as a result of reinvestment of dividends and/or
distributions on otherwise Class A Eligible Shares.
The "CDSC Class A Eligible Shares" of any Bond or Equity Fund
are those CDSC Class A Shares which were (a) acquired by direct
purchase in the amount of $1 million or more without a sales charge
or in certain purchases when Special Dealer Arrangements are in
effect or which were received in exchange for CDSC Class A Shares
of another Bond or Equity Fund acquired under the same conditions;
(b) acquired by exchange for shares of a Money-Market Fund under
the same conditions; (c) acquired in one or more exchanges between
shares of a Money-Market Fund and a Bond or Equity Fund so long as
the shares of the Bond or Equity Fund were originally purchased as
set forth in (a) or (b); or (d) acquired as a result of
reinvestment of dividends and/or distributions on otherwise CDSC
Class A Eligible Shares.
The "Class C Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange from a Money-Market Fund, or which were received in
exchange for shares of Class C Shares of another Bond or Equity
Fund; or (b) acquired as a result of reinvestment of dividends
and/or distributions on otherwise Class C Eligible Shares.
If you own Class A or Class C Eligible Shares of any Bond or
Equity Fund, you may exchange them for shares of any Money Market
Fund or the Class A or Class C Shares, respectively, of any other
Bond or Equity Fund without payment of any sales charge or CDSC.
The shares received will continue to be Class A or Class C Eligible
shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class A Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares acquired
as a result of reinvestment of dividends and/or distributions on
these shares, for Class A Shares of any Bond or Equity Fund without
payment of any sales charge.
If you own shares of a Money-Market Fund which you have
acquired by exchange for CDSC Class A Eligible Shares of any Bond
or Equity Fund, you may exchange these shares, and any shares
acquired as a result of reinvestment of dividends and/or
distributions on these shares, for CDSC Class A shares of any Bond
or Equity Fund but you will be required to pay the applicable
contingent deferred sales charge if you redeem such shares before
you have held CDSC Class A Shares for four years. You will also be
required to pay the applicable contingent deferred sales charge if
you redeem such shares of a Money-Market Fund before you have held
CDSC Class A Shares for four years. The running of the four-year
period is suspended during the period you hold shares of a
Money-Market Fund received in exchange for CDSC Class A Shares.
If you own shares of a Money-Market Fund which you have
acquired by exchange for Class C Eligible Shares of any Bond or
Equity Fund, you may exchange these shares, and any shares acquired
as a result of reinvestment of dividends and/or distributions on
these shares, for Class C Shares of any Bond or Equity Fund, but
you will be required to pay the applicable contingent deferred
sales charge if you redeem such Class C shares before you have held
Class C Shares for 12 months. You will also be required to pay the
applicable contingent deferred sales charge if you redeem such
shares of a Money-Market Fund before you have held Class C Shares
for 12 months. The running of the 12-month CDSC period and the
six-year conversion period for Class C Shares is suspended during
the period you hold shares of a Money-Market Fund received in
exchange for Class C Shares. (See "Alternative Purchase Plans.")
Shares of a Money-Market Fund may be exchanged for shares of
another Money-Market Fund or for Class A Shares or Class C Shares
of a Bond or Equity Fund; however, if the shares of a Money-Market
Fund were not acquired by exchange of Eligible Shares of a Bond or
Equity Fund or of shares of a Money-Market Fund acquired in such an
exchange, they may be exchanged for Class A Shares of a Bond or
Equity Fund only upon payment of the applicable sales charge.
This 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 the Trust are entitled to share
pro-rata in the net assets of the Trust available for distribution
to shareholders (and in the assets of the Business Trust otherwise
available to shareholders of the Trust), in accordance with the
respective net asset values of the shares of each of the Trust's
classes at that time. All shares are presently divided into three
classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the 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 800-872-6734.
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
Tel.# 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:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2
PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate method of payment (For either method, make check
payment to: 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 2
Table Of Expenses 5
Financial Highlights 6
Introduction 7
Investment Of The Trust's Assets 7
Investment Restrictions 12
Net Asset Value Per Share 13
Alternative Purchase Plans 13
How To Invest In The Trust 16
How To Redeem Your Investment 23
Automatic Withdrawal Plan 26
Management Arrangements 26
Dividend And Tax Information 29
Exchange Privilege 33
General Information 36
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>
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
Institutional Class Shares
Class Y Shares April 5, 1996
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 of 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 & 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, insurance agency and credit life insurance services,
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 the ability of 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 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 at 0.40 of 1% of such net
asset value; see below.). 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's 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 December 31, 1995, the Adviser had under
management nearly $8.8 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 Y Shares were outstanding
during that period.) The percentage of income designated as
tax-exempt for any particular dividend may be different from the
percentage of the 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 Class Y Shares of
another Bond or Equity Fund; or (b) acquired as a result of
reinvestment of dividends and/or distributions on otherwise Class
Y Eligible Shares. Shares of a Money-Market Fund not acquired in
exchange for Class Y Eligible Shares of a Bond or Equity Fund can
be exchanged for Class Y Shares of a Bond or Equity Fund only by
persons eligible to make an initial purchase of Class Y Shares.
This 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 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 the Trust are entitled to share
pro-rata in the net assets of the Trust available for
distribution to shareholders (and in the assets of the Business
Trust otherwise available to shareholders of the Trust), in
accordance with the respective net asset values of the shares of
each of the Trust's classes at that time. All shares are
presently divided into three classes; however, if they deem it
advisable and in the best interests of shareholders, the Board of
Trustees of the 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
800-872-6734.
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's
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
Tel.# 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:________________________
Employer's Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are
a non-U.S. Citizen or resident and not subject to back-up withholding
(See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2
PURCHASES OF SHARES
A. INITIAL INVESTMENT
Indicate Method of Payment (For either method, make check
payable to: 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 2
Table Of Expenses 4
Financial Highlights 5
Introduction 6
Investment Of The Trust's Assets 6
Investment Restrictions 11
Net Asset Value Per Share 12
How To Invest In The Trust 12
How To Redeem Your Investment 14
Automatic Withdrawal Plan 17
Management Arrangements 17
Dividend And Tax Information 20
Exchange Privilege 23
General Information 25
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>
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:
581 Main Street, 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
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 19
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 21
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 21
Additional Information as to Management Arrangements . . . . . 27
Computation of Net Asset Value . . . . . . . . . . . . . . . . 31
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 32
Additional Tax Information . . . . . . . . . . . . . . . . . . 33
Conversion of Class C Shares . . . . . . . . . . . . . . . . . 33
General Information . . . . . . . . . . . . . . . . . . . . . 34
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: . . . . . . . . . . . . . . . . . . . . . . . . . 1.1%
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
Although it does not currently use such instruments, 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.
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 of
shares. 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. 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.
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 Class
Shares ("Class A 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 Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Front Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, 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 Class Shares. Such
payments shall be made only out of the Trust's assets allocable
to the Front Payment Class Shares. The Distributor shall have
sole authority (i) as to the selection of any Qualified Recipient
or Recipients; (ii) not to select any Qualified Recipient; and
(iii) the amount of Class A Permitted Payments, if any, to each
Qualified Recipient provided that the total Class A Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above.
The Distributor is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by
it, the following: (a) the amount of the Qualified Holdings of
the Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the 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 Class Shares (or of any
predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level Payment Class Shares and/or of any other class whose
shares are convertible into Front Payment Class Shares. Part I
has continued, and will, unless terminated as 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 Class
Shares ("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 Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, 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 Shares. Such
payments shall be made only out of the Trust's assets allocable
to the Level Payment Class Shares. The Distributor shall have
sole authority (i) as to the selection of any Qualified Recipient
or Recipients; (ii) not to select any Qualified Recipient; and
(iii) the amount of Class C Permitted Payments, if any, to each
Qualified Recipient provided that the total Class C Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above. The Distributor is authorized, but not directed, to
take into account, in addition to any other factors deemed
relevant by it, the following: (a) the amount of the Qualified
Holdings of the Qualified Recipient; (b) the extent to which the
Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of Level
Payment Class Shares, including without limitation, any or all of
the following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the 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 Class Shares. 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
Trust 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 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 shareholders
of Level Payment Class Shares and/or maintenance of Level Payment
Class Shares shareholder accounts. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level Payment Class
Shares beneficially owned by such Qualified Recipient's
customers, clients or other contacts. "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 Trust's Board of
Trustees, 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 Shares. Such payments shall be made only
out of the Trust's assets allocable to the Level Payment Class
Shares. The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Fees, if any, paid to each Qualified Recipient,
provided that the total Service Fees paid to all Qualified
Recipients may not exceed the amount set forth above and
provided, further, that no Qualified Recipient may receive more
than 0.25 of 1% of the average annual net asset value of shares
sold by such Recipient. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient and (b) the extent
to which the Qualified Recipient has, at its expense, taken steps
in the shareholder servicing area with respect to holders of
Level Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the 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 Services Plan or in any agreements related to
the Services Plan (the "Independent Trustees"), with votes cast
in person at a meeting called for the purpose of voting on the
Services Plan. It 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 Services 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 [Sub-Adviser--CCMT
only] 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.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Trust Group serves
<S> <C> <C> <C>
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
</TABLE>
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 Class A or Class Y
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 Shares ("Class C Shares") of the Trust,
which you hold will automatically convert to Front Payment Class
Shares ("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) convert to Class A Shares,
a pro-rata portion of the Class C Shares in the sub-account will
also convert to Class A Shares. The portion will be determined by
the ratio that your Class C Shares then converting to Class A
Shares bears to the total of your Class C Shares not acquired
through reinvestment of dividends and distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the
dividends and other distributions paid on Class A Shares and
Class C Shares will not result in "preferential dividends" under
the Code; and (2) the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available,
the Class C Shares of the 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 Shares shareholders,
Class C Shares will stop converting into Class A Shares unless a
majority of Class C Shares shareholders, voting separately as a
class, approve the proposal.
GENERAL INFORMATION
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. As of the date of this Additional Statement, the Trust
is the only operational Series of the Business Trust.
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.
Standard & Poor's ratings for municipal note issues are
designated SP in order to help investors distinguish more clearly
the credit quality of notes as compared to bonds. Notes bearing
the designation SP-1 are deemed very strong or to have strong
capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics will be given a
plus (+) designation. Notes bearing the designation SP-2 are
deemed to have a satisfactory capacity to pay principal and
interest.
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
