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 JANUARY 31, 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 January 31, 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 - Only those municipal obligations will be acquired
which, at the time of purchase, are within the four highest credit ratings
assigned by Moody's Investors Service, Inc. or Standard and Poor's
Corporation, or are determined by the Adviser to be of comparable quality. In
general there are nine separate credit ratings, ranging from the highest to
the lowest credit ratings for municipal obligations. Obligations within the
top four ratings are considered investment grade, but those in the fourth
rating may have speculative characteristics as well. (See "Investment of the
Trust's Assets.")
INITIAL INVESTMENT - You may open your account with any purchase of
$1,000 or more or by opening an Automatic Investment Program which makes
purchases of $100 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.)
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.
(See "Dividend and Tax 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.")
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.")
DISTRIBUTION PLAN - The Trust's Distribution Plan authorizes the
payment by the Trust of an asset retention service fee of an annual rate of
0.15 of 1% of all of the Trust's average annual net assets. Before July 1,
1995, payments were authorized at the rate of 0.05 of 1% of average annual
net assets up to $360 million of assets and payments at that rate began July
1, 1994. The increased distribution payments were accompanied by matching
reductions in fees payable to the Adviser and Administrator under the
Advisory Agreement and Administration Agreement from 0.25 of 1% to 0.20 of 1%
of the Trust's average annual net assets. The combined payments of these fees
will accordingly remain at the current level of 0.55 of 1% of the Trust's
average annual net assets with respect to all of the Trust's net assets. (See
"Distribution Plan.")
LOCAL PORTFOLIO MANAGEMENT - Qualivest Capital Management, Inc., a
subsidiary of U.S. Bancorp ("Bancorp") and its subsidiary, United States
National Bank of Oregon (USNB), serves as the Trust's Investment Adviser,
providing experienced local professional management. The Trust pays fees at a
rate of 0.20% of 1% of average annual net assets to its Adviser and fees at
the same rate to its Administrator (for total fees at a rate of 0.40 of 1% of
average annual net assets). (See "Table of Expenses", "Distribution Plan" and
"Management Arrangements.") Bancorp is a $21 billion superregional financial
services holding company organized under the laws of Oregon in 1968. USNB,
headquartered in Portland, is a national banking association chartered in
1891. Other services of Bancorp and its subsidiaries include consumer
financing, commercial finance, international banking, investment advisory,
discount brokerage and venture capital.
REDEMPTIONS - LIQUIDITY - You may redeem any amount of your account on
any business day at the next determined net asset value by telephone, FAX or
mail request, with proceeds being sent to a predesignated financial
institution, if you have elected Expedited Redemption. Proceeds will be wired
or transferred through the facilities of the Automated Clearing House,
wherever possible, upon request, if in an amount of $1,000 or more, or will
be mailed. For these and other redemption procedures see "How to Redeem Your
Investment." There is a contingent deferred sales charge with respect to
certain shares which have been purchased in amounts of $1 million or more
(see "Purchase of $1 Million or More"). Otherwise, there are no penalties or
redemption fees.
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 shares of the Trust into shares of other
Aquila sponsored tax-free municipal bond mutual funds or an equity fund. You
may also exchange them into shares of certain 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, when shares are redeemed the proceeds may be
more or less than 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
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<S> <C>
Maximum Sales Charge Imposed on Purchases 4.00%
Maximum Sales Charge Imposed on Reinvested Dividends 0%
Deferred Sales Charge## 0%
Redemption Fees++ 0%
Exchange Fee 0%
<CAPTION>
ANNUAL TRUST OPERATING EXPENSES*
(as a percentage of average net assets)
<S> <C>
Investment Advisory Fee 0.20%
12b-1 Fee (Service fee) 0.15%
All Other Expenses# 0.36%
Administration Fee 0.20%
Other Expenses# 0.16%
Total Trust Operating Expenses# 0.71%
Example+ 1 year 3 years 5 years 10 years
You would pay the following expenses
on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption
at the end of each time period ............. $47 $62 $78 $125
<FN>
* Based on amounts incurred during the most recent fiscal year of the
Trust, restated to reflect new arrangements.
</FN>
<FN>
# Absent expense offset in custodian fees for uninvested cash balances,
other expenses would have been incurred at the rate of 0.18% of average net
assets and all other expenses would have been 0.38%. Absent this offset,
total Trust operating expenses would have been incurred at the annual rate of
0.73%.
</FN>
<FN>
## Certain Shares purchased in transactions of $1 million or more without a
sales charge, may be subject to a contingent deferred sales charge. See
"Purchase of $1 Million or More" on page 14.
</FN>
<FN>
++Certain Shares purchased before July 1, 1995 in transactions of $1
million or more may be subject to a redemption fee. (See "Purchase of $1
Million or More.")
</FN>
<FN>
+ The expense example is based upon the above shareholder transaction
expenses (a sales charge of $40 for a $1,000 investment) and annual Trust
operating expenses (0.71% of average net assets). It is also based upon an
amount at the beginning of each year which includes the prior years assumed
results. A years results consist of an assumed 5% annual return less
expenses at a 0.71% annual rate; the expense ratio was applied to an assumed
average balance (the years starting investment plus one-half the years
results). Each column 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% RATE FOR PURPOSES OF PREPARING THE ABOVE EXAMPLE. THE EXAMPLE ALSO
REFLECTS THE MAXIMUM SALES CHARGE. IN GENERAL, DECREASING SALES CHARGE RATES
APPLY AS INVESTMENT SIZE INCREASES. (SEE "HOW TO INVEST IN THE TRUST").
The purpose of the above table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly
or indirectly. (See "Management Arrangements" for a more complete description
of the various investment advisory and administration fees.) Nor should the
assumed 5% annual return be interpreted as a prediction of an actual return,
which may be higher or lower.
<PAGE>
<TABLE>
<CAPTION>
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,
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
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 without the Advisers and Administrators voluntary waiver
of fees and the 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>
Year Ended September 30,
<C> <C> <C> <C> <C>
1990 1989 1988 1987 1986*
$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%(1)
$140,713 $122,096 $102,361 $92,990 $36,117
0.71% 0.76% 0.80% 0.55% 0.61%(2)
6.55% 6.61% 6.77% 6.88% 6.33%(2)
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%(2)
6.53% 6.59% 6.75% 6.60% 5.73%(2)
<FN>
* For the period from June 16, 1986 (commencement of operations) to September
30, 1986.
</FN>
<FN>
(1) Not annualized.
</FN>
<FN>
(2) 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 this 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.
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
determine d 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 may go down; if these rates go down, the value
of these obligations may 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.
RISKS AND SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN OREGON OBLIGATIONS
The following is a discussion of the general factors that might
influence the ability of Oregon issuers to repay principal and interest when
due on the Oregon Obligations contained in the portfolio of the Trust. Such
information is derived from sources that are generally available to investors
and is believed by the Trust to be accurate, but has not been independently
verified and may not be complete.
Oregon's economy is substantially diversified among many industries. The
lumber and forest products industry, an industry highly susceptible to
recessionary cycles, has long been a significant component of the State's
economy. However, a political environment supporting the reduction of logging
on public lands has taken its toll on this industry and the pursuit of
protection for the spotted owl and wild salmon runs have severely curtailed
logging in certain areas.
As employment in the lumber and forest products industries has declined,
other industries have been picking up the slack. 1994 saw many manufacturing
plants lured to the State. The ultimate decision of whether to locate in the
State depends on a company's ability to secure property tax breaks from the
county in which its plant will be located. A relatively new State property
tax exemption program grants counties the right to offer property tax breaks
for new plants costing more than $100 million to build. The principal sources
of State tax revenues are the personal income and corporate income taxes;
Oregon does not have a sales tax. Recent attempts to institute a sales tax
have been unsuccessful. A recent attempt to introduce a "transaction tax" was
unsuccessful. As a result, State tax revenues are particularly sensitive to
economic recessions.
In addition to general obligation bonds, the State and its political
subdivisions issue revenue obligations payable from specific projects or
sources, including lease rentals. There can be no assurance that a material
downturn in the State's economy, with the resulting impact on the financial
strength of State and local entities, will not adversely affect obligors of
the obligations held in the Trust's portfolio to make the required payments
on these obligations, and consequently, the market value of such obligations.
Additionally, certain municipal securities held by the Trust may rely in
whole or in part for repayment on ad valorem property taxes. There are
existing limits under Oregon State law on the issuance of bonds supported by
such taxes. In recent years several voter initiatives have sought to amend
the State Constitution to "freeze" or roll back such taxes. On November 6,
1990, Oregon voters approved a property tax limitation measure. The adoption
of the tax limitation measure may have an adverse effect on the general
financial condition of cities, counties, school districts and other districts
and may in some cases impair their ability to pay principal and interest on
obligations. The tax limitation measure does permit tax levies to pay
interest and principal on bonds issued on or before November 6, 1990, as well
as indebtedness authorized by the Oregon Constitution (bonds issued by the
State of Oregon under specific constitutional provisions), and general
obligation bonds approved by the voters for capital construction or
improvements. (See the Additional Statement for information about the tax
limitation measure.)
At present, it is difficult to assess the impact of the tax limitation
measure, in part, because it will not be fully phased in until 1995-1996. In
addition, the effect of this measure is also dependent on whether alternative
revenue sources are obtained and, if so, the type and amount of such
revenues. The adoption of the tax limitation measure may have an adverse
effect on the general financial condition of affected cities, counties,
school districts and other districts, AND MAY, IN SOME CASES, IMPAIR THEIR
ABILITY TO PAY OBLIGATIONS OTHER THAN GENERAL OBLIGATION BONDS. In addition,
the adoption of the tax limitation measure will require the Legislature to
provide funds from its general fund to replace tax revenues lost by the
public school system through fiscal year 1995-96. This could have an adverse
effect on the State's credit rating, particularly if alternative revenue
sources are not obtained. Moreover, the tax limitation measure might contract
the overall size of the Oregon municipal bond market and might have some
adverse effect on the value of the Trust's portfolio. See the Additional
Statement.
The Oregon Constitution reserves to the people of the State initiative
and referendum powers pursuant to which measures designed to amend the State
Constitution or enact legislation can be placed on the statewide general
election ballot for consideration by the voters. Over the past decade Oregon
has witnessed increasing activity in the number of initiative petitions that
have qualified for statewide general elections. From the 1988 elections
through those of 1994, both the number of such petitions that qualified and
the number of such petitions that were approved by the voters have increased.
It is not possible to predict what petitions will qualify for submission to
the voters in 1996 nor which will be approved.
There is a relatively inactive market for municipal bonds of Oregon
issuers other than the general obligations of the State itself. Consequently,
the market price of such other bonds may be changeable. If the Trust were
forced to sell a large volume of these bonds for any reason, such as
redemptions of a large number of its shares, there is a risk that the large
sale itself might adversely affect the value of the Trust's portfolio.
INVESTMENT RESTRICTIONS
The Trust has a number of policies about what it can and cannot do.
Certain of these policies, identified in the Prospectus and Additional
Statement as "fundamental policies," cannot be changed unless the holders of
a "majority," as defined in the 1940 Act, of the Trust's outstanding shares
vote to change them. (See the Additional Statement for a definition of such a
majority.) All other policies can be changed from time to time by the Board
of Trustees without shareholder approval. Some of the more important of the
Trust's fundamental policies, not otherwise identified in the Prospectus, are
set forth below; others are listed in the Additional Statement.
1. THE TRUST INVESTS ONLY IN CERTAIN LIMITED SECURITIES.
The Trust cannot buy any securities other than the Oregon Obligations
meeting the standards stated under "Investment of the Trust's Assets"; the
Trust can also purchase and sell Futures and options on them within the
limits there discussed.
2. THE TRUST HAS INDUSTRY INVESTMENT REQUIREMENTS.
The Trust cannot buy the obligations of issuers in any one industry if
more than 25% of its total assets would then be invested in securities of
issuers of that industry; the Trust will consider that a non-governmental
user of facilities financed by industrial development bonds is an issuer in
an industry.
3. THE TRUST CANNOT MAKE LOANS.
The Trust can buy those Oregon Obligations which it is permitted to buy
(see "Investment of the Trust's Assets"); this is investing, not making a
loan. The Trust cannot lend its portfolio securities.
4. THE TRUST CAN BORROW ONLY IN LIMITED AMOUNTS FOR SPECIAL PURPOSES.
The Trust can borrow from banks for temporary or emergency purposes but
only up to 10% of its total assets. It can mortgage or pledge its assets only
in connection with such borrowing and only up to the lesser of the amounts
borrowed or 5% of the value of its total assets. However, this shall not
prohibit margin arrangements in connection with the purchase or sale of
Municipal Bond Index Futures, U.S. Government Securities Futures or options
on them, or the payment of premiums on those options. The Trust will not
borrow to purchase Oregon Obligations or to increase its income, but only to
meet redemptions so that it will not have to sell Oregon Obligations to pay
for redemptions. Interest on borrowings would reduce the Trust's income.
Except in connection with borrowings, the Trust will not issue senior
securities. The Trust will not purchase any Oregon Obligations, Futures or
options on Futures while it has any outstanding borrowings which exceed 5% of
the value of its total assets.
NET ASSET VALUE PER SHARE
The Trust's net asset value and offering price per share 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"). However, Futures and options on them are valued at
the close of the principal commodities exchange on which they are traded,
which may be later than 4:00 p.m. New York time. 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
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.
The minimum initial investment is $1,000, except as otherwise stated in
this Prospectus or the Additional Statement. You may also make an initial
investment of at least $100 by establishing an Automatic Investment Program
for Automatic investments of at least $100 per month and paying $100. (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 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 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 plus a sales charge.
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.
The following table shows the amount of the sales charges to a "single
purchaser" (defined below) together with the dealer discounts paid to dealers
and the agency commissions paid to brokers (collectively called the
"commissions"):
<TABLE>
<CAPTION>
Sales Charge as Commissions
Sales Charge as Approximate as
Percentage of Public Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
<S> <C> <C> <C>
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 purchase of $1 million or more see "Purchase of $1 Million or More,"
below.
</TABLE>
The above schedule of sales charges is applicable to purchases 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 her own accounts; (c) a trustee or other fiduciary purchasing
shares for a single trust estate or a single fiduciary account; and (d)
tax-exempt organizations 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.
The Distributor, at its own expense, may also provide additional
compensation to dealers in connection with sales 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 trips taken by qualifying registered
representatives and members of their families to locations within or outside
of the United States, other prizes or financial assistance to securities
dealers in offering their own seminars or conferences. 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. Except as set forth below under "Purchases of $1 Million or
More," 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 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.
PURCHASE OF $1 MILLION OR MORE
Shares issued in purchases of $1 million or more by a single purchaser
are called "CDSC Shares." CDSC Shares also include certain shares issued in
purchases of $1 million or more under the program captioned "Other Investment
Companies" - "Special Dealer Arrangements," below. (CDSC Shares do not
include (i) shares purchased without sales charge pursuant to the terms
described under "General," below and (ii) 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 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 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 Shares are outstanding in the 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 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 Shares
at the time of purchase or (ii) the net asset value of your CDSC 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 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 Shares or to any CDSC Shares
held for more than four years after purchase. In determining whether the
special charge is applicable, it will be assumed that the CDSC Shares you
have held the longest are the first CDSC Shares to be redeemed, unless you
instruct the Agent otherwise. It will also be assumed that if you have both
CDSC Shares and non-CDSC Shares the non-CDSC Shares will be redeemed first.
The exchange privilege described below (see "Exchange Privilege") is not
available for CDSC Shares of the Trust until four years after the date of
issuance of such shares.
If you have purchased shares of the Trust in the amount of $1 million or
more without a sales charge pursuant to the provisions relating to such
purchases before July 1, 1995, the following provisions continue to apply to
such shares:
If you redeem all or part of such shares before the shares have been
outstanding for two years, you will be required to pay to the Trust a special
redemption fee in an amount equal to 1% if the redemption occurs within the
first year, and 0.50 of 1% if the redemption occurs within the second year,
of the lesser of the net asset value of the shares at the time of purchase or
the net asset value of the shares at the time of redemption. This fee will
apply to redemptions of shares purchased without a sales charge pursuant to a
Letter of Intent as described below under "Reduced Sales Charges." The
exchange privilege described below (see "Exchange Privilege") is not
available for such share until two years after the date of issuance of such
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. 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 the payroll investment program (which could take up to ten days),
you must notify your employer.
REDUCED SALES CHARGES
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 shares if the cumulative value (at cost or
current net asset value, whichever is higher) of the shares you have
previously purchased with a sales charge, together with the 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 shares of the Trust through a single selected
dealer or through the Distributor. 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: 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 shares will not be resold except
through redemption. There may be tax consequences of these purchases. Such
purchasers should consult their own tax counsel. 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 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: 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 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
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 shares of the Trust of $1 million or more using the proceeds of
a Qualified Redemption the same amounts described under "Purchase of $1
Million or More," above on the same terms and conditions. Shares of the Trust
issued in such a transaction will be CDSC 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 contingent deferred sales charge
described under "Purchase of $1 Million or More," above, on the same terms
and conditions. The Exchange Privilege described below is not available
during the four year period from the date of purchase with respect to CDSC
Shares. Whenever the Special Dealer Arrangements are in effect the Prospectus
will be supplemented.
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). Share certificates will
not be issued unless you so request in writing to the Agent. If certificates
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. No certificates will be issued for fractional shares or to
shareholders who have elected Automatic Investment or Telephone Investment
(see "How to Invest in the Trust" above) or Expedited Redemption (see "How to
Redeem Your Investment" below).
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 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.
Under the Distribution Plan, in effect at the date of this Prospectus,
subject to the direction and control of the Board of Trustees, the Trust is
authorized to make payments ("Permitted Payments") to Qualified Recipients,
which Permitted Payments shall be made directly, or through the Distributor
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) of 0.15 of 1% of average annual net assets of the Trust
"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 shares or servicing of
shareholder accounts. After July 1, 1995 whenever the Trust makes the
Permitted Payments the advisory fee and administration fee otherwise payable
by the Trust will be reduced to an aggregate annual rate of 0.40 of 1% of the
Trust's average annual net assets. (See "Management Arrangements.")
Payments under the Plan commenced as of July 1, 1994. During the fiscal
year ended September 30, 1995, $230,866 was paid under the Plan to Qualified
Recipients, of which $4,260 was paid to the Distributor. (See the Additional
Statement for a description of the Distribution Plan.)
Another part of the Distribution 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.
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 CDSC Shares). 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 SHARES (SEE "PURCHASE OF $1
MILLION OR MORE") THERE ARE NO REDEMPTION FEES OR WITHDRAWAL PENALTIES. A
redemption may result in a transaction taxable to you.
If a selected dealer or other financial institution serves as
shareholder of record for your shares, you MUST REDEEM THROUGH THAT
INSTITUTION, which is responsible for the prompt transmission of redemption
requests. If your shares are registered in your name at the Trust and a
selected dealer or other institution maintains records of your account, that
institution can assist you with your redemption; in some cases, you must
redeem through that institution. In all other cases, you may make a
redemption request directly to the Agent using the procedures described
below.
For your convenience the Trust offers expedited redemption 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 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 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, account
number and 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 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. 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. 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 you use a 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 on
which a sales charge was paid, or which were received in exchange for shares
on which a sales charge was paid, in shares of the Trust at the net asset
value next determined after the Agent's receipt of the reinvestment order.
This reinvestment privilege may be exercised only once a year. 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.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own or purchase
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 this Prospectus,
the Additional Statement under "Automatic Withdrawal Plan," and "Dividend and
Tax Information" below.
Purchase of additional 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 or shareholder servicing agent
fees and expenses, stock issuance and redemption costs, certain printing
costs, registration costs of the Trust and its shares under Federal and State
securities laws, interest, taxes and brokerage commissions, and non-recurring
expenses, including litigation.
Under the Advisory Agreement, the Trust agrees to pay the Adviser, and
the Adviser agrees to accept as full compensation for all services rendered
by the Adviser as such, an annual fee payable monthly and computed on the net
asset value of the Trust as of the close of business each business day at the
annual rate of 0.25 of 1% of such net asset value provided, however, that for
any day that the Trust pays or accrues a fee under the Distribution Plan of
the Trust based upon the assets of the Trust, such annual fee is payable at
the rate of 0.20 of 1% of all of the Trust's average annual net assets.
(Since the Administrator also receives a fee from the Trust under the
Administration Agreement, the total investment advisory and administration
fees which the Trust pays are at the annual rate of 0.50 of 1% of such net
assets, or, for any day that the Trust pays or accrues a fee under the
Distribution Plan of the Trust based upon the assets of the Trust above the
Base Amount, at 0.40 of 1% of such net asset value; see below.) Effective
July 1, 1995, such combined annual fees are payable at the rate of 0.40 of 1%
of all of the Trust's average annual net assets for any day that the Trust
pays or accrues a fee under the Distribution Plan of the Trust based upon the
assets of the Trust. The Adviser and the Administrator may, in order to
attempt to achieve a competitive yield on the shares of the Trust, each waive
all or part of any such fee.
Under the Advisory Agreement, the Adviser agrees that the above fee
shall be reduced, but not below zero, by an amount equal to one-half of the
amount, if any, by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, shall exceed the lesser of
(i) 2.5% of the first $30 million of average annual net assets of the Trust
plus 2% of the next $70 million of such assets and 1.5% of its average annual
net assets in excess of $100 million, or (ii) 25% of the Trust's total annual
investment income.
The Advisory Agreement contains provisions as to the allocation of the
portfolio transactions of the Trust; see the Additional Statement. Under
these provisions, the Adviser is authorized to consider sales of shares of
the Trust or of any other investment company or companies having the same
investment adviser, sub-adviser, administrator or principal underwriter as
the Trust.
THE ADMINISTRATION AGREEMENT
Under an Administration Agreement (the "Administration Agreement"),
Aquila Management Corporation as Administrator, at its own expense, provides
office space, personnel, facilities and equipment for the performance of its
functions thereunder and as is necessary in connection with the maintenance
of the headquarters of the Trust and pays all compensation of the Trust's
Trustees, officers and employees who are affiliated persons of the
Administrator. Prior to April 23, 1990, Aquila Management Corporation acted
as sub-adviser and administrator under a sub-advisory and administration
agreement, performing substantially the same functions for the same
compensation.
Under the Administration Agreement, subject to the control of the
Trust's Board of Trustees, the Administrator provides all administrative
services to the Trust other than those relating to its investment portfolio
and the maintenance of its accounting books and records. Such administrative
services include but are not limited to maintaining books and records (other
than accounting books and records) of the Trust, and overseeing all
relationships between the Trust and its shareholder servicing agent,
custodian , legal counsel, auditors and principal underwriter, including the
negotiation of agreements in relation thereto, the supervision and
coordination of the performance of such agreements, and the overseeing of all
administrative matters which are necessary or desirable for effective
operation of the Trust and for the sale, servicing, or redemption of the
Trust's shares. See the Additional Statement for a further description of
functions listed in the Administration Agreement as part of such duties.
Under the Administration Agreement, the Trust pays a fee payable monthly
and computed on the net asset value of the Trust at the end of each business
day at the annual rate of 0.25 of 1% of such net asset value provided,
however, that for any day that the Trust pays or accrues a fee under the
Distribution Plan of the Trust based upon the assets of the Trust, such
annual fee is payable at the rate of 0.20 of 1% of all of the Trust's average
annual net assets. The Administrator has agreed that the above fee shall be
reduced, but not below zero, by an amount equal to one-half of the amount, if
any, by which the total expenses of the Trust in any fiscal year, exclusive
of taxes, interest and brokerage fees, exceed the lesser of (i) 2.5% of the
first $30 million of average annual net assets of the Trust plus 2% of the
next $70 million of such assets and 1.5% of its average annual net assets in
excess of $100 million, or (ii) 25% of the Trust's total annual investment
income.
INFORMATION AS TO THE ADVISER,
THE ADMINISTRATOR AND THE DISTRIBUTOR
The Adviser is a subsidiary of U.S. Bancorp ("Bancorp") and its
subsidiary, United States National Bank of Oregon ("USNB"). Bancorp is a $21
billion superregional financial services holding company organized under the
laws of Oregon in 1968. USNB, headquartered in Portland, is a national
banking association, chartered in 1891. It offers a wide variety of
full-service and commercial banking operations in over 200 locations in
Oregon. Other services of Bancorp and it subsidiaries include mortgage
banking, lease financing, consumer financing, commercial finance,
international banking, investment advisory, insurance agency and credit life
insurance services, discount brokerage and venture capital. As of September
30, 1994, the Adviser had under management nearly $5.2 billion in assets. See
the Additional Statement as to the legality, under the Glass-Steagall Act, of
the Adviser acting as the Trust's investment adviser. In general, under that
Act, the Adviser will not, among other things, be involved in the promotion
or distribution of shares of the Trust.
Mr. Edgar M. Potts, with the position of Fixed-Income Manager, is the
officer of the Adviser who manages the Trust's portfolio. He has served as
such since the Trust's inception in 1986. He has been employed by the Adviser
since 1977, before that by the Adviser's parent company, U.S. National Bank.
He has 35 years of investment experience in those positions and in other
financial institutions. He has a B.S. in economics from Georgetown
University.
Mr. Stephen J. Galiani is the backup portfolio manager. Mr. Galiani has
been employed by the Adviser since 1994. He was president of Galiani Asset
Management, a private investment advisory firm from 1990 to 1994. Prior to
owning his own firm, Mr. Galiani was Vice President and Senior Portfolio
Manager of the municipal bond mutual funds for the Keystone family of mutual
funds with over $2 billion in municipal debt assets. Before managing Keystone
mutual funds, Mr. Galiani was Vice President and Portfolio Manager of
municipal bond portfolios for the Eaton Vance Corporation. Mr. Galiani has an
MBA from Boston University, School of Management.
The Trust's Administrator is founder and administrator to the Aquilasm
Group of Funds, which consists of tax-free municipal bond funds, money market
funds and an equity fund. As of September 30, 1995, these funds had aggregate
assets of approximately $2.6 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
fourteen funds (seven tax-free municipal bond funds, six 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.
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 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" (see below) and is therefore exempt from regular Federal income
tax. This allocation 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 1% of
the total dividends paid were taxable as ordinary income and 1.76% were
taxable as long-term capital gains. 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), 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 tax-exempt 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 distributions 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 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
Oregon, 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-sponsored 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), Prime Cash Fund and Churchill Cash Reserves
Trust.
The exchange privilege is not available for shares of the Trust
purchased in the amount of $1 million or more without a sales charge until
four years after the date of issuance of such shares, for such shares
purchased after July 1, 1995 and for two years for such shares purchased
before that date. (See "Purchase of $1 Million or More.")
Under the exchange privilege, once any applicable sales charge has been
paid on 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.
The "Eligible Shares" of any Bond or Equity Fund are those 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); or (d)
acquired as a result of reinvestment of dividends and/or distributions on
otherwise Eligible Shares.
If you own Eligible Shares of any Bond or Equity Fund, you may exchange
them for shares of any Money-Market Fund or the shares of any other 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 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 shares of any Bond or
Equity Fund without payment of any sales charge.
Shares of a Money-Market Fund may be exchanged for shares of another
Money-Market Fund or 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 shares of a Bond or Equity Fund only upon
payment of the applicable sales charge. The shares of the Bond or Equity Fund
so acquired are then Eligible Shares.
This Trust, as well as the other Money-Market Funds and Bond or Equity
Funds, reserves the right to reject any exchange into its shares, if shares
of the fund into which exchange is desired are not available for sale in your
state of residence. The Trust may also modify or terminate this exchange
privilege at any time. In the case of termination, this 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.
If a selected dealer or other financial institution serves as
shareholder of record for your shares, you must EFFECT AN EXCHANGE THROUGH
THAT INSTITUTION, which is responsible for the prompt transmission of your
request. If your shares are registered in your name at the Trust and a
selected dealer or other institution maintains records of your account, that
institution can assist you with your exchange; in some cases, you must effect
exchanges through that institution. In all other cases, you may make an
exchange request directly to the Agent using the procedures described below.
If you have elected the Telephone Exchange feature on the Application,
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.
If you have not elected the Telephone Exchange feature, you must
complete and return a form which is available from the Distributor.
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 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 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 Trust 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 for which the Trust does not impose a sales charge. 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. 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. All shares are presently of the same class;
however, if they deem it advisable and in the best interests of shareholders,
the Board of Trustees of the Business Trust may create additional classes of
shares which may differ from each other only as to dividends (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.
As of January 2, 1996, Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O.
Box 30561, New Brunswick, NJ held of record 2,664,986 shares (9.5%) of the
Trust and BHC Securities, Inc., 2005 Market Street, Philadelphia, PA held of
record 2,781,768 shares (9.5%) of the Trust. 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.
ADDITIONAL CLASSES
The Trust believes it would be desirable to offer additional classes of
shares (the "Multiple-Class System") in order to accommodate, in a
cost-effective manner, the service desires and requirements of a variety of
investors. The creation of other classes will have no effect upon the shares
of the Trust now outstanding or those which would be outstanding at such time
as the Trust begins offering shares of other classes.
It is anticipated that the Trust will offer three classes of shares:
Front-Payment Class Shares ("Class A"), Level-Payment Class Shares ("Class
C"), and Institutional Class Shares ("Class Y"). Retail investors will be
entitled to purchase Front-Payment Shares or Level-Payment Shares or both.
Institutional Class Shares will be offered only to institutions acting for
investors in a fiduciary, advisory, agency custodial or similar capacity, and
will not be offered directly to retail customers.
The Trust believes that such Multiple-Class System might enhance the
scope and depth of its services to existing and potential shareholders and
permit it to facilitate the distribution of its securities to a further
degree. The Multiple-Class System offers the flexibility of tailoring the
payment for shares of the Trust to the needs and circumstances of the clients
of broker-dealer firms, financial institutions and other organizations.
Moreover, to the extent that assets increase in the Trust due to sale of
shares through the Multiple-Class System, owners of all classes of shares
might benefit from the spreading of the Trust's fixed operating costs over
the larger asset base to a greater extent than might otherwise be the case.
There is, of course, no assurance that any of these desired results will be
achieved.
Implementation of a Multiple-Class System is subject to a number of
conditions. These include: a favorable ruling from the Internal Revenue
Service that implementation of the Multiple-Class System will not affect the
Trust's status as a regulated investment company under the applicable
provisions of the Internal Revenue Code; the filing and effectiveness of a
post-effective amendment to the Trust's Registration Statement to register
with the Securities and Exchange Commission shares of such classes for sale
to investors; and registration with various state securities authorities of
the shares of the Trust. While it is anticipated that each of these
conditions will be accomplished, there is no assurance that this will be the
case.
Shares of the new classes ("Class C Shares and Class Y Shares") will not
be available for purchase unless and until the foregoing conditions are met.
At such time, all shareholders of the Trust will be advised as to the
availability of shares in the new classes. It is anticipated that the Trust
will be able to offer shares of the new classes in the Spring of 1996.
VOTING RIGHTS
At any meeting of shareholders, shareholders of the Trust are entitled
to one (1) vote for each dollar of net asset value (determined as of the
record date for such meeting) for each full share held (and fractional votes
for fractional shares held).
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.
Except that the Board of Trustees may change the name of the Business
Trust, no other amendment may be made to the Declaration of Trust without the
affirmative vote of the holders of the outstanding shares of the Business
Trust having a majority of its net asset value, and if the amendment affects
any series of the Business Trust, the affirmative vote of the holders of the
outstanding shares with a majority of the net asset value of that series. The
Business 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
Business Trust, in either case if such action is approved by the vote of the
holders of the outstanding shares of the Business Trust having a majority of
its net asset value and by the holders of the outstanding shares of each
series having a majority of the net asset value of such series. If not so
terminated, the Business Trust will continue indefinitely.
<PAGE>
[LOGO] APPLICATION FOR TAX-FREE TRUST OF OREGON
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: AQUILA SM GROUP OF FUNDS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
1-800-872-6735
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1 & 2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.________________________________________________________________
Custodians First Name Middle Initial Last Name
Custodian for ____________________________________________________
Minors First Name Middle Initial Last Name
Under the ___________UGTMA** _____________________________________
Name of State Minors Social Security Number
4. ____________________________________________________
____________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may
be registered in the name of the Plan or Trust itself.)
___________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
____________________________________________________
Street or PO Box City
_______________________________(______)______________
State Zip Daytime Phone Number
Occupation:________________________Employer:________________________
Employers Address:__________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you
are a non-U.S. Citizen or resident and not subject to back-up
withholding (See certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
_______________________ _____________________________
Dealer Name Branch Number
_______________________ _____________________________
Street Address Rep. Number/Name
_______________________ (_______)_____________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
Make check payable to: TAX-FREE TRUST OF OREGON
Amount of investment $ _________________ Minimum initial
investment $1,000
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.
C. LETTER OF INTENT
(Check appropriate box)
See Terms of Letter of Intent and Escrow at the end of this application
___ Yes ___ No
I/We intend to invest in 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
<PAGE>
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.
TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-872-6735
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.
TO MAKE AN EXPEDITED REDEMPTION, CALL THE AGENT AT 1-800-872-6735
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
<PAGE>
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.
<PAGE>
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 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 18
Automatic Withdrawal Plan 21
Management Arrangements 21
Dividend And Tax Information 24
Exchange Privilege 27
General Information 29
Application and Letter of Intent
AQUILA
[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
January 31, 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 January 31, 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
Limitation of Redemptions in Kind . . . . . . . . . . . . . . . . . . . . .16
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Additional Information as to Management Arrangements . . . . . . . . . . . .22
Computation of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . .26
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . . . . . . . .27
Additional Tax Information . . . . . . . . . . . . . . . . . . . . . . . . .27
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
<PAGE>
INVESTMENT OF THE TRUST'S ASSETS
The investment objective and policies of the Trust are described in the
Prospectus, which refers to the matters described below. See the Prospectus
for the definition of "Oregon Obligations."
RATINGS
The ratings assigned by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") represent their respective opinions of
the quality of the municipal bonds and notes which they undertake to rate. It
should be emphasized, however, that ratings are general and not absolute
standards of quality. Consequently, obligations with the same maturity,
stated interest rate and rating may have different yields, while obligations
of the same maturity and stated interest rate with different ratings may have
the same yield. See Appendix A to this Additional Statement for further
information about the ratings of Moody's and S&P as to the various rated
Oregon Obligations which the Trust may purchase.
The table below gives information as to the percentage of Trust net
assets invested, as of September 30, 1995, in Oregon Obligations in the
various rating categories:
Highest rating (1) 43.6%
Second highest rating (2) 47.9%
Third highest rating (3) 7.2%
Fourth highest rating (4) 0.2%
Not rated: 1.2%
100.0%
(1) Aaa of Moody's or AAA of S&P.
(2) Aa of Moody's or AA of S&P.
(3) A of Moody's or A of S&P.
(4) Baa of Moody's or BBB of S&P.
WHEN-ISSUED AND DELAYED DELIVERY OBLIGATIONS
The Trust may buy Oregon Obligations on a when-issued or delayed
delivery basis. The purchase price and the interest rate payable on the
Oregon Obligations are fixed on the transaction date. At the time the Trust
makes the commitment to purchase Oregon Obligations on a when-issued or
delayed delivery basis, it will record the transaction and thereafter reflect
the value each day of such Oregon Obligations in determining its net asset
value. The Trust will make commitments for such when-issued transactions only
when it has the intention of actually acquiring the Oregon Obligations. The
Trust places an amount of assets equal in value to the amount due on the
settlement date for the when-issued or delayed delivery securities being
purchased in a segregated account with the Custodian, which is marked to
market every business day. On delivery dates for such transactions, the Trust
will meet its commitments by selling the Oregon Obligations held in the
separate account and/or from cash flow.
DETERMINATION OF THE MARKETABILITY OF CERTAIN SECURITIES
In determining marketability of floating and variable rate demand notes
and participation interests (including municipal lease/purchase obligations)
the Board of Trustees will consider the following factors, not all of which
may be applicable to any particular issue: the quality, maturity and coupon
rate of the issue, ratings received from the nationally recognized
statistical rating organizations and any changes or prospective changes in
such ratings, the likelihood that the issuer will continue to appropriate the
required payments for the issue, recent purchases and sales of the same or
similar issues, the general market for municipal securities of the same or
similar quality, the Adviser's opinion as to marketability of the issue and
other factors that may be applicable to any particular issue.
FUTURES CONTRACTS AND OPTIONS
The Trust is permitted to buy and sell futures contracts relating to
municipal bond indices ("Municipal Bond Index Futures") and to U.S.
Government securities ("U.S. Government Securities Futures," together
referred to as "Futures"), and exchange traded options based on Futures as a
possible means to protect the asset value of the Trust during periods of
changing interest rates, although in fact the Trust may never do so. The
following discussion is intended to explain briefly the workings of Futures
and options on them.
Unlike when the Trust purchases or sells an Oregon Obligation, no price
is paid or received by the Trust upon the purchase or sale of a Future.
Initially, however, when such transactions are entered into, the Trust will
be required to deposit with the futures commission merchant ("broker") an
amount of cash or Oregon Obligations equal to a varying specified percentage
of the contract amount. This amount is known as initial margin. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying index or security fluctuates,
making the Future more or less valuable, a process known as marking to
market. Insolvency of the broker may make it more difficult to recover
initial or variation margin. Changes in variation margin are recorded by the
Trust as unrealized gains or losses. Margin deposits do not involve borrowing
by the Trust and may not be used to support any other transactions. At any
time prior to expiration of the Future, the Trust may elect to close the
position by taking an opposite position which will operate to terminate the
Trust's position in the Future. A final determination of variation margin is
then made. Additional cash is required to be paid by or released to the Trust
and it realizes a gain or a loss. Although Futures by their terms call for
the actual delivery or acceptance of cash, in most cases the contractual
obligation is fulfilled without having to make or take delivery. All
transactions in the futures markets are subject to commissions payable by the
Trust and are made, offset or fulfilled through a clearing house associated
with the exchange on which the contracts are traded. Although the Trust
intends to buy and sell Futures only on an exchange where there appears to be
an active secondary market, there is no assurance that a liquid secondary
market will exist for any particular Future at any particular time. In such
event, or in the event of an equipment failure at a clearing house, it may
not be possible to close a futures position.
Municipal Bond Index Futures currently are based on a long-term
municipal bond index developed by the Chicago Board of Trade ("CBT") and The
Bond Buyer (the "Municipal Bond Index"). Financial futures contracts based on
the Municipal Bond Index began trading on June 11, 1985. The Municipal Bond
Index is comprised of 40 tax-exempt municipal revenue and general obligation
bonds. Each bond included in the Municipal Bond Index must be rated A or
higher by Moody's or S&P and must have a remaining maturity of 19 years or
more. Twice a month new issues satisfying the eligibility requirements are
added to, and an equal number of old issues are deleted from, the Municipal
Bond Index. The value of the Municipal Bond Index is computed daily according
to a formula based on the price of each bond in the Municipal Bond Index, as
evaluated by six dealer-to-dealer brokers.
The Municipal Bond Index futures contract is traded only on the CBT.
Like other contract markets, the CBT assures performance under futures
contracts through a clearing corporation, a nonprofit organization managed by
the exchange membership which is also responsible for handling daily
accounting of deposits or withdrawals of margin.
There are at present U.S. Government financial futures contracts based
on long-term Treasury bonds, Treasury notes, GNMA Certificates and
three-month Treasury bills. U.S. Government Securities Futures have traded
longer than Municipal Bond Index Futures, and the depth and liquidity
available in the trading markets for them are in general greater.
CALL OPTIONS ON FUTURES CONTRACTS. The Trust may also purchase and sell
exchange related call and put options on Futures. The purchase of a call
option on a Future is analogous to the purchase of a call option on an
individual security. Depending on the pricing of the option compared to
either the Future upon which it is based, or upon the price of the underlying
debt securities, it may or may not be less risky than ownership of the
futures contract or underlying debt securities. Like the purchase of a
futures contract, the Trust may purchase a call option on a Future to hedge
against a market advance when the Trust is not fully invested.
The writing of a call option on a Future constitutes a partial hedge
against declining prices of the securities which are deliverable upon
exercise of the Future. If the price at expiration of the Future is below the
exercise price, the Trust will retain the full amount of the option premium
which provides a partial hedge against any decline that may have occurred in
the Trust's portfolio holdings.
PUT OPTIONS ON FUTURES CONTRACTS. The purchase of put options on a
Future is analogous to the purchase of protective put options on portfolio
securities. The Trust may purchase a put option on a Future to hedge the
Trust's portfolio against the risk of rising interest rates.
The writing of a put option on a Future constitutes a partial hedge
against increasing prices of the securities which are deliverable upon
exercise of the Future. If the Future price at expiration is higher than the
exercise price, the Trust will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of
securities which the Trust intends to purchase.
The writer of an option on a Future is required to deposit initial and
variation margin pursuant to requirements similar to those applicable to
Futures. Premiums received from the writing of an option will be included in
initial margin. The writing of an option on a Future involves risks similar
to those relating to Futures.
RISK FACTORS IN FUTURES TRANSACTIONS AND OPTIONS
One risk in employing Futures or options on them to attempt to protect
against the price volatility of the Trust's Oregon Obligations is that the
Adviser could be incorrect in its expectations as to the extent of various
interest rate movements or the time span within which the movements take
place. For example, if the Trust sold a Future in anticipation of an increase
in interest rates, and then interest rates went down instead, the Trust would
lose money on the sale.
Another risk as to Futures or options on them arises because of the
imperfect correlation between movement in the price of the Future and
movements in the prices of the Oregon Obligations which are the subject of
the hedge. The risk of imperfect correlation increases as the composition of
the Trust's portfolio diverges from the municipal bonds included in the
applicable index or from the security underlying the U.S. Government
Securities Futures. The price of the Future or option may move more than or
less than the price of the Oregon Obligations being hedged. If the price of
the Future or option moves less than the price of the Oregon Obligations
which are the subject of the hedge, the hedge will not be fully effective
but, if the price of the Oregon Obligations being hedged has moved in an
unfavorable direction, the Trust would be in a better position than if it had
not hedged at all. If the price of the Oregon Obligations being hedged has
moved in a favorable direction, this advantage will be partially offset by
the Future or option. If the price of the Future or option has moved more
than the price of the Oregon Obligations, the Trust will experience either a
loss or gain on the Future or option which will not be completely offset by
movements in the price of the Oregon Obligations which are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price
of the Oregon Obligations being hedged and movements in the price of the
Futures or options, the Trust may buy or sell Futures or options in a greater
dollar amount than the dollar amount of the Oregon Obligations being hedged
if the historical volatility of the prices of the Oregon Obligations being
hedged is less than the historical volatility of the debt securities
underlying the hedge. It is also possible that, where the Trust has sold
Futures or options to hedge its portfolio against decline in the market, the
market may advance and the value of the Oregon Obligations held in the
Trust's portfolio may decline. If this occurred the Trust would lose money on
the Future or option and also experience a decline in value of its portfolio
securities.
Where Futures or options are purchased to hedge against a possible
increase in the price of Oregon Obligations before the Trust is able to
invest in them in an orderly fashion, it is possible that the market may
decline instead; if the Trust then concludes not to invest in them at that
time because of concern as to possible further market decline or for other
reasons, the Trust will realize a loss on the Futures or options that is not
offset by a reduction in the price of the Oregon Obligations which it had
anticipated purchasing.
The particular municipal bonds comprising the index underlying Municipal
Bond Index Futures will vary from the bonds held by the Trust. The
correlation of the hedge with such bonds may be affected by disparities in
the average maturity, ratings, geographical mix or structure of the Trust's
investments as compared to those comprising the Index, and general economic
or political factors. In addition, the correlation between movements in the
value of the Municipal Bond Index may be subject to change over time, as
additions to and deletions from the Municipal Bond Index alter its structure.
The correlation between U.S. Government Securities Futures and the municipal
bonds held by the Trust may be adversely affected by similar factors and the
risk of imperfect correlation between movements in the prices of such Futures
and the prices of Municipal Bonds held by the Trust may be greater.
Trading in Municipal Bond Index Futures may be less liquid than that in
other Futures. The trading of Futures and options is also subject to certain
market risks, such as inadequate trading activity and limits on upward or
downward price movement which could at times make it difficult or impossible
to liquidate existing positions.
REGULATORY ASPECTS OF FUTURES AND OPTIONS
The Trust will, due to requirements under the Investment Company Act of
1940 (the "1940 Act"), deposit in a segregated account with its custodian
bank Oregon Obligations maturing in one year or less or cash, in an amount
equal to the fluctuating market value of long Futures or options it has
purchased, less any margin deposited on long positions.
The Trust must operate within certain restrictions as to its long and
short positions in Futures under a rule (the "CFTC Rule") adopted by the
Commodity Futures Trading Commission ("CFTC") under the Commodity Exchange
Act (the "CEA") to be eligible for the exclusion provided by the CFTC Rule as
a "commodity pool operator" (as defined under the CEA), and must represent to
the CFTC that the Trust will operate within such restrictions. Under these
restrictions the Trust will not, as to any positions, whether long, short or
a combination thereof, enter into Futures or options for which the aggregate
initial margins and premiums paid for options exceed 5% of the fair market
value of its assets. Under the restrictions, the Trust also must, as to its
short positions, use Futures and options solely for bona-fide hedging
purposes within the meaning and intent of the applicable provisions under the
CEA. As to the Trust's long positions which are used as part of its portfolio
strategy and are incidental to its activities in the underlying cash market,
the "underlying commodity value" (see below) of its Futures must not exceed
the sum of (i) cash set aside in an identifiable manner, or short-term U.S.
debt obligations or other U.S. dollar-denominated high quality short-term
money market instruments so set aside, plus any funds deposited as margin;
(ii) cash proceeds from existing investments due in 30 days and (iii) accrued
profits held at the futures commission merchant. (There is described above
the segregated account which the Trust must maintain with its custodian bank
as to its Futures and options activities due to requirements other than those
of the CFTC Rule; the Trust will, as to long positions, be required to abide
by the more restrictive of this other requirement or the above requirements
of the CFTC Rule.) The "underlying commodity value" of a Future or option is
computed by multiplying the size of the Future by the daily settlement price
of the Future or option.
The "sale" of a Future means the acquisition by the Trust of an
obligation to deliver an amount of cash equal to a specified dollar amount
times the difference between the value of the index or government security at
the close of the last trading day of the Future and the price at which the
Future is originally struck (which the Trust anticipates will be lower
because of a subsequent rise in interest rates and a corresponding decline in
the index value). This is referred to as having a "short" Futures position.
The "purchase" of a Future means the acquisition by the Trust of an
obligation to take delivery of such an amount of cash. In this case, the
Trust anticipates that the closing value will be higher than the price at
which the Future is originally struck. This is referred to as having a "long"
Futures position. No physical delivery of the bonds making up the index or
the U.S. government securities, as the case may be, is made as to either a
long or a short Futures position.
PORTFOLIO TURNOVER
A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities for a year
and dividing it by the monthly average value of such securities during the
year, excluding certain short-term securities. Since the turnover rate of the
Trust will be affected by a number of factors, the Trust is unable to predict
what rate the Trust will have in any particular period or periods, although
such rate is not expected to exceed 100%. However, the rate could be
substantially higher or lower in any particular period.
MUNICIPAL BONDS
The two principal classifications of municipal bonds are "general
obligation" bonds and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith, credit and unlimited taxing power
for the payment of principal and interest. Revenue or special tax bonds are
payable only from the revenues derived from a particular facility or class of
facilities or projects or, in a few cases, from the proceeds of a special
excise or other tax, but are not supported by the issuer's power to levy
unlimited general taxes. There are, of course, variations in the security of
municipal bonds, both within a particular classification and between
classifications, depending on numerous factors. The yields of municipal bonds
depend on, among other things, general financial conditions, general
conditions of the municipal bond market, size of a particular offering, the
maturity of the obligation and rating of the issue.
Since the Trust may invest in industrial development bonds or private
activity bonds, the Trust may not be an appropriate investment for entities
which are "substantial users" of facilities financed by those bonds or for
investors who are "related persons" of such users. Generally, an individual
will not be a "related person" under the Internal Revenue Code unless such
investor or his or her immediate family (spouse, brothers, sisters and lineal
descendants) own directly or indirectly in the aggregate more than 50 percent
of the equity of a corporation or is a partner of a partnership which is a
"substantial user" of a facility financed from the proceeds of those bonds. A
"substantial user" of such facilities is defined generally as a "non-exempt
person who regularly uses a part of [a] facility" financed from the proceeds
of industrial development or private activity bonds.
As indicated in the Prospectus, there are certain Oregon Obligations the
interest on which is subject to the Federal alternative minimum tax on
individuals. While the Trust may purchase these obligations, it may, on the
other hand, refrain from purchasing particular Oregon Obligations due to this
tax consequence. Also, as indicated in the Prospectus, the Trust will not
purchase obligations of Oregon issuers the interest on which is subject to
regular Federal income tax. The foregoing may reduce the number of issuers of
obligations which are available to the Trust.
OREGON PROPERTY TAX RESTRICTIONS
On November 6, 1990, Oregon voters approved a property tax limitation
measure. When the tax limitation measure is fully phased in, it limits the
amount of taxes which may be imposed by local governments upon property to
$15 per $1,000 of real market value. Property taxes to fund the public school
system decrease from a maximum of $15 per $1,000 in fiscal year 1991-92 to $5
per $1,000 in 1995-96 and thereafter. Property taxes to fund government
operations other than the public school system are limited to $10 per $1,000
in fiscal year 1991-92 and thereafter. Property taxes are categorized as
those revenues raised to fund the public school system (defined as
educational or support services by any government from pre-kindergarten
through post-graduate training) and those used to fund all government
operations other than the public school system.
The State Legislature is required to replace from the State's general
fund the revenues lost by the public school system during the fiscal years
1991-92 through 1995-96. The amount of each year's replacement revenue is
calculated by using the loss of school property tax revenue in each prior
year plus six percent. The State is obliged to replace funds lost from
property taxes; however, it is under no obligation to maintain levels of
State school support from other sources at previous levels. Therefore the
total amount of funding available to school districts for operations is
expected to be reduced. The impact on each school district will vary.
At present, it is difficult to assess the impact of the tax limitation
measure, in part, because it will not be fully phased in until fiscal year
1995-1996. In addition, the effect of the measure is also dependent on
whether alternative revenue sources are obtained and, if so, the type and
amount of such revenues. The adoption of the tax limitation measure may have
an adverse effect on the general financial condition of affected cities,
counties, school districts and other districts, AND MAY, IN SOME CASES,
IMPAIR THEIR ABILITY TO PAY OBLIGATIONS OTHER THAN GENERAL OBLIGATION BONDS.
In addition, the adoption of the tax limitation measure will require the
Legislature to provide funds from its general fund to replace tax revenues
lost by the public school system through fiscal year 1995-96. This could have
an adverse effect on the State's credit rating, particularly if alternative
revenue sources are not obtained. Moreover, the tax limitation measure might
contract the overall size of the Oregon municipal bond market and might have
some adverse effect the value of the Trust's portfolio.
PERFORMANCE
As noted in the Prospectus, the Trust may from time to time quote
various performance figures to illustrate its past performance.
Performance quotations by investment companies are subject to rules of
the Securities and Exchange Commission ("SEC"). These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Trust be accompanied
by certain standardized performance information computed as required by the
SEC. Current yield and average annual compounded total return quotations used
by the Trust are based on these standardized methods. 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 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.
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to
shareholders only for the limited historical period used.
INVESTMENT RESTRICTIONS
The Trust has a number of policies concerning what it can and cannot do.
Those that are called fundamental policies cannot be changed unless the
holders of a "majority" (as defined in the 1940 Act) of the Trust's
outstanding shares vote to change them. Under that Act, the vote of the
holders of a "majority" of the Trust's outstanding shares means the vote of
the holders of the lesser of (a) 67% or more of the Trust's shares present at
a meeting or represented by proxy if the holders of more than 50% of its
shares are so present or represented; or (b) more than 50% of the Trust's
outstanding shares. Those fundamental policies not set forth in the
Prospectus are set forth below:
1. THE TRUST INVESTS ONLY IN CERTAIN LIMITED SECURITIES.
The Trust cannot buy any securities other than Oregon Obligations
(discussed under "Investment of the Trust's Assets" in the Prospectus),
Municipal Bond Index Futures, U.S. Government Securities Futures and options
on Futures; therefore the Trust cannot buy any voting securities, any
commodities or commodity contracts other than Municipal Bond Index Futures
and U.S. Government Securities Futures, any mineral related programs or
leases, any shares of other investment companies or any warrants, puts, calls
or combinations thereof other than on Futures.
The Trust cannot purchase or hold the securities of any issuer if, to
its knowledge, Trustees, Directors or officers of the Trust or its Adviser
individually owning beneficially more than 0.5 of 1% of the securities of
that issuer together own in the aggregate more than 5% of such securities.
The Trust cannot buy real estate or any non-liquid interests in real
estate investment trusts; however, it can buy any securities which it can
otherwise buy even though the issuer invests in real estate or has interests
in real estate.
2. THE TRUST DOES NOT BUY FOR CONTROL.
The Trust cannot invest for the purpose of exercising control or
management of other companies.
3. THE TRUST DOES NOT SELL SECURITIES IT DOES NOT OWN OR BORROW FROM BROKERS
TO BUY SECURITIES.
Thus, it cannot sell short or buy on margin; however, the Trust can make
margin deposits in connection with the purchase or sale of Municipal Bond
Index Futures, U.S. Government Securities Futures and options on them, and
can pay premiums on these options.
4. THE TRUST IS NOT AN UNDERWRITER.
The Trust cannot engage in the underwriting of securities, that is, the
selling of securities for others. Also, it cannot invest in restricted
securities. Restricted securities are securities which cannot freely be sold
for legal reasons.
DISTRIBUTION PLAN
As used in the Trust's Distribution Plan (the "Plan") "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 ("Related
Agreements") contemplated by the Rule and which have rendered assistance
(whether direct, administrative, or both) in the distribution and/or
retention of the Trust's shares or servicing of shareholder accounts.
"Qualified Holdings" means, as to any Qualified Recipient, all Trust
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 Trust shares and/or in providing administrative assistance
in relation thereto.
At the present time most of the outstanding shares of the Trust would be
considered Qualified Holdings of various broker-dealers unaffiliated with the
Distributor, including a broker-dealer affiliated with the Adviser. 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, except that shares
representing investment in the Trust by the Adviser of assets over which it
has control will not be considered Qualified Holdings of any person.
Under the Plan, subject to the direction and control of the Trustees,
through June 30, 1995, the Trust was authorized to make payments ("Permitted
Payments") to Qualified Recipients, which Permitted Payments shall be made
directly, or through the Distributor 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) of 0.05 of 1% of average
annual net assets of the Trust with respect to net assets of the Trust up to
$360 million and at an annual rate of 0.15 of 1% with respect to such assets
above $360 million; effective July 1, 1995 such payments will be made at the
rate of 0.15 of 1% of all such net assets. 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.
Under the Plan the Distributor will 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 Permitted Payments, if any, to
each Qualified Recipient provided that the total Permitted Payments to all
Qualified Recipients do not exceed the amount set forth above.
The Distributor is authorized under the Plan, 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, 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 Administrator 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.
Another part of the plan 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 of all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of preparation, setting
in type, 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 whenever, the Administrator (i) makes any payment
directly or through the Distributor for additional compensation to dealers in
connection with sales of shares of the Trust which additional compensation
may include payment or partial payment for advertising of the Trust's shares,
payment of travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and members of their
families to locations within or outside of the United States, other prizes or
financial assistance to securities dealers in offering their own seminars or
conferences, or other items described in the Trust's prospectus, in amounts
that will not exceed the amount of the sales charges in respect of sales of
shares of the Trust effected through such participating dealers whether
retained by the Distributor or reallowed to participating dealers, or (ii)
bears the costs, not borne by the Trust's Distributor, of printing and
distributing all copies of the Trust's prospectuses, statements of additional
information and reports to shareholders which are not sent to the Trust's
shareholders, or the costs of supplemental sales literature and advertising,
such payments are authorized.
The Plan states that it is recognized that, in view of the bearing by
the Administrator of certain distribution expenses, the profits, if any, of
the Administrator are dependent primarily on the administration fees paid by
the Trust to the Administrator and that its profits, if any, would be less,
or losses, if any, would be increased due to the bearing by it of such
expenses. If and to the extent that any such administration fees paid by the
Trust might, in view of the foregoing, be considered as indirectly financing
any activity which is primarily intended to result in the sale of shares
issued by the Trust, the payment of such fees is authorized by the Plan.
The purpose of these provisions are to allow the Administrator to assist
in marketing of the Trust's shares to the extent it determines that it is
desirable to do so; the Administrator is not obligated to make any of the
foregoing payments and may choose not to do so.
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
shall report at least quarterly to the Trust's Board of Trustees in writing
all costs of each item specified in the second preceding paragraph (making
estimates of such costs where necessary or desirable) during the preceding
calendar or fiscal quarter.
The Plan defines as the Trust's Independent Trustees those Trustees who
are not "interested persons" of the Business 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.
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 January 2, 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 of the Trust and President and a Director of the Administrator since
1984; Founder, President and Chairman of the Board of Trustees of Hawaiian
Tax-Free Trust since 1984 and Tax-Free Trust of Arizona since 1986, of
Churchill Tax-Free Fund of Kentucky and Tax-Free Fund of Colorado since 1987
and of Tax-Free Fund For Utah and Narragansett Insured Tax-Free Income Fund
since 1992, all of which are tax-free municipal bond funds, and an equity
fund, Aquila Rocky Mountain Equity Fund since 1993, to all of which the
Administrator is administrator and which are referred to as the "Bond and
Equity Funds"; Chairman and President, Chief Executive Officer (Chairman of
the Board of Trustees and/or President) and Trustee of Capital Cash
Management Trust ("CCMT"), since 1981 and Founder and executive officer
(since 1974) of CCMT and its predecessor; Founder, President and Chairman of
the Board of Trustees of Prime Cash Fund since 1982, of Short Term Asset
Reserves and Pacific Capital Cash Assets Trust since 1984, of Churchill Cash
Reserves Trust since 1985, of Pacific Capital Tax-Free Cash Assets Trust and
of Pacific Capital U.S. Treasuries Cash Assets Trust since 1988 and of
Cascades Cash Fund, 1989-1994, all of which are money market funds to which
the Administrator is administrator and which are referred to as the "Money
Funds"; Vice President, a Director and Secretary since 1981 (formerly
Treasurer) of the Distributor, which is distributor (i.e., principal
underwriter) for the Money Funds and the Bond and Equity Funds; President and
a Director of STCM Management Company, Inc., 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; Director or Trustee of the various Quest for Value Funds, a group
of stock, bond and money market mutual funds, since 1983; Director of
Saratoga Advantage Trust, a group of mutual funds, since 1994; 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 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 coordinator, 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 Money Funds and the Bond and Equity Funds
since 1991; Treasurer of the Money Funds and the Bond and Equity Funds, 1981-
1991; formerly Treasurer of the predecessor of CCMT; Treasurer and Director
of STCM Management Company, Inc., since 1974; Treasurer of Trinity Liquid
Assets Trust, 1982-1986 and of Oxford Cash Management Fund, 1982-1988;
Treasurer of InCap Management Corporation since 1982, of the Administrator
since 1984 and of the Distributor since 1985.
RICHARD F. WEST, Treasurer, 380 Madison Avenue, New York, New York 10017
Treasurer of the Money Funds and the 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 Money Funds
and the 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, Assistant Secretary, 380 Madison Avenue, New York, New York
10017
Assistant Secretary of the Money Funds and the Bond and Equity Funds since
1995; Vice President of the Money 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 Money Funds and the 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 14
funds in the Aquilasm Group of Funds, which consist of tax-free municipal
bond funds, money market funds and an equity fund. The following table lists
the compensation of all Trustees who received compensation from the Trust and
the compensation each received during the Trust's fiscal year from all funds
in the Aquilasm Group of Funds and the number of such funds. None of such
Trustees has any pension or retirement benefits from the Trust or any of the
other funds in the Aquila group.
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Trust Group serves
Vernon R.
Alden $8,427 $30,638 6
Warren C.
Coloney $8,654 $8,654 1
James A.
Gardner $6,675 $6,675 1
Ann R.
Leven $6,350 $14,300 3
Raymond H.
Lung $7,886 $7,886 1
Richard C.
Ross $7,885 $7,885 1
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
ADDITIONAL INFORMATION AS TO THE ADVISORY AGREEMENT
The Investment Advisory Agreement (the "Advisory Agreement") between the
Trust and Qualivest Capital Management, Inc. (the "Adviser") contains the
provisions described below, in addition to those described in the Prospectus.
The Advisory Agreement may be terminated by the Adviser at any time
without penalty upon giving the Trust sixty days' written notice, and may be
terminated by the Trust at any time without penalty upon giving the Adviser
sixty days' written notice, provided that such termination by the Trust shall
be directed or approved by the vote of a majority of all its Trustees in
office at the time or by the vote of the holders of a majority (as defined in
the 1940 Act) of its voting securities at the time outstanding and entitled
to vote; it automatically terminates in the event of its assignment (as so
defined).
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Adviser is not liable for any loss sustained by
the adoption of any investment policy or the purchase, sale or retention of
any security and permits the Adviser to act as investment adviser for any
other person, firm or corporation. The Trust agrees to indemnify the Adviser
to the full extent permitted under the Trust's Declaration of Trust.
The expense limitation referred to in the Prospectus, if in effect, is
implemented monthly so that at no time is there any unpaid liability under
the limitation, subject to readjustment during the year.
The Advisory Agreement states that it is agreed that the Adviser shall
have no responsibility or liability for the accuracy or completeness of the
Trust's Registration Statement under the Securities Act of 1933 and the 1940
Act, except for the information supplied by the Adviser for inclusion
therein.
The Advisory Agreement contains the following provisions as to the
Trust's portfolio transactions. In connection with its duties to arrange for
the purchase and sale of the Trust's portfolio securities, the Adviser shall
select such broker-dealers ("dealers") as shall, in the Adviser's judgment,
implement the policy of the Trust to achieve "best execution," i.e., prompt,
efficient and reliable execution of orders at the most favorable net price.
The Adviser shall cause the Trust to deal directly with the selling or
purchasing principal or market maker without incurring brokerage commissions
unless the Adviser determines that better price or execution may be obtained
by paying such commissions; the Trust expects that most transactions will be
principal transactions at net prices and that the Trust will incur little or
no brokerage costs. The Trust understands that purchases from underwriters
include a commission or concession paid by the issuer to the underwriter and
that principal transactions placed through dealers include a spread between
the bid and asked price. In allocating transactions to dealers, the Adviser
is authorized to consider, in determining whether a particular dealer will
provide best execution, the dealer's reliability, integrity, financial
condition and risk in positioning the securities involved, as well as the
difficulty of the transaction in question, and thus need not pay the lowest
spread or commission available if the Adviser determines in good faith that
the amount of commission is reasonable in relation to the value of the
brokerage and research services provided by the dealer, viewed either in
terms of the particular transaction or the Adviser's overall responsibilities
as to the accounts as to which it exercises investment discretion. If, on the
foregoing basis, the transaction in question could be allocated to two or
more dealers, the Adviser is authorized, in making such allocation, to
consider (i) whether a dealer has provided research services, as further
discussed below; and (ii) whether a dealer has sold shares of the Trust or
any other investment company or companies having the Adviser as its
investment adviser or having the same sub-adviser, Administrator or principal
underwriter as the Trust. Such research may be in written form or through
direct contact with individuals and may include quotations on portfolio
securities and information on particular issuers and industries, as well as
on market, economic or institutional activities. The Trust recognizes that no
dollar value can be placed on such research services or on execution
services, that such research services may or may not be useful to the Trust
and/or other accounts of the Adviser and that research received by such other
accounts may or may not be useful to the Trust.
During the fiscal year ended September 30, 1995, all of the Trust's
transactions were principal transactions and no brokerage commissions were
paid.
For the three fiscal years ended September 30, 1995, 1994 and 1993,
respectively, fees of $729,908, $819,214 and $714,343 were paid or accrued to
the Adviser.
ADDITIONAL INFORMATION AS TO THE ADMINISTRATION AGREEMENT
In addition to the provisions of the Administration Agreement (the
"Administration Agreement") between the Administrator and the Trust described
in the Prospectus, the Administration Agreement contains the provisions
described below.
Subject to the control of the Trust's Board of Trustees, the
Administrator provides all administrative services to the Trust other than
those relating to its investment portfolio and the maintenance of its
accounting books and records (see below for discussion); as part of such
duties, the Administrator (i) provides office space, personnel, facilities,
and equipment for the performance of the following functions and for the
maintenance of the Trust's headquarters; (ii) oversees all relationships
between the Trust and its transfer agent, custodian, legal counsel, auditors
and principal underwriter, including the negotiation, subject to the approval
of the Trust's Board of Trustees, of agreements in relation thereto, the
supervision and coordination of the performance of such agreements, and the
overseeing of all administrative matters which are necessary or desirable for
effective operation and for the sale, servicing, or redemption of the Trust's
shares; (iii) provides to the Adviser and to the Trust statistical and other
factual information and advice regarding economic factors and trends, but
does not generally furnish advice or make recommendations regarding the
purchase or sale of securities; (iv) maintains the Trust's books and records
(other than accounting books and records), and prepares (or assists counsel
and auditors in the preparation of) all required proxy statements, reports to
shareholders and Trustees, reports to and other filings with the Securities
and Exchange Commission and any other governmental agencies, and tax returns,
and oversees the Trust's insurance relationships; (v) prepares, on the
Trust's behalf and at its expense, such applications and reports as may be
necessary to register or maintain the Trust's registration or that of its
shares under the securities or "Blue-Sky" laws of all such jurisdictions as
may be required from time to time; (vi) responds to any inquiries or other
communications from shareholders and broker-dealers, or if any such inquiry
or communication is more properly to be responded to by the Trust's
shareholder servicing and transfer agent or distributor, oversees such
shareholder servicing and transfer agent's or distributor's response thereto.
Since the Trust pays its own legal and audit expenses, to the extent that the
Trust's counsel and accountants prepare or assist in the preparation of
prospectuses, proxy statements and reports to shareholders, the costs of such
preparation or assistance are paid by the Trust.
The expense limitation referred to in the Prospectus, if in effect, is
implemented monthly so that at no time is there any unpaid liability under
the limitation, subject to readjustment during the year.
The Administration Agreement may be terminated at any time without
penalty by the Administrator upon sixty days' written notice to the Trust and
the Adviser; it may be terminated by the Trust at any time without penalty
upon giving the Administrator sixty days' written notice, provided that such
termination by the Trust shall be directed or approved by a vote of a
majority of the Trustees in office at the time, including a majority of the
Trustees who are not interested persons of the Trust. In either case the
notice provision may be waived.
The Administration Agreement provides that the Administrator shall not
be liable for any error in judgement or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence of the Administrator in the performance of its duties, or from
reckless disregard by it of its obligations and duties under the
Administration Agreement. The Trust agrees to indemnify the Administrator to
the full extent permitted by the Declaration of Trust.
For the three fiscal years ended September 30, 1995, 1994 and 1993,
respectively, fees of $729,908, $819,214 and $714,343 were paid or accrued to
the Administrator.
GLASS-STEAGALL ACT
Federal banking laws and regulations presently prohibit a national bank
or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance
of its shares, and generally from underwriting, selling or distributing
securities, such as shares of the Trust.
The Adviser is a subsidiary of a national bank and is an affiliate of a
bank holding company. Therefore, it is subject to applicable federal banking
laws and regulations. The Adviser has been advised by its counsel, Miller,
Nash, Wiener, Hager & Carlsen, that the Adviser may perform the advisory
services for the Trust required by the Advisory Agreement, without violating
federal banking laws and regulations. Moreover, such counsel have advised
that changes in federal banking laws and regulations related to the
permissible activities of national banks, subsidiaries of national banks, and
national banks and their subsidiaries that are affiliates of a bank holding
company, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent
the Adviser from continuing to serve as investment adviser to the Trust or
could restrict the services which the Adviser is permitted to perform for the
Trust.
In the event that the Adviser is prohibited from acting as the Trust's
investment adviser, it is probable that the Board of Trustees of the Business
Trust would either recommend to the shareholders the selection of another
qualified adviser or, if that course of action appeared impractical, that the
Trust be liquidated.
COMPUTATION OF NET ASSET VALUE
The net asset value of the Trust's shares is determined as of 4:00 p.m.,
New York time, on each day that the New York Stock Exchange is open, by
dividing the value of the Trust's net assets by the total number of its
shares then outstanding. However, Futures and options on them are valued at
the last sales price on the principal commodities exchange on which the
Future or option is traded or, if there are no sales, at the mean between the
bid and asked prices as of the close of that exchange; such close may be
later than 4:00 p.m., New York time. Securities having a remaining maturity
of less than sixty days when purchased and securities originally purchased
with maturities in excess of sixty days but which currently have maturities
of sixty days or less are valued at cost adjusted for amortization of
premiums and accretion of discounts. All other portfolio securities are
valued at the mean between bid and asked quotations which, for Oregon
Obligations, may be obtained from a reputable pricing service or from one or
more broker-dealers dealing in Oregon Obligations, either of which may, in
turn, obtain quotations from broker-dealers or banks which deal in specific
issues. However, since Oregon Obligations are ordinarily purchased and sold
on a "yield" basis by banks or dealers which act for their own account and do
not ordinarily make continuous offerings, quotations obtained from such
sources may be subject to greater fluctuations than is warranted by
prevailing market conditions. Accordingly, some or all of the Oregon
Obligations in the Trust's portfolio may be priced, with the approval of the
Trust's Board of Trustees, by differential comparisons to the market in other
municipal bonds under methods which include consideration of the current
market value of tax-free debt instruments having varying characteristics of
quality, yield and maturity. Any securities or assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under procedures established by and under the
general supervision and responsibility of the Trust's Board of Trustees. In
the case of Oregon Obligations, such procedures may include "matrix"
comparisons to the prices for other tax-free debt instruments on the basis of
the comparability of their quality, yield, maturity and other special
factors, if any, involved. With the approval of the Trust's Board of
Trustees, the Adviser may at its own expense and without reimbursement from
the Trust employ a pricing service, bank or broker-dealer experienced in such
matters to perform any of the above described functions.
As indicated above, the net asset value per share of the Trust's shares
will be determined on each day that the New York Stock Exchange is open. That
Exchange annually announces the days on which it will not be open. The most
recent announcement indicates that it will not be open on the following days:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, that Exchange may
close on days not included in that announcement.
REASONS FOR DIFFERENCES IN PUBLIC OFFERING PRICE
As described herein and in the Prospectus, there are a number of
instances in which the Trust's shares are sold or issued on a basis other
than the maximum public offering price, that is, the net asset value plus the
highest sales charge. Some of these relate to lower or eliminated sales
charges for larger purchases, whether made at one time or over a period of
time as under a Letter of Intent or right of accumulation. (See the table of
sales charges in the Prospectus.) The reasons for these quantity discounts
are, in general, that (i) they are traditional and have long been permitted
in the industry and are therefore necessary to meet competition as to sales
of shares of other funds having such discounts; (ii) certain quantity
discounts are required by rules of the National Association of Securities
Dealers, Inc. (as are elimination of sales charges on the reinvestment of
dividends and distributions); and (iii) they are designed to avoid an unduly
large dollar amount of sales charge on substantial purchases in view of
reduced selling expenses. Quantity discounts are made available to certain
related persons ("single purchasers") for reasons of family unity and to
provide a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges are as follows. Exchanges at net asset value are
permitted because a sales charge has already been paid on the shares
exchanged. Sales without sales charge are permitted to Trustees, officers and
certain others due to reduced or eliminated selling expenses and/or since
such sales may encourage incentive, responsibility and interest and an
identification with the aims and policies of the Trust. Limited reinvestments
of redemptions at no sales charge are permitted to attempt to protect against
mistaken or incompletely informed redemption decisions. Shares may be issued
at no sales charge in plans of reorganization due to reduced or eliminated
sales expenses and since, in some cases, such issuance is exempted in the
1940 Act from the otherwise applicable restrictions as to what sales charge
must be imposed. In no case in which there is a reduced or eliminated sales
charge are the interests of existing shareholders adversely affected since,
in each case, the Trust receives the net asset value per share of all shares
sold or issued.
AUTOMATIC WITHDRAWAL PLAN
Any shareholder who owns or purchases shares of the Trust having a net
asset value of at least $5,000 may establish an Automatic Withdrawal Plan
under which he or she will receive a monthly or quarterly check in a stated
amount, not less than $50. Stock certificates will not be issued for shares
held under an Automatic Withdrawal Plan. All dividends and distributions must
be reinvested. Shares will be redeemed on the last business day of the month
or quarter as may be necessary to meet withdrawal payments.
Redemption of shares for withdrawal purposes may reduce or even
liquidate the account. Monthly or quarterly payments paid to shareholders may
not be considered as a yield or income on investment.
ADDITIONAL TAX INFORMATION
Any investor who incurs a sales commission on purchase of shares of one
mutual fund (the original fund) and who then sells such shares or exchanges
them for shares of a different mutual fund without having held them at least
91 days must reduce the tax basis for the shares sold or exchanged to the
extent that the standard sales commission charged for acquiring shares in the
exchange or later acquiring shares of the original fund or another fund is
reduced because of the shareholder's having owned the original fund shares.
The effect of the rule is to increase the investor's gain or reduce his or
her loss on the original fund shares. The amount of the basis reduction on
the original fund shares, however, is added on the investor's basis for the
fund shares acquired in the exchange or later acquired. The provision applies
to commissions charged after October 3, 1989.
GENERAL INFORMATION
ADDITIONAL SERIES
Shares of each Series of the Business Trust created by the Board of
Trustees are entitled to vote as a Series only to the extent permitted by the
1940 Act (see below) or as permitted by the Board of Trustees. Income and
operating expenses are allocated among Series in a manner acceptable to the
Board of Trustees.
Under Rule 18f-2 under the 1940 Act, as to any investment company which
has two or more Series outstanding, on any matter required to be submitted to
shareholder vote, such matter is not deemed to have been effectively acted
upon unless approved by the holders of a "majority" (as defined in that Rule)
of the voting securities of each Series affected by the matter. Such separate
voting requirements do not apply to the election of trustees or the
ratification of the selection of accountants. Rule 18f-2 contains special
provisions for cases in which an advisory contract is approved by one or
more, but not all, Series. A change in investment policy may go into effect
as to one or more Series whose holders so approve the change, even though the
required vote is not obtained as to the holders of other affected Series.
INDEMNIFICATION OF SHAREHOLDERS AND TRUSTEES
Under Massachusetts law, shareholders of a trust such as the Business
Trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. For shareholder protection, however, an
express disclaimer of shareholder liability for acts or obligations of the
Business Trust is contained in the Declaration of Trust which requires that
notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Business Trust or the Trustees.
The Declaration of Trust provides for indemnification out of the Business
Trust's property of any shareholder held personally liable for the
obligations of the Business Trust. The Declaration of Trust also provides
that the Business Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Business Trust
and satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to the
relatively remote circumstances in which the Business Trust itself would be
unable to meet its obligations. If any Series of the Business Trust were to
be unable to meet the obligations attributable to it (which, as is the case
with the Trust, is relatively remote), the other Series would be subject to
such obligations, with a corresponding increase in the risk of the
shareholder liability mentioned in the prior sentence.
The Declaration of Trust further indemnifies the Trustees of the
Business Trust out of the property of the Trust and provides that they will
not be liable for errors of judgment or mistakes of fact or law; but nothing
in the Declaration of Trust protects a Trustee against any liability to which
he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of the office of Trustee.
CUSTODIAN AND AUDITORS
The Trust's Custodian, Bank One Trust Company, N.A., is responsible for
holding the Trust's assets.
The Trust's auditors, KPMG Peat Marwick LLP, perform an annual audit of
the Trust's financial statements.
The financial statements of the Trust for the fiscal year ended
September 30, 1995, which are contained in the Annual Report for that fiscal
year, are hereby incorporated by reference into the Additional Statement.
Those financial statements have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon is incorporated herein by
reference.
UNDERWRITING COMMISSIONS
During the Trust's fiscal year ended September 30, 1995, the aggregate
dollar amount of sales charges on the sales of the Trust's shares was
$652,963 and the amount retained by the Distributor was $85,550.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
MUNICIPAL BOND RATINGS
STANDARD & POOR'S. A Standard & Poor's municipal obligation rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment may take into consideration obligors
such as guarantors, insurers
or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay
interest and repay principal and differs from the highest
rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher
rated categories.
Plus (+) or Minus (:): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with respect to
such likelihood and risk.
MOODY'S INVESTORS SERVICE. A brief description of the applicable Moody's
Investors Service rating symbols and their meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge". Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1,
Baa1, Ba1 and B1.
MOODY'S SHORT TERM LOAN RATINGS - There are four rating categories for
short-term obligations, all of which define an investment grade situation.
These are designated Moody's Investment Grade as MIG 1 through MIG 4. In the
case of variable rate demand obligations (VRDOs), two ratings are assigned;
one representing an evaluation of the degree of risk associated with
scheduled principal and interest payments, and the other representing an
evaluation of the degree of risk associated with the demand feature. The
short-term rating assigned to the demand feature of VRDOs is designated as
VMIG. When no rating is applied to the long or short-term aspect of a VRDO,
it will be designated NR. Issues or the features associated with MIG or VMIG
ratings are identified by date of issue, date of maturity or maturities or
rating expiration date and description to distinguish each rating from other
ratings. Each rating designation is unique with no implication as to any
other similar issue of the same obligor.MIG ratings terminate at the
retirement of the obligation while VMIG rating expiration will be a function
of each issuer's specific structural or credit features.
MIG1/VMIG1 This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to
the market for refinancing.
MIG2/VMIG2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
MIG3/VMIG3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity
and cash flow protection may be narrow and market access
for refinancing is likely to be less well established.
MIG4/VMIG4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security
is present and although not distinctly or predominantly
speculative, there is specific risk.
<PAGE>
INVESTMENT ADVISER
Qualivest Capital 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, 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
