Registration Nos. 33-4382 & 811-4626
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 21 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 20 [ X ]
THE CASCADES TRUST
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue, 27th Floor
New York, New York 10176
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
___
[___] immediately upon filing pursuant to paragraph (b)
[___] on (date), pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph (a)(i)
[_X_] on January 31, 1998 pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new
effective date for a previous post-effective amendment.
<PAGE>
THE CASCADES TRUST
CROSS REFERENCE SHEET
Part A of
Form N-1A
Item No. Prospectus Caption(s)
1..............Cover Page
2..............Table of Expenses
3..............Financial Highlights; General Information
4..............Introduction; Highlights; Investment of the
Trust's Assets; Investment Restrictions;
General Information
5..............Management Arrangements
5A.............**
6..............General Information; Alternative Purchase
Plans; Dividend and Tax Information
7..............Net Asset Value per Share; Alternative
Purchase Plans; How to Invest in
the Trust; Exchange Privilege
8..............How to Redeem Your Investment; Automatic
Withdrawal Plan; Exchange Privilege
9..............*
Part B of
Form N-1A Statement of Additional Information
Item No. or Prospectus Caption(s)
10.............Cover Page
11.............Cover Page
12.............*
13.............Investment of the Trust's Assets; Municipal
Bonds; Investment Restrictions
14.............Trustees and Officers
15.............General Information
Trustees and Officers
16.............Additional Information as to Management
Arrangements; General Information
17.............Additional Information as to Management
Arrangements
18.............General Information
19.............Limitations of Redemptions in Kind; Computation
of Net Asset Value; Automatic Withdrawal
Plan; Distribution Plan
20.............Additional Tax Information
21.............How to Invest in the Trust (Prospectus
caption); General Information
22.............Performance
* Not applicable or negative answer
** Contained in the annual report of the Registrant
<PAGE>
Tax-Free Trust of Oregon
380 Madison Avenue, Suite 2300
New York, New York 10017
800-USA-OREG (800-872-6734)
212-697-6666
Prospectus
Class A Shares
Class C Shares January 31, 1998
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 Sub-Adviser, U.S. Bank
National Association, 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, 1998, has been filed with the
Securities and Exchange Commission and is available without
charge upon written request to PFPC Inc., 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, U.S. BANK NATIONAL ASSOCIATION, BY
ANY OF ITS AFFILIATES OR BY 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 Shareholder Servicing Agent:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
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>
Max Light Rail
[PICTURE]
Clackamas County School District
[PICTURE]
State of Oregon
[PICTURE]
Rogue Valley Hospital
[PICTURE]
City of Portland
[PICTURE]
Tax-Free Trust of Oregon
[LOGO]
Portland International Airport
[PICTURE]
City of Salem
[PICTURE]
Oregon Convention Center
[PICTURE]
Eugene Water & Electric Board
[PICTURE]
Reed College
[PICTURE]
The Trust invests in tax-free municipal securities,
primarily the kinds of obligations issued by various communities
and political subdivisions within Oregon. Most of these
securities are used to finance long-term municipal projects:
examples are pictured above. (See "Investment of the Trust's
Assets.") The municipal obligations which financed these
particular projects were included in the Trust's portfolio as of
October 31, 1997 and together represented 26% of the Trust's
portfolio. Since the portfolio is subject to change, the Trust
may not necessarily own these specific securities at the time of
the delivery of this Prospectus.
<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 regular Federal
and State of Oregon income taxes. Dividends paid by the Trust
from this income are likewise free of both such taxes. It is,
however, possible that in certain circumstances a small portion
of the dividends paid by the Trust will be subject to income
taxes. The Federal alternative minimum tax may apply to some
investors, but its impact will be limited since not more than 20%
of the Trust's net assets can be invested in obligations paying
interest which is subject to this tax. The receipt of
exempt-interest dividends from the Trust may result in some
portion of social security payments or railroad retirement
benefits being included in taxable income. Capital gains
distributions, if any, are taxable. (See "Dividend and Tax
Information.")
Investment Grade - The Trust will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or are determined
by the Sub-Adviser to be of comparable quality. In general, there
are nine separate credit ratings, ranging from the highest to the
lowest credit ratings for municipal obligations. Obligations
within the top four ratings are considered "investment grade,"
but those in the fourth rating may have speculative
characteristics as well. (See "Investment of the Trust's
Assets.")
Initial Investment - You may open your account with any
purchase of $1,000 or more or by opening an Automatic Investment
Program which makes purchases of $50 or more each month. (See the
Application, which is in the back of the Prospectus and "How to
Invest in the Trust," which includes applicable sales charge
information.)
Additional Investments - You may make additional investments
at any time and in any amount, directly or, if in an amount of
$50 or more, through the convenience of having your investment
electronically transferred from your financial institution
account into the Trust by Automatic Investment or Telephone
Investment. (See "How to Invest in the Trust.")
Alternative Purchase Plans - The Trust provides two
alternative ways for individuals to invest. (See "Alternative
Purchase Plans.") One way permits individual investors to pay
distribution and certain service charges principally at the time
they purchase shares; the other way permits investors to pay such
costs over a period of time, but without paying anything at time
of purchase, much as goods can be purchased on an installment
plan. For this purpose the Trust offers the following classes of
shares, which differ in their expense levels and sales charges:
* Front-Payment Class Shares ("Class A Shares") are
offered to anyone at net asset value plus a sales
charge, paid at the time of purchase, at the maximum
rate of 4.0% of the public offering price, with lower
rates for larger purchases. (See "How to Purchase Class
A Shares.") Class A Shares are subject to an asset
retention service fee under the Trust's Distribution
Plan at the rate of 0.15 of 1% of the average annual
net assets represented by the Class A Shares. (See
"Distribution Plan.")
* Level-Payment Class Shares ("Class C Shares") are
offered to anyone at net asset value with no sales
charge payable at the time of purchase but with a level
charge for service and distribution fees for six years
after the date of purchase at the aggregate annual rate
of 1% of the average annual net assets of the Class C
Shares. (See "Distribution Plan" and "Shareholder
Services Plan for Class C Shares.") Six years after the
date of purchase, Class C Shares are automatically
converted to Class A Shares. If you redeem Class C
Shares before you have held them for 12 months from the
date of purchase you will pay a contingent deferred
sales charge ("CDSC"); this charge is 1%, calculated on
the net asset value of the Class C Shares at the time
of purchase or at redemption, whichever is less. There
is no CDSC after Class C Shares have been held beyond
the applicable period. (See "Alternative Purchase
Plans," "Computation of the Holding Periods for Class C
Shares" and "How to Purchase Class C Shares.")
The Trust also issues Institutional Class Shares ("Class
Y Shares") that are sold only to certain institutional investors
and Financial Intermediary Class Shares ("Class I Shares") which
are offered and sold only through certain financial
intermediaries. Class Y Shares and Class I Shares are not offered
by this Prospectus.
Class A Shares and Class C Shares are only offered for
sale in certain states. (See "How to Invest in the Trust.") If
shares of the Trust are sold outside those states the Trust can
redeem them. If your state of residence is not Oregon, the
dividends from the Trust may be subject to income taxes of the
state in which you reside. Accordingly, you should consult your
tax adviser before acquiring shares of the Trust.
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends are paid by check mailed to
you, directly deposited into your financial institution account
or automatically reinvested without sales charge in additional
shares of the Trust at the then-current net asset value. Specific
classes of shares will have different dividend amounts due to
their particular expense levels. (See "Dividend and Tax
Information.")
Many Different Issues - You have the advantages of a
portfolio which consists of over 190 issues with different
maturities. (See "Investment of the Trust's Assets.")
Local Portfolio Management - U.S. Bank National
Association, (the "Sub-Adviser") a subsidiary of US Bancorp,
serves as the Trust's Investment Sub-Adviser, providing
experienced local professional management. The Trust pays
management fees at a rate of up to 0.40 of 1% of average annual
net assets to its Manager which in turn pays 0.20 of 1% of
average annual net assets to the Sub-Adviser (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.")
Redemptions - Liquidity - You may redeem any amount of your
account on any business day at the next determined net asset
value by telephone, FAX or mail request, with proceeds being sent
to a predesignated financial institution, if you have elected
Expedited Redemption. Proceeds will be wired or transferred
through the facilities of the Automated Clearing House, wherever
possible, upon request, if in an amount of $1,000 or more, or
will be mailed. For these and other redemption procedures see
"How to Redeem Your Investment." There are no penalties or
redemption fees for redemption of Class A Shares. However, there
is a contingent deferred sales charge with respect to certain
Class A Shares which have been purchased in amounts of $1 million
or more (see "Purchase of $1 Million or More"). If you redeem
Class C Shares before you have held them for 12 months from the
date of purchase you will pay a contingent deferred sales charge
("CDSC") at the rate of 1%. (See "Alternative Purchase Plans" -
"Class C Shares.")
Certain Stabilizing Measures - The Trust may employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Exchanges - You may exchange Class A or Class C Shares of
the Trust into corresponding classes of shares of other Aquila-
sponsored tax-free municipal bond mutual funds or two Aquila-
sponsored equity funds. You may also exchange them into shares of
the Aquila-sponsored money market funds. The exchange prices will
be the respective net asset values of the shares. (See "Exchange
Privilege.")
Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Trust's portfolio securities, which fluctuate with market
conditions including prevailing interest rates. Accordingly, the
proceeds of redemptions may be more or less than your original
cost. (See "Factors Which May Affect the Value of the Trust's
Investments and Their Yields.") The Trust's assets, being
primarily or entirely Oregon issues, are subject to economic and
other conditions affecting Oregon. (See "Risk Factors 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
Class A Class C
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.00% None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends None None
Maximum Deferred Sales Charge None(1) 1.00%(2)
Redemption Fees None None
Exchange Fee None None
Annual Trust Operating Expenses (3)
(as a percentage of average net assets)
Management Fee (4) 0.40% 0.40%
12b-1 Fee 0.15% 0.75%
All Other Expenses (5) 0.18% 0.43%
Service Fee None 0.25%
Other Expenses (5) 0.18% 0.18%
Total Trust Operating Expenses (5) 0.73% 1.58%
Example (6)
You would pay the following expenses on a $1,000 investment, assuming
a 5% annual return and redemption at the end of each time period:
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares $47 $62 $79 $127
Class C Shares
With complete redemption
at end of period $26 $50 $86 $144 (7)
With no redemption $16 $50 $86 $144 (7)
<FN>
(1) Certain shares purchased in transactions of $1 million or more
without a sales charge may be subject to a contingent deferred sales
charge of up to 1% upon redemption during the first four years after
purchase. See "Purchase of $1 Million or More."
</FN>
<FN>
(2) A contingent deferred sales charge of 1% is imposed on the redemption
proceeds of the shares (or on the original price, whichever is lower) if
redeemed during the first 12 months after purchase.
</FN>
<FN>
(3) Estimated based upon actual expenses incurred by the Trust during its
most recent fiscal year, restated to reflect current arrangements.
</FN>
<FN>
(4) The Trust pays the Manager an advisory fee at the annual rate of 0.40
of 1% of average annual net assets; the Manager pays the Sub-Adviser a
sub-advisory fee at the annual rate of 0.18 of 1% of average annual net
assets. (See "Management Arrangements.")
</FN>
<FN>
(5) Does not reflect a 0.01% expense offset in custodian fees received for
uninvested cash balances. Reflecting this offset, other expenses, all
other expenses, and total Trust operating expenses for Class A Shares
would have been 0.17%, 0.17% and 0.72%, respectively; for Class C Shares,
these expenses would have been 0.17%, 0.42% and 1.57%, respectively.
</FN>
<FN>
(6) The expense example is based upon the above shareholder transaction
expenses (in the case of Class A Shares, this includes a sales charge
of $40 for a $1,000 investment) and annual Trust operating expenses.
It is also based upon amounts at the beginning of each year which
includes the prior year's assumed results. A year's results consist
of an assumed 5% annual return less total operating expenses; the expense
ratio was applied to an assumed average balance (the year's starting
investment plus one-half the year's results). Each figure represents the
cumulative expenses so determined for the period specified.
</FN>
<FN>
(7) Six years after the date of purchase, Class C Shares are automatically
converted to Class A Shares.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL
FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE
ABOVE EXAMPLE. THE ASSUMED 5% ANNUAL RETURN SHOULD NOT BE INTERPRETED AS A
PREDICTION OF AN ACTUAL RETURN, WHICH MAY BE HIGHER OR LOWER. THE EXAMPLE
ALSO REFLECTS THE MAXIMUM SALES CHARGE. (SEE "HOW TO INVEST IN THE TRUST").
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Trust will
bear directly or indirectly.
<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, 1997 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. A copy of these financial
statements can be obtained without charge by calling or writing the
Shareholder Servicing Agent at the address and telephone numbers on the
cover of the Prospectus.
Class A(1) Class C(2)
Year ended September 30, Year Period(3)
Ended Ended
1997 1996 1995 9/30/97 9/30/96
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .............. $10.49 $10.55 $10.20 $10.49 $10.34
Income from Investment
Operations:
Net investment income .. 0.53 0.54 0.55 0.44 0.22
Net gain (loss) on
securities (both
realized and
unrealized) .......... 0.21 (0.05) 0.39 0.20 0.15
Total from Investment
Operations ........... 0.74 0.49 0.94 0.64 0.37
Less Distributions:
Dividends from net
investment income .... (0.54) (0.54) (0.55) (0.45) (0.22)
Distributions from
capital gains ........ (0.01) (0.01) (0.04) (0.01) -
Total Distributions .... (0.55) (0.55) (0.59) (0.46) (0.22)
Net Asset Value, End of
Period ................. $10.68 $10.49 $10.55 $10.67 $10.49
Total Return (not relecting
sales charge)(%) ....... 7.21 4.76 9.52 6.20 3.61+
Ratios/Supplemental Data
Net Assets, End of Period
(in thousands $) ..... 312,005 305,096 310,554 800 336
Ratio of Expenses to
Average Net
Assets (%) .......... 0.72 0.72 0.71 1.57 1.56*
Ratio of Net Investment
Income to Average Net
Assets (%) ........... 5.02 5.16 5.38 4.15 4.18*
Portfolio Turnover Rate .. 5 10 13 5 10
Net investment income per share and the ratios of income and expenses to
average net assets before expense offset in custodian fees for uninvested
cash balances would have been:
Net Investment
Income ($) ........... 0.53 0.54 0.55 0.44 0.22
Ratio of Expenses to
Average Net
Assets (%) ........... 0.73 0.73 0.73 1.58 1.56*
Ratio of Net Investment
Income to Average Net
Assets (%) ........... 5.01 5.15 5.37 4.14 4.17*
<CAPTION>
Class A(1)
Year Ended September 30,
1994 1993 1992 1991 1990 1989 1988
<C> <C> <C> <C> <C> <C> <C>
$10.95 $10.48 $10.15 $9.67 $9.76 $9.67 $9.11
0.56 0.58 0.65 0.62 0.66 0.73 0.61
(0.75) 0.50 0.29 0.49 (0.11) 0.01 0.60
(0.19) 1.08 0.94 1.11 0.55 0.74 1.21
(0.56) (0.58) (0.61) (0.63) (0.64) (0.65) (0.65)
- (0.03) - - - - -
(0.56) (0.61) (0.61) (0.63) (0.64) (0.65) (0.65)
$10.20 $10.95 $10.48 $10.15 $9.67 $9.76 $9.67
1.77 10.64 9.51 11.83 5.76 7.83 13.66
316,317 331,018 249,953 189,734 140,713 122,096 102,361
0.68 0.66 0.66 0.71 0.71 0.76 0.80
5.28 5.46 5.87 6.30 6.55 6.61 6.77
11 8 11 21 25 45 24
0.56 0.58 0.65 0.62 0.66 0.73 0.61
0.70 0.68 0.66 0.73 0.73 0.78 0.82
5.26 5.44 5.87 6.28 6.53 6.59 6.75
<FN>
(1) Designated as Class A Shares on April 5, 1996.
</FN>
<FN>
(2) New Class of Shares established on April 5, 1996.
</FN>
<FN>
(3) From April 5, 1996 through September 30, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable investment
for investors who seek income exempt from Oregon State and
regular Federal income taxes.
You may invest in shares of the Trust as an alternative to
direct investments in Oregon Obligations, as defined below, which
may include obligations of certain non-Oregon issuers. The Trust
offers you the opportunity to keep assets fully invested in a
vehicle that provides a professionally managed portfolio of
Oregon Obligations which may, but not necessarily will, be more
diversified, higher yielding or more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Oregon Obligations. Through the convenience of a
single security consisting of shares of the Trust, you are also
relieved of the inconvenience associated with direct investments
of fixed denominations, including the selecting, purchasing,
handling, monitoring call provisions and safekeeping of Oregon
Obligations.
Oregon Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes;
bond anticipation notes; construction loan notes and floating and
variable rate demand notes. Municipal obligations include
municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment. The
purposes for which municipal obligations such as bonds are issued
include the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing,
mass transportation, streets and water and sewer works. Other
public purposes for which municipal obligations may be issued
include the refunding of outstanding obligations, the obtaining
of funds for general operating expenses and the obtaining of
funds to lend to other public institutions and facilities. The
Trust is the only active portfolio of the Cascades Trust.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Oregon State and regular
Federal income taxes as is consistent with the preservation of
capital, the Trust will invest in Oregon Obligations (as defined
below). There is no assurance that the Trust will achieve its
objective, which is a fundamental policy of the Trust. (See
"Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Oregon Obligations" means obligations, including those of
certain non-Oregon issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate
counsel, is exempt from regular Federal income taxes and not
subject to Oregon income taxes. Although exempt from regular
Federal income tax, interest paid on certain types of Oregon
Obligations, and dividends which the Trust might pay from this
interest are preference items as to the Federal alternative
minimum tax; for further information, see "Dividend and Tax
Information." As a fundamental policy, at least 80% of the
Trust's net assets will be invested in Oregon Obligations the
income paid upon which will not be subject to the alternative
minimum tax; accordingly, the Trust can invest up to 20% of its
net assets in obligations which are subject to the Federal
alternative minimum tax. The Trust may refrain entirely from
purchasing these types of Oregon Obligations. (See "Dividend and
Tax Information.")
The non-Oregon bonds or other obligations the interest on
which is exempt under present law from regular Federal and Oregon
income taxes are those issued by or under the authority of Guam,
the Northern Mariana Islands, Puerto Rico and the Virgin Islands.
The Trust will not purchase Oregon Obligations of non-Oregon
issuers unless Oregon Obligations of Oregon issuers of the
desired quality, maturity and interest rate are not available. As
an Oregon-oriented fund, at least 65% of the Trust's total assets
will be invested in Oregon Obligations of Oregon issuers. The
Trust invests only in Oregon Obligations and, possibly, in
Futures and options on Futures (see below) for protective
(hedging) purposes.
In general, there are nine separate credit ratings
ranging from the highest to the lowest quality standards for
municipal obligations. So that the Trust will have a portfolio of
quality oriented (investment grade) securities, the Oregon
Obligations which the Trust will purchase must, at the time of
purchase, either (i) be rated within the four highest credit
ratings assigned by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations
so rated by U.S. Bank National Association, the Trust's
investment sub-adviser (the "Sub-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 Sub-
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 Sub-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 may 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. 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 Sub-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 Sub-Adviser has had no
experience in the use of Futures or options on them.
The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits"
established by commodity exchanges which restrict the amount of
change in the contract price allowed during a single trading day.
Thus, once a daily limit is reached, no further trades may be
entered into beyond the limit, thereby preventing the liquidation
of open positions. Prices have in the past reached the daily
limit on a number of consecutive trading days. For further
information about Futures and options, see the Additional
Statement.
When and if the Trust determines to use Futures and options,
the Prospectus will be supplemented.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one
year, but permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding one year, in each
case upon not more than 30 days' notice. The issuer of such notes
normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the
note plus accrued interest upon a specified number of days'
notice to the noteholders. The interest rate on a floating rate
demand note is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is
adjusted automatically at specified intervals.
Participation Interests
The Trust may purchase from financial institutions
participation interests in Oregon Obligations (such as industrial
development bonds and municipal lease/purchase agreements). A
participation interest gives the Trust an undivided interest in
the underlying Oregon Obligations in the proportion that the
Trust's participation interest bears to the total amount of the
underlying Oregon Obligations. All such participation interests
must meet the Trust's credit requirements. (See "Limitation to
10% as to Certain Investments.")
When-Issued and Delayed Delivery Purchases
The Trust may buy Oregon Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring
them. The Oregon Obligations so purchased are subject to market
fluctuation and no interest accrues to the Trust until delivery
and payment take place; their value at the delivery date may be
less than the purchase price. The Trust cannot enter into
when-issued commitments exceeding in the aggregate 15% of the
market value of the Trust's total assets, less liabilities other
than the obligations created by when-issued commitments. If the
Trust chooses to dispose of the right to acquire a when-issued
obligation prior to its acquisition, it could, as with the
disposition of any other portfolio holding, incur a gain or loss
due to market fluctuation; any such gain would be a taxable
short-term gain. The Trust places an amount of assets equal in
value to the amount due on the settlement date for the
when-issued or delayed delivery securities being purchased in a
segregated account with the Custodian, which is marked to market
every business day. (See the Additional Statement for further
information.)
Limitation to 10% as to Certain Investments
The Trust cannot purchase Oregon Obligations that are not
readily marketable if thereafter more than 10% of its net assets
would consist of such investments. However, this 10% limit does
not include any Oregon Obligations as to which the Trust can
exercise the right to demand payment in full within three days
and as to which there is a secondary market. Floating and
variable rate demand notes and participation interests (including
municipal lease/purchase obligations) are considered illiquid
unless determined by the Board of Trustees to be readily
marketable. (See the Additional Statement.)
Current Policy as to Certain Obligations
The Trust will not invest more than 25% of its total assets
in (i) Oregon Obligations the interest on which is paid from
revenues of similar type projects or (ii) industrial development
bonds, unless the Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.
Factors Which May Affect the Value of the Trust's
Investments and Their Yields
The value of the Oregon Obligations in which the Trust
invests will fluctuate depending in large part on changes in
prevailing interest rates and may be subject to other market,
credit and economic factors as well. If the prevailing interest
rates go up after the Trust buys Oregon Obligations, the value of
these obligations will normally go down; if interest rates go
down, the value of these obligations will normally go up. Changes
in value and yield based on changes in prevailing interest rates
may have different effects on short-term Oregon Obligations than
on long-term obligations. Long-term obligations (which often have
higher yields) may fluctuate in value more than short-term ones.
For this reason, the Trust may, to achieve a defensive position,
shorten the average maturity of its portfolio.
Risk Factors and Special Considerations Regarding
Investment in Oregon Obligations
The following is a discussion of the general factors that
might influence the ability of Oregon issuers to repay principal
and interest when due on the Oregon Obligations contained in the
portfolio of the Trust. Such information is derived from sources
that are generally available to investors and is believed by the
Trust to be accurate, but has not been independently verified and
may not be complete.
Oregon's economy is substantially diversified among many
industries. The lumber and forest products industry, an industry
highly susceptible to recessionary cycles, has long been a
significant component of the State's economy. However, a
political environment supporting the reduction of logging on
public lands has taken its toll on this industry and the pursuit
of protection for the spotted owl and wild salmon runs have
severely curtailed logging in certain areas.
As employment in the lumber and forest products industries
has declined, other industries have been picking up the slack.
1994 saw many manufacturing plants lured to the State. The
ultimate decision of whether to locate in the State depends on a
company's ability to secure property tax breaks from the county
in which its plant will be located. A relatively new State
property tax exemption program grants counties the right to offer
property tax breaks for new plants costing more than $100 million
to build. The principal sources of State tax revenues are the
personal income and corporate income taxes; Oregon does not have
a sales tax. Recent attempts to institute a sales tax have been
unsuccessful. A recent attempt to introduce a "transaction tax"
was unsuccessful. As a result, State tax revenues are
particularly sensitive to economic recessions.
In addition to general obligation bonds, the State and its
political subdivisions issue revenue obligations payable from
specific projects or sources, including lease rentals. There can
be no assurance that a material downturn in the State's economy,
with the resulting impact on the financial strength of State and
local entities, will not adversely affect the ability of obligors
of the obligations held in the Trust's portfolio to make the
required payments on these obligations, and consequently, the
market value of such obligations.
Additionally, certain municipal securities held by the
Trust may rely in whole or in part for repayment on ad valorem
property taxes. There are limits under Oregon State law on the
issuance of bonds supported by such taxes. In recent years
several voter initiatives have also amended the State
Constitution to "freeze" or roll back such taxes.
At the date of the Prospectus, it is difficult to assess
fully the impact of the tax limitation measures, in part, because
they are relatively recent and are continuing to be phased in
over time. Many provisions of these measures are ambiguous and
implementation of certain key provisions is left to the
Legislature. In addition, the recent health of the Oregon economy
has mitigated the effects of these measures; however, these
conditions may not continue and future effects of these measures
will depend on whether alternative revenue sources are obtained
and, if so, the type and amount of such revenues. The adoption of
these tax limitation measures may have an adverse effect on the
general financial condition of cities, counties, school districts
and other local governmental entities and may in some cases
impair their ability to pay principal and interest on
obligations. In addition, to the extent that the Legislature
provides funds from its general fund to replace tax revenues lost
by the public school system, this could have an adverse effect on
the State's credit rating, particularly if alternative revenue
sources are not obtained. Moreover, the tax limitation measures
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 for more
information about these tax limitation measures.)
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 1996, both the number of
such petitions that qualified and the number of such petitions
that were approved by the voters have increased, and there is no
reason to expect that this pattern will change in the future.
There is a relatively inactive market for municipal bonds
of Oregon issuers other than the general obligations of the State
itself and certain other limited segments of the market.
Consequently, the market price of such other bonds may have a
higher degree of volatility and it may be difficult to execute
sales of blocks of such bonds. 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 in the 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 net asset value of the shares of each of the Trust's
classes of shares and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open (a "business day"), by dividing
the value of the Trust's net assets (i.e., the value of the
assets less liabilities) allocable to each class by the total
number of shares of such class then outstanding. Determination of
the value of the Trust's assets is subject to the direction and
control of the Trust's Board of Trustees. In general, it is based
on market value, except that Oregon Obligations maturing in 60
days or less are generally valued at amortized cost; see the
Additional Statement for further information.
ALTERNATIVE PURCHASE PLANS
In this Prospectus, the Trust provides you with two
alternative ways to invest in the Trust, purchase shares, through
two separate classes of shares. All classes represent interests
in the same portfolio of Oregon Obligations. The classes of
shares offered to individuals differ in their sales charge
structures and ongoing expenses, as described below. You should
choose the class that best suits your own circumstances and
needs.
If you choose to purchase Class A Shares you will pay the
applicable sales charge at the time of your purchase. By
purchasing Class C Shares, you will pay distribution and service
fees over a period of six years after purchase but without paying
anything at time of purchase, much as goods can be purchased on
an installment plan. You are also subject to a contingent
deferred sales charge, described below, but only if you redeem
your Class C Shares before they have been held 12 months from
your purchase. (See "Computation of Holding Periods for Class C
Shares.")
Class A Shares, "Front-Payment Class Shares," are
offered to anyone at net asset value plus a sales
charge, paid at the time of purchase, at the maximum
rate of 4.0% of the public offering price, with lower
rates for larger purchases. When you purchase Class A
Shares, the amount of your investment is reduced by the
applicable sales charge. Class A Shares are subject to
an asset retention service fee under the Trust's
Distribution Plan at the rate of 0.15 of 1% of the
average annual net assets represented by the Class A
Shares. Certain Class A Shares purchased in
transactions of $1 million or more are subject to a
contingent deferred sales charge. (See "Purchase of $1
Million or More.")
Class C Shares, "Level-Payment Class Shares," are
offered to anyone at net asset value with no sales
charge payable at purchase but with a level charge for
distribution fees and service fees for six years after
the date of purchase at the aggregate annual rate of 1%
of the average annual net assets represented by the
Class C Shares. (See "Distribution Plan" and
"Shareholder Services Plan for Class C Shares.") Six
years after the date of purchase, Class C Shares,
including Class C Shares acquired in exchange for other
Class C Shares under the Exchange Privilege (see
"Exchange Privilege"), are automatically converted to
Class A Shares. If you redeem Class C Shares before you
have held them for 12 months from the date of purchase
you will pay a contingent deferred sales charge
("CDSC") at the rate of 1%, calculated on the net asset
value of the redeemed Class C Shares at the time of
purchase or of redemption, whichever is less. The
amount of any CDSC will be paid to the Distributor. The
CDSC does not apply to shares acquired through the
reinvestment of dividends on Class C Shares or to any
Class C Shares held for more than 12 months after
purchase. For purposes of applying the CDSC and
determining the time of conversion, the 12-month and
six-year holding periods are considered modified by up
to one month depending upon when during a month your
purchase of such shares is made. (See "Computation of
Holding Periods for Class C Shares" and "How to
Purchase Class C Shares.")
In determining whether a CDSC is payable on a redemption of
Class C Shares, it will be assumed that the redemption is made
first of any shares acquired as dividends or distributions,
second of any Class C Shares you have held for more than 12
months from the date of purchase and finally of those Class C
Shares as to which the CDSC is payable which you have held the
longest. This will result in your paying the lowest possible
CDSC.
Computation of Holding Periods for Class C Shares
For purposes of determining the holding period for Class C
Shares, all of your purchases made during a calendar month will
be deemed to have been made on the first business day of that
month at the average cost of all purchases made during that
month. The 12-month CDSC holding period will end on the first
business day of the 12th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your Class C Shares may be up to one
month less than the full 12 months depending upon when your
actual purchase was made during a month. Running of the 12-month
CDSC holding period will be suspended for one month for each
period of thirty days during which you have held shares of a
money market fund you have received in exchange for Class C
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Your Class C Shares will automatically convert to Class A
Shares six years after the date of purchase, together with a
pro-rata portion of all Class C Shares representing dividends and
other distributions reinvested in additional Class C Shares. The
Class C Shares so converted will no longer be subject to the
higher expenses borne by the Class C Shares. The conversion will
be effected at relative net asset values on the first business
day of the month following that in which the sixth anniversary of
your purchase of the Class C Shares occurred, except as noted
below. Accordingly, the holding period applicable to your Class C
Shares may be up to one month more than the six years depending
upon when your actual purchase was made during a month. Because
the per share value of Class A Shares may be higher than that of
Class C Shares at the time of conversion, you may receive fewer
Class A Shares than the number of Class C Shares converted. If
you have made one or more exchanges of Class C Shares among the
Aquila-sponsored tax-free municipal bond funds or equity funds
under the Exchange Privilege, the six-year holding period is
deemed to have begun on the date you purchased your original
Class C Shares of the Trust or of another of the Aquila bond or
equity funds. The six-year holding period will be suspended by
one month for each period of thirty days during which you hold
shares of a money market fund you have received in exchange for
Class C Shares under the Exchange Privilege. (See "Exchange
Privilege.")
The following chart summarizes the principal differences
between Class A Shares and Class C Shares.
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
Initial Sales Maximum of 4% of the None
Charge Public Offering Price
Contingent Deferred None (except for Maximum CDSC of 1% if
Sales Charge certain purchases shares redeemed before 12
over $1 Million) months; 0% after 12 months
Distribution and 0.15 of 1% Distribution fee of 0.75 of 1%
Service Fees and a service fee of 0.25 of
1% for a total of 1%, payable for
six years
Other Information Initial Sales Charge Shares convert to Class A
waived or reduced in Shares after six years
some cases
</TABLE>
Factors to Consider in Choosing Classes of Shares
This discussion relates to the major differences between
Class A Shares and Class C Shares. It is recommended that any
investment in the Trust be considered long-term in nature.
Over time, the cumulative total cost of the 1% annual
service and distribution fees on the Class C Shares will equal or
exceed the total cost of the initial 4% maximum initial sales
charge and 0.15 of 1% annual fee payable for Class A Shares. For
example, if equal amounts were paid at the same time for Class A
Shares (where the amount invested is reduced by the amount of the
sales charge) and for Class C Shares (which carry no sales charge
at the time of purchase) and the net asset value per share
remained constant over time, the total of such costs for Class C
Shares would equal the total of such costs for Class A Shares
after approximately four and two-thirds years. This example
assumes no redemptions and disregards the time value of money.
Purchasers of Class C Shares have all of their investment dollars
invested from the time of purchase, without having their
investment reduced at the outset by the initial sales charge
payable for Class A Shares. If you invest in Class A Shares you
will pay the entire sales charge at the time of purchase.
Accordingly, if you expect to redeem your shares within a
reasonably short time after purchase, you should consider the
total cost of such an investment in Class A Shares compared with
a similar investment in Class C Shares. The example under "Table
of Expenses" shows the effect of Trust expenses for both classes
if a hypothetical investment in each of the classes is held for
1, 3, 5 and 10 years. (See the Table of Expenses.)
Dividends and other distributions paid by the Trust with
respect to shares of each class are calculated in the same manner
and at the same time. The dividends actually paid with respect to
Class C Shares will be lower than those paid on Class A Shares
because Class C Shares bear higher distribution and service fees
and will have a higher expense ratio. In addition, the dividends
of each class can vary because each class will bear certain
class-specific charges. For example, each class will bear the
costs of printing and mailing annual reports to its own
shareholders.
HOW TO INVEST IN THE TRUST
The Trust's shares may be purchased through any
investment broker or dealer (a "selected dealer") which has a
sales agreement with Aquila Distributors, Inc. (the
"Distributor") or through the Distributor. There are two ways to
make an initial investment: (i) order the shares through your
investment broker or dealer, if it is a selected dealer; or (ii)
mail the Application with payment to the Trust's Shareholder
Servicing Agent (the "Agent") at the address on the Application.
If you purchase Class A Shares, the applicable sales charge will
apply in either instance. Subsequent investments are also subject
to the applicable sales charges. You are urged to complete an
Application and send it to the Agent so that expedited
shareholder services can be established at the time of your
investment. Unless your initial investment is specified to be
made in Class C Shares, it will be made in Class A Shares.
The minimum initial investment for Class A Shares and Class
C Shares is $1,000, except as otherwise stated in the Prospectus
or Additional Statement. You may also make an initial investment
of at least $50 by establishing an Automatic Investment Program.
To do this you must open an account for automatic investments of
at least $50 each month and make an initial investment of at
least $50. (See below and "Automatic Investment Program" in the
Application.) Such investment must be drawn in United States
dollars on a United States commercial or savings bank, a credit
union or a United States branch of a foreign commercial bank
(each of which is a "Financial Institution"). You may make
subsequent investments in the same class of shares in any amount
(unless you have an Automatic Withdrawal Plan). Your subsequent
investment may be made through a selected dealer or by forwarding
payment to the Agent, with the name(s) of account owner(s), the
account number, the name of the Trust and the class of shares to
be purchased. With subsequent investments, please send the
pre-printed stub attached to the Trust's confirmations.
Subsequent investments of $50 or more in shares of the same
class as your initial investment can be made by electronic funds
transfer from your demand account at a Financial Institution. To
use electronic funds transfer for your purchases, your Financial
Institution must be a member of the Automated Clearing House and
the Agent must have received your completed Application
designating this feature, or, after your account has been opened,
a Ready Access Features form available from the Distributor or
the Agent. A pre-determined amount can be regularly transferred
for investment ("Automatic Investment"), or single investments
can be made upon receipt by the Agent of telephone instructions
from anyone ("Telephone Investment"). The maximum amount of each
Telephone Investment is $50,000. Upon 30 days' written notice to
shareholders, the Trust may modify or terminate these investment
methods at any time or charge a service fee, although no such fee
is currently contemplated.
The offering price is the net asset value per share for
Class C Shares and the net asset value per share plus the
applicable sales charge for Class A Shares. The offering price
determined on any day applies to all purchase orders received by
the Agent from selected dealers that day, except that orders
received by it after 4:00 p.m. New York time will receive that
day's offering price only if such orders were received by
selected dealers from customers prior to such time and
transmitted to the Distributor prior to its close of business
that day (normally 5:00 p.m. New York time); if not so
transmitted, such orders will be filled at the next determined
offering price. Selected dealers are required to transmit orders
promptly. Investments by mail are made at the offering price next
determined after receipt of the purchase order by the Agent.
Purchase orders received on other than a business day will be
executed on the next succeeding business day. Purchases by
Automatic Investment and Telephone Investment will be executed on
the first business day occurring on or after the date an order is
considered received by the Agent at the price determined on that
day. In the case of Automatic Investment your order will be
executed on the date you specified for investment at the price
determined on that day. If that day is not a business day your
order will be executed at the price determined on the next
business day. In the case of Telephone Investment your order will
be filled at the next determined offering price. If your order is
placed after the time for determining the net asset value of the
Trust shares for any day it will be executed at the price
determined on the following business day. The sale of shares will
be suspended during any period when the determination of net
asset value is suspended and may be suspended by the Distributor
when the Distributor judges it in the Trust's best interest to do
so.
At the date of the Prospectus, Class A Shares of the
Trust are available only in the following states: Oregon,
Arizona, California, Colorado, Connecticut, District of Columbia,
Florida, Hawaii, Idaho, Illinois, Minnesota, Missouri, Nevada,
New Jersey, New York, Pennsylvania, Texas and Washington. Class C
Shares of the Trust are available only in the following states:
Oregon, California, Colorado, Connecticut, District of Columbia,
Florida, Hawaii, Idaho, Illinois, Missouri, Nevada, New Jersey,
New York, and Pennsylvania. If you do not reside in one of these
states you should not purchase shares of the Trust. If Class A
Shares or Class C Shares of the Trust are sold outside of these
states the Trust can redeem them. Such a redemption may result in
a loss to you and may have tax consequences. In addition, if your
state of residence is not Oregon, the dividends from the Trust
may not be exempt from the income tax of the state in which you
reside. Accordingly, you should consult your tax adviser before
acquiring shares of the Trust.
How to Purchase Class A Shares
(Front-Payment Class Shares)
The following table shows the amount of the sales charge 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") for Class A
Shares:
<TABLE>
<CAPTION>
Sales Charge as Sales Charge Commissions
Percentage of as Approximate as
Amount of Public Percentage of Percentage 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%
</TABLE>
For purchases of $1 million or more see "Purchase of $1 Million or More,"
below.
The table of sales charges is applicable to purchases of
Class A Shares by a "single purchaser," i.e.: (a) an individual;
(b) an individual together with his or her spouse and their
children under the age of 21 purchasing Class A Shares for his,
her or their own accounts; (c) a trustee or other fiduciary
purchasing Class A Shares for a single trust estate or a single
fiduciary account; and (d) a tax-exempt organization enumerated
in Section 501(c)(3) or (13) of the Code.
Upon notice to all selected dealers, the Distributor may
reallow up to the full amount of the applicable sales charge as
shown in the above schedule during periods specified in such
notice. During periods when all or substantially all of the
entire sales charge is reallowed, such selected dealers may be
deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Purchase of $1 Million or More
Class A Shares issued under the following circumstances
are called "CDSC Class A Shares": (i) Class A Shares issued in a
single purchase of $1 million or more by a single purchaser; and
(ii) all Class A Shares issued in a single purchase to a single
purchaser the value of which, when added to the value of the CDSC
Class A Shares and Class A Shares on which a sales charge has
been paid, already owned at the time of such purchase, equals or
exceeds $1 million. CDSC Class A Shares also include certain
Class A Shares issued under the program captioned "Special Dealer
Arrangements," below. CDSC Class A Shares do not include (i)
Class A Shares purchased without sales charge pursuant to the
terms described under "General," below and (ii) Class A Shares
purchased in transactions of less than $1 million and when
certain special dealer arrangements are not in effect under
"Certain Investment Companies" set forth under "Reduced Sales
Charges," below.
When you purchase CDSC Class A Shares you will not pay a
sales charge at the time of purchase, and the Distributor will
pay to any dealer effecting such a purchase an amount equal to 1%
of the sales price of the shares purchased for purchases of $1
million but less than $2.5 million, 0.50 of 1% for purchases of
$2.5 million but less than $5 million, and 0.25 of 1% for
purchases of $5 million or more.
If you redeem all or part of your CDSC Class A Shares
during the four years after your purchase of such shares, at the
time of redemption you will be required to pay to the Distributor
a special contingent deferred sales charge based on the lesser of
(i) the net asset value of your redeemed CDSC Class A Shares at
the time of purchase or (ii) the net asset value of your redeemed
CDSC Class A Shares at the time of redemption (the "Redemption
Value"). The special charge will be an amount equal to 1% of the
Redemption Value if the redemption occurs within the first two
years after purchase, and 0.50 of 1% of the Redemption Value if
the redemption occurs within the third or fourth year after
purchase. The special charge will apply to redemptions of CDSC
Class A Shares purchased without a sales charge pursuant to a
Letter of Intent, as described below under "Reduced Sales Charges
for Certain Purchases of Class A Shares." The special charge does
not apply to Class A Shares acquired through the reinvestment of
dividends on CDSC Class A Shares or to any CDSC Class A Shares
held for more than four years after purchase. In determining
whether the special charge is applicable, it will be assumed that
the CDSC Class A Shares you have held the longest are the first
CDSC Class A Shares to be redeemed, unless you instruct the Agent
otherwise. It will also be assumed that if you have both CDSC
Class A Shares and non-CDSC Class A Shares the non-CDSC Class A
Shares will be redeemed first.
For purposes of determining the holding period for CDSC
Class A Shares, all of your purchases made during a calendar
month will be deemed to have been made on the first business day
of that month at the average cost of all purchases made during
that month. The four-year holding period will end on the first
business day of the 48th calendar month after the date your
purchase is deemed to have been made. Accordingly, the CDSC
holding period applicable to your CDSC Class A Shares may be up
to one month less than the full 48 months depending upon when
your actual purchase was made during a month. Running of the
48-month CDSC holding period will be suspended for one month for
each period of thirty days during which you have held shares of a
money market fund you have received in exchange for CDSC Class A
Shares under the Exchange Privilege. (See "Exchange Privilege.")
Reduced Sales Charges for Certain Purchases of
Class A Shares
Right of Accumulation: If you are a "single purchaser"
you may benefit from a reduction of the sales charge in
accordance with the above schedule for subsequent purchases of
Class A Shares if the cumulative value (at cost or current net
asset value, whichever is higher) of Class A Shares you have
previously purchased with a sales charge and still own, together
with Class A Shares of your subsequent purchase with such a
charge, amounts to $25,000 or more.
Letters of Intent: The foregoing schedule of reduced sales
charges will also be available to "single purchasers" who enter
into a written Letter of Intent (included in the Application)
providing for the purchase, within a thirteen-month period, of
Class A Shares of the Trust through a single selected dealer or
through the Distributor. Class A Shares of the Trust which you
previously purchased during a 90-day period prior to the date of
receipt by the Distributor of your Letter of Intent and which you
still own may also be included in determining the applicable
reduction. For further details, including escrow provisions, see
the Letter of Intent provisions of the Application.
General: Class A Shares may be purchased at the next
determined net asset value by the Trust's Trustees and officers,
by the directors, officers and certain employees, retired
employees and representatives of the Sub-Adviser and its parent
and affiliates, the Manager 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 Trust or the
Distributor has entered into an agreement relating to such
purchases. Except for the last category, purchasers must give
written assurance that the purchase is for investment and that
the Class A Shares will not be resold except through redemption.
There may be tax consequences of these purchases. Such purchasers
should consult their own tax counsel. Class A Shares may also be
issued at net asset value in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the
Trust is a party.
The Trust permits the sale of its Class A Shares at
prices that reflect the reduction or elimination of the sales
charge to investors who are members of certain qualified groups
meeting the following requirements. A qualified group (i) is a
group or association, or a category of purchasers who are
represented by a fiduciary, professional or other representative
(other than a registered broker-dealer), which (ii) satisfies
uniform criteria which enable the Distributor to realize
economies of scale in its costs of distributing Class A Shares
(iii) gives its endorsement or authorization (if it is a group or
association) to an investment program to facilitate solicitation
of its membership by a broker or dealer; and (iv) complies with
the conditions of purchase that are set forth in any agreement
entered into between the Trust and the group, representative or
broker or dealer. At the time of purchase you must furnish the
Distributor with information sufficient to permit verification
that the purchase qualifies for a reduced sales charge, either
directly or through a broker or dealer.
Certain Investment Companies: Class A Shares of the Trust
may be purchased at net asset value without sales charge (except
as set forth below under "Special Dealer Arrangements") to the
extent that the aggregate net asset value of such Class A Shares
does not exceed the proceeds from a redemption (a "Qualified
Redemption"), made within 120 days prior to such purchase, of
shares of another investment company on which a sales charge,
including a contingent deferred sales charge, has been paid.
Additional information is available from the Distributor.
To qualify, the following special procedures must be
followed:
1. A completed Application (included in the Prospectus)
and payment for the Class A 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 Trust's Shareholder Servicing Agent.
(This instruction replaces the mailing address contained
on the Application.)
2. The Application must be accompanied by evidence
satisfactory to the Distributor that the prospective
shareholder has made a Qualified Redemption in an amount
at least equal to the net asset value of the Class A
Shares to be purchased. Satisfactory evidence includes a
confirmation of the date and the amount of the redemption
from the investment company, its transfer agent or the
investor's broker or dealer, or a copy of the investor's
account statement with the investment company reflecting
the redemption transaction.
3. You must complete and return to the Distributor a
Transfer Request Form, which is available from the
Distributor.
The Trust reserves the right to alter or terminate this
privilege at any time without notice. The Prospectus will be
supplemented to reflect such alteration or termination.
Special Dealer Arrangements: During certain periods
determined by the Distributor, the Distributor (not the Trust)
will pay to any dealer effecting a purchase of Class A Shares
of the Trust using the proceeds of a Qualified Redemption the
lesser of (i) 1% of such proceeds or (ii) the same amounts
described under "Purchase of $1 Million or More," above, on the
same terms and conditions. Class A Shares of the Trust issued
in such a transaction will be CDSC Class A Shares and if you
thereafter redeem all or part of such shares during the
four-year period from the date of purchase you will be subject
to the special contingent deferred sales charge described under
"Purchase of $1 Million or More," above, on the same terms and
conditions. Whenever the Special Dealer Arrangements are in
effect the Prospectus will be supplemented.
How to Purchase Class C Shares
(Level-Payment Class Shares)
Level-Payment Class Shares (Class C Shares) are offered
at net asset value with no sales charge payable at purchase. A
level charge is imposed for service and distribution fees for
the first six years after the date of purchase at the aggregate
annual rate of 1% of the average annual net assets of the Trust
represented by the Class C Shares. If you redeem Class C Shares
before you have held them for 12 months from the date of
purchase you will pay a contingent deferred sales charge
("CDSC"). The CDSC is charged at the rate of 1%, calculated on
the net asset value of the redeemed Class C Shares at the time
of purchase or at redemption, whichever is less. There is no
CDSC after Class C Shares have been held beyond the applicable
period. The CDSC does not apply to Class C Shares acquired
through the reinvestment of dividends on Class C Shares.
The Distributor will pay to any dealer effecting a
purchase of Class C Shares an amount equal to 1% of the sales
price of the Class C Shares purchased.
Additional Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Trust. Additional compensation may
include payment or partial payment for advertising of the
Trust's shares, payment of travel expenses, including lodging,
incurred in connection with attendance at sales seminars taken
by qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be
made available only to certain dealers whose representatives
have sold or are expected to sell significant amounts of such
shares. Dealers may not use sales of the Trust's shares to
qualify for the incentives to the extent such may be prohibited
by the laws of any state or any self-regulatory agency, such as
the National Association of Securities Dealers, Inc. The cost
to the Distributor of such promotional activities and such
payments to participating dealers will not exceed the amount of
the sales charges in respect of sales of all classes of shares
of the Trust effected through such participating dealers,
whether retained by the Distributor or reallowed to
participating dealers. No such additional compensation to
dealers in connection with sales of shares of the Trust will
affect the price you pay for shares or the amount that the
Trust will receive from such sales. Any of the foregoing
payments to be made by the Distributor may be made instead by
the Manager out of its own funds, directly or through the
Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Systematic Payroll Investments
If your employer has established with the Trust a
Systematic Payroll Investment Plan ("Payroll Plan") you may
arrange for systematic investments into the Trust through a
Payroll Plan. Investments can be made in either Class A Shares
or Class C Shares. In order to participate in a Payroll Plan,
you should make arrangements with your own employer's payroll
department, and you must complete and sign any special
application forms which may be required by your employer. You
must also complete the Application included in the Prospectus.
Once your application is received and put into effect, under a
Payroll Plan the employer will make a deduction from payroll
checks in an amount you determine, and will remit the proceeds
to the Trust. An investment in the Trust will be made for you
at the offering price, which includes applicable sales charges
determined as described above, when the Trust receives the
funds from your employer. The Trust will send a confirmation of
each transaction to you. To change the amount of or to
terminate your participation in the Payroll Plan (which could
take up to ten days), you must notify your employer.
Confirmations and Share Certificates
All purchases of shares will be confirmed and credited to
you in an account maintained for you at the Agent in full and
fractional shares of the Trust (rounded to the nearest 1/1000th
of a share).
No share certificates will be issued for Class C
Shares. Share certificates for Class A Shares will be issued
only if you so request in writing to the Agent. All share
certificates previously issued by the Trust represent Class A
Shares. No certificates will be issued for fractional Class A
Shares or if you have elected Automatic Investment or Telephone
Investment for Class A Shares (see "How to Invest in the Trust"
above) or Expedited Redemption (see "How to Redeem Your
Investment" below). If certificates for Class A Shares are
issued at your request, Expedited Redemption Methods described
below will not be available. In addition, you may incur delay
and expense if you lose the certificates.
The Trust and the Distributor reserve the right to reject
any order for the purchase of shares. In addition, the offering
of shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Trust has adopted a Distribution Plan (the "Plan")
under Rule 12b-1 (the "Rule") under the 1940 Act. The Rule
provides in substance that an investment company may not engage
directly or indirectly in financing any activity which is
primarily intended to result in the sale of its shares except
pursuant to a written plan adopted under the Rule. The Plan has
three parts.
Under one part of the Plan, the Trust is authorized to
make payments with respect to Class A Shares ("Class A
Permitted Payments") to Qualified Recipients, which payments
shall be made through the Distributor or Shareholder Servicing
Agent as disbursing agent, and may not exceed, for any fiscal
year of the Trust (as adjusted for any part or parts of a
fiscal year during which payments under the Plan are not
accruable or for any fiscal year which is not a full fiscal
year), 0.15 of 1% of the average annual net assets represented
by the Class A Shares of the Trust. Such payments shall be made
only out of the Trust's assets allocable to the Class A Shares.
"Qualified Recipients" means broker-dealers or others selected
by the Distributor, including but not limited to any principal
underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements and which have
rendered assistance (whether direct, administrative, or both)
in the distribution and/or retention of the Trust's Class A
Shares or servicing of accounts of shareholders owning Class A
Shares.
Permitted Payments under the Plan commenced July 1,
1994. During the fiscal year ended September 30, 1997, $459,662
was paid to Qualified Recipients with respect to Class A
Shares, of which $12,019 was retained by the Distributor. All
of such payments were for compensation. (See the Additional
Statement for a description of the Distribution Plan.)
Whenever the Trust makes Class A Permitted Payments, the
aggregate annual rate of the advisory fee and administration
fee otherwise payable by the Trust will be reduced from 0.50 of
1% to 0.40 of 1% of the Trust's average annual net assets. (See
"Management Arrangements.")
Under another part of the Plan, the Trust is authorized
to make payments with respect to Class C Shares ("Class C
Permitted Payments") to Qualified Recipients. Class C Permitted
Payments shall be made through the Distributor or Shareholder
Servicing Agent as disbursing agent, and may not exceed, for
any fiscal year of the Trust (as adjusted for any part or parts
of a fiscal year during which payments under the Plan are not
accruable or for any fiscal year which is not a full fiscal
year), 0.75 of 1% of the average annual net assets represented
by the Class C Shares of the Trust. Such payments shall be made
only out of the Trust's assets allocable to the Class C Shares.
"Qualified Recipients" means broker-dealers or others selected
by the Distributor, including but not limited to any principal
underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements and which have
rendered assistance (whether direct, administrative, or both)
in the distribution and/or retention of the Trust's Class C
Shares or servicing of accounts of shareholders owning Class C
Shares. Payments with respect to Class C Shares during the
first year after purchase are paid to the Distributor and
thereafter to other Qualified Recipients.
During the fiscal year ended September 30, 1997, $4,910
was paid to Qualified Recipients with respect to Class C
Shares. All of such payments were for compensation. (See the
Additional Statement for a description of the Distribution
Plan.)
Another part of the Plan is designed to protect against
any claim against or involving the Trust that some of the
expenses which might be considered to be sales-related which
the Trust pays or may pay come within the purview of the Rule.
The Trust believes that except for Permitted Payments it is not
financing any such activity and does not consider any payment
enumerated in this part of the Plan as so financing any such
activity. However, it might be claimed that some of the
expenses the Trust pays come within the purview of the Rule. If
and to the extent that any payment as specifically listed in
the Plan (see the Additional Statement) is considered to be
primarily intended to result in or as indirect financing of any
activity which is primarily intended to result in the sale of
Trust shares, these payments are authorized under the Plan. In
addition, if the Manager, out of its own funds, makes payment
for distribution expenses such payments are authorized. (See
the Additional Statement.)
Shareholder Services Plan for Class C Shares
Under a Shareholder Services Plan, the Trust is
authorized to make payments with respect to Class C Shares
("Service Fees") to Qualified Recipients. Service Fees shall be
paid through the Distributor or Shareholder Servicing Agent as
disbursing agent, and may not exceed, for any fiscal year of
the Trust (as adjusted for any part or parts of a fiscal year
during which payments under the Plan are not accruable or for
any fiscal year which is not a full fiscal year), 0.25 of 1% of
the average annual net assets represented by the Class C Shares
of the Trust. Such payments shall be made only out of the
Trust's assets represented by the Class C Shares. "Qualified
Recipients" means broker-dealers or others selected by the
Distributor, including but not limited to any principal
underwriter of the Trust, with which the Distributor has
entered into written agreements and which have agreed to
provide personal services to holders of Class C Shares and/or
maintenance of Class C shareholder accounts. (See the
Additional Statement.) Service Fees with respect to Class C
Shares will be paid to the Distributor. During the fiscal year
ended September 30, 1997, $1,636 of Service Fees was paid to
Qualified Recipients with respect to the Trust's Class C
Shares.
During the fiscal year, the Distributor received $5,622
with respect to Class C Shares under the Distribution Plan and
the Shareholder Services Plan, all of which was for
compensation.
HOW TO REDEEM YOUR INVESTMENT
You may redeem all or any part of your shares at the net
asset value next determined after acceptance of your redemption
request at the Agent (subject to any applicable contingent
deferred sales charge for redemptions of Class C Shares and
CDSC Class A Shares). For redemptions of Class C Shares and
CDSC Class A Shares, at the time of redemption a sufficient
number of additional shares will be redeemed to pay for any
applicable contingent deferred sales charge. Redemptions can be
made by the various methods described below. There is no
minimum period for any investment in the Trust, except for
shares recently purchased by check, Automatic Investment or
Telephone Investment as discussed below. Except for CDSC Class
A Shares (see "Purchase of $1 Million or More") there are no
redemption fees or withdrawal penalties for Class A Shares.
Class C Shares are subject to a contingent deferred sales
charge if redeemed before they have been held 12 months from
the date of purchase. (See "Alternative Purchase Plans.") A
redemption may result in a transaction taxable to you. If you
own both Class A Shares and Class C Shares and do not specify
which you wish to redeem, it will be assumed that you wish to
redeem Class A Shares.
For your convenience the Trust offers expedited redemption
for all classes of shares to provide you with a high level of
liquidity for your investment.
Expedited Redemption Methods
(Non-Certificate Shares)
You have the flexibility of two expedited methods of
initiating redemptions. They are available as to shares of any
class not represented by certificates.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed
to you, if your shares are registered in your name at
the Trust and the check is sent to your address of
record, provided that there has not been a change of
your address of record during the 30 days preceding
your redemption request. You can make only one
request for telephone redemption by check in any
7-day period.
See "Redemption Payments" below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-872-6735 toll free
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: PFPC Inc., 400
Bellevue Parkway, Wilmington, DE 19809, 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 have redemption proceeds sent to a
Financial Institution Account, you should so elect on the
Expedited Redemption section of the Application or the Ready
Access Features form and provide the required information
concerning your Financial Institution account number. The
Financial Institution account must be in the exclusive name(s)
of the shareholder(s) as registered with the Trust. You may
change the designated Financial Institution account at any time
by completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
1. Certificate Shares. Certificates representing
Class A Shares to be redeemed should be sent in blank
(unsigned) to the Trust's Shareholder Servicing
Agent: PFPC Inc., 400 Bellevue Parkway, Wilmington,
DE 19809 with payment instructions. A stock
assignment form signed by the registered
shareholder(s) exactly as the account is registered
must also be sent to the Shareholder Servicing
Agent.
For your own protection, it is essential that certificates
be mailed separately from signed redemption documentation.
Because of possible mail problems, it is also recommended that
certificates be sent by registered mail, return receipt
requested.
For a redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be
required if sufficient documentation is not on file with the
Agent. Additional documentation may be required where shares
are held by certain types of shareholders such as
corporations, partnerships, trustees or executors, or if
redemption is requested by other than the shareholder of
record. If redemption proceeds of $50,000 or less are payable
to the record holder and are to be sent to the record address,
no signature guarantee is required, except as noted above. In
all other cases, signatures must be guaranteed by a member of a
national securities exchange, a U.S. bank or trust company, a
state-chartered savings bank, a federally chartered savings and
loan association, a foreign bank having a U.S. correspondent
bank, a participant in the Securities Transfer Association
Medallion Program (STAMP), the Stock Exchanges Medallion
Program (SEMP) or the New York Stock Exchange, Inc. Medallion
Signature Program (MSP). A notary public is not an acceptable
signature guarantor.
2. Non-Certificate Shares. If you own non-certificate
shares registered on the books of the Trust, and you
have not elected Expedited Redemption to a
predesignated Financial Institution account, you must
use the Regular Redemption Method. Under this
redemption method you should send a letter of
instruction to: PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809, containing:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to
be redeemed;
Payment instructions (normally redemption proceeds
will be mailed to your address as registered with the
Trust);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
above.
Redemption Payments
Redemption payments will ordinarily be mailed to you at
your address of record. If you so request and the amount of
your redemption proceeds is $1,000 or more, the proceeds will,
wherever possible, be wired or transferred through the
facilities of the Automated Clearing House to the Financial
Institution account specified in the Expedited Redemption
section of your Application or Ready Access Features form. The
Trust may impose a charge, not exceeding $5.00 per wire
redemption, after written notice to shareholders who have
elected this redemption procedure. The Trust has no present
intention of making this charge. Upon 30 days' written notice
to shareholders, the Trust may modify or terminate the use of
the Automated Clearing House to make redemption payments at any
time or charge a service fee, although no such fee is presently
contemplated. If any such changes are made, the Prospectus will
be supplemented to reflect them. If you use a broker or dealer
to arrange for a redemption, you may be charged 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 determination of the net asset
value of, the portfolio securities to be unreasonable or
impracticable; or (iii) for such other periods as the
Securities and Exchange Commission may permit. Payment for
redemption of shares recently purchased by check (irrespective
of whether the check is a regular check or a certified,
cashier's or official bank check) or by Automatic Investment or
Telephone Investment may be delayed up to 15 days or until (i)
the purchase check or Automatic Investment or Telephone
Investment has been honored or (ii) the Agent has received
assurances by telephone or in writing from the Financial
Institution on which the purchase check was drawn, or from
which the funds for Automatic Investment or Telephone
Investment were transferred, satisfactory to the Agent and the
Trust, that the purchase check or Automatic Investment or
Telephone Investment will be honored. Possible delays in
payment of redemption proceeds can be eliminated by using wire
payments or Federal Reserve drafts to pay for purchases.
If the Trustees determine that it would be detrimental
to the best interests of the remaining shareholders of the
Trust to make payment wholly or partly in cash, the Trust may
pay the redemption price in whole or in part by the
distribution in kind of securities from the portfolio of the
Trust, in lieu of cash, in conformity with applicable rules of
the Securities and Exchange Commission. (See the Additional
Statement for details.)
The Trust has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such
shares is less than $500 as a result of shareholder redemptions
or failure to meet the minimum investment level under an
Automatic Purchase Program. If the Board elects to do this,
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
Reinvestment Privilege
You may reinvest without payment of any additional sales
charge all or part of any redemption proceeds within 120 days
of a redemption of shares in shares of the Trust of the same
class as the shares redeemed at the net asset value next
determined after the Agent receives your reinvestment order. In
the case of Class C Shares or CDSC Class A Shares on which a
contingent deferred sales charge was deducted at the time of
redemption, the Distributor will refund to you the amount of
such sales charge, which will be added to the amount of the
reinvestment. The Class C Shares or CDSC Class A Shares issued
on reinvestment will be deemed to have been outstanding from
the date of your original purchase of the redeemed shares, less
the period from redemption to reinvestment. The reinvestment
privilege for any class may be exercised only once a year,
unless otherwise approved by the Distributor. If you have
realized a gain on the redemption of your shares, the
redemption transaction is taxable, and reinvestment will not
alter any capital gains tax payable. If there has been a loss
on the redemption, some or all of the loss may be tax
deductible, depending on the amount reinvested and the length
of time between the redemption and the reinvestment. You should
consult your own tax advisor on this matter.
AUTOMATIC WITHDRAWAL PLAN
You may establish an Automatic Withdrawal Plan if you own
or purchase Class A Shares of the Trust having a net asset
value of at least $5,000. The Automatic Withdrawal Plan is not
available for Class C Shares.
Under an Automatic Withdrawal Plan you will receive a
monthly or quarterly check in a stated amount, not less than
$50. If such a plan is established, all dividends and
distributions must be reinvested in your shareholder account.
Redemption of Class A Shares to make payments under the
Automatic Withdrawal Plan will give rise to a gain or loss for
tax purposes. (See the Automatic Withdrawal Plan provisions of
the Application included in the Prospectus, the Additional
Statement under "Automatic Withdrawal Plan," and "Dividend and
Tax Information" below.)
Purchases of additional Class A Shares concurrently with
withdrawals are undesirable because of sales charges when
purchases are made. Accordingly, you 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.
Change in Management Arrangements
On October 31, 1997, the management arrangements
described below were approved by the Trust's shareholders and
went into effect. The new arrangements are designed to change
the form of the Trust's investment advisory and administration
arrangements to a new structure involving an adviser and a
sub-adviser. The proposed arrangements do not result in any
change in overall management fees paid by the Trust. On August
1, 1997, U.S. Bancorp, the parent company of Qualivest Capital
Management, Inc. the Trust's former investment adviser, merged
into First Bank System, Inc., which changed its name to US
Bancorp. One effect of the Merger was that the operations of
Qualivest, including providing investment advisory services to
the Trust, were combined with those of U.S. Bank National
Association ("USBNA"), a subsidiary of US Bancorp, through a
division called First Asset Management. From August 1, 1997
through October 31, 1997 USBNA acted as the Trust's investment
adviser, with no change in fees or personnel from the former
arrangement.
Under the new arrangements, Aquila Management
Corporation ("Aquila"), which since inception of the Trust has
served as the Trust's administrator, in addition became
investment adviser under a new agreement (the "Advisory and
Administration Agreement"), under which it is referred to as
the "Manager" and under which it also continues to provide the
Trust with all administrative services. Also, by adoption of a
Sub-Advisory Agreement between Aquila and USBNA ("the
Sub-Adviser"), the interim investment advisory agreement was
replaced by one under which Aquila appointed the Sub-Adviser as
Sub-Adviser to the Trust. Under the Sub-Advisory Agreement, the
Sub-Adviser provides the Trust with advisory services of the
kind which it formerly provided as adviser.
Description of the Investment Advisory and Administration
Agreement
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees
of the Trust, the Manager shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold
by the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust; and
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Trust and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Trust's portfolio at least quarterly using
another such source satisfactory to the Trust.
The Advisory and Administration Agreement provides
that, subject to the termination provisions described below,
the Manager may at its own expense delegate to a qualified
organization ("Sub-Adviser"), affiliated or not affiliated with
the Manager, any or all of the above duties. Any such
delegation of the duties set forth in (i), (ii) or (iii) above
shall be by a written agreement (the "Sub-Advisory Agreement")
approved as provided in Section 15 of the Investment Company
Act of 1940. The Manager has delegated all of such functions to
USBNA under the Sub-Advisory Agreement.
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees
of the Trust, the Manager shall provide all administrative
services to the Trust other than those relating to its
investment portfolio which have been delegated to a sub-adviser
of the Trust under a sub-advisory Agreement; as part of such
administrative duties, the Manager shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions
and for the maintenance of the headquarters of the
Trust;
(ii) oversee all relationships between the Trust and any
sub-adviser, transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the
negotiation of agreements in relation thereto, the
supervision and coordination of the performance of such
agreements, and the overseeing of all administrative
matters which are necessary or desirable for the effective
operation of the Trust and for the sale, servicing or
redemption of the Trust's shares;
(iii) either keep the accounting records of the Trust,
including the computation of net asset value per share and
the dividends (provided that if there is a sub-adviser,
daily pricing of the Trust's portfolio shall be the
responsibility of the sub-adviser under the sub-advisory
Agreement) or, at its expense and responsibility, delegate
such duties in whole or in part to a company satisfactory
to the Trust;
(iv) maintain the Trust's books and records, and prepare
(or assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Trust's
shareholders and Trustees, reports to and other filings
with the Securities and Exchange Commission and any other
governmental agencies, and tax returns, and oversee the
insurance relationships of the Trust;
(v) prepare, on behalf of the Trust and at the Trust's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Trust
and/or its shares under the securities or "Blue-Sky" laws
of all such jurisdictions as may be required from time to
time;
(vi) respond to any inquiries or other communications of
shareholders of the Trust 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, oversee such shareholder
servicing and transfer agent's or distributor's response
thereto.
The Advisory and Administration Agreement contains
provisions relating to compliance of the investment program,
responsibility of the Manager for any investment program
managed by it, allocation of brokerage, and responsibility for
errors that are substantially the same as the corresponding
provisions in the Sub-Advisory Agreement. (See the Additional
Statement.)
The Advisory and Administration Agreement provides that
the Manager shall, at its own expense, provide office space,
facilities, equipment, and personnel for the performance of its
functions hereunder and shall pay all compensation of Trustees,
officers, and employees of the Trust who are affiliated persons
of the Manager.
The Trust shall bear the costs of preparing and setting
in type its prospectuses, statements of additional information
and reports to its 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. All costs and expenses not
expressly assumed by the Manager under this sub-section or
otherwise by the Manager, administrator or principal
underwriter or by any Sub-Adviser shall be paid by the Trust,
including, but not limited to (i) interest and taxes; (ii)
brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Trustees other than those
affiliated with the Manager or such adviser, administrator or
principal underwriter; (v) legal and audit expenses; (vi)
custodian and transfer agent, or shareholder servicing agent,
fees and expenses; (vii) expenses incident to the issuance of
its shares (including issuance on the payment of, or
reinvestment of, dividends); (viii) fees and expenses incident
to the registration under Federal or State securities laws of
the Trust or its shares; (ix) expenses of preparing, printing
and mailing reports and notices and proxy material to
shareholders of the Trust; (x) all other expenses incidental to
holding meetings of the Trust's shareholders; and (xi) such
non-recurring expenses as may arise, including litigation
affecting the Trust and the legal obligations for which the
Trust may have to indemnify its officers and Trustees.
The Advisory and Administration Agreement provides that
the Trust agrees to pay the Manager, and the Manager agrees to
accept as full compensation for all services rendered by the
Manager 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 0.50 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, the annual fee shall be
payable at the annual rate of 0.40 of 1% of such net asset
value. As noted above, payments under the Trust's Distribution
Plan began in 1994 and in the opinion of the Trust's
management, there is no foreseeable possibility that they will
be eliminated.
The Advisory and Administration Agreement provides that
the Sub-Advisory Agreement may provide for its termination by
the Manager upon reasonable notice, provided, however, that the
Manager agrees not to terminate the Sub-Advisory Agreement
except in accordance with such authorization and direction of
the Board of Trustees, if any, as may be in effect from time to
time.
The Advisory and Administration Agreement became
effective on the date of its approval by the shareholders of
the Trust (October 31, 1997) and will, unless terminated as
hereinafter provided, continue in effect until the June 30 next
preceding the first anniversary of the effective date of the
Advisory and Administration Agreement, and from year to year
thereafter, but only so long as such continuance is
specifically approved at least annually (1) by a vote of the
Trust's Board of Trustees, including a vote of a majority of
the Trustees who are not parties to the Advisory and
Administration Agreement or "interested persons" (as defined in
the Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval, or
(2) by a vote of the holders of a "majority" (as so defined) of
the outstanding voting securities of the Trust and by such a
vote of the Trustees.
The Advisory and Administration Agreement provides that
it may be terminated by the Manager at any time without penalty
upon giving the Trust sixty days' written notice (which notice
may be waived by the Trust) and may be terminated by the Trust
at any time without penalty upon giving the Manager sixty days'
written notice (which notice may be waived by the Manager),
provided that such termination by the Trust shall be directed
or approved by a vote of a majority of its Trustees in office
at the time or by a vote of the holders of a majority (as
defined in the Act) of the voting securities of the Trust
outstanding and entitled to vote. The specific portions of the
Advisory and Administration Agreement which relate to providing
investment advisory services will automatically terminate in
the event of the assignment (as defined in the Act) of the
Advisory and Administration Agreement, but all other provisions
relating to providing services other than investment advisory
services will not terminate, provided however, that upon such
an assignment the annual fee payable monthly and computed on
the net asset value of the Trust as of the close of business
each business day shall be reduced to the annual rate of 0.27
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, the
annual fee shall be payable at the annual rate of 0.22 of 1% of
such net asset value. The Manager agrees that it will not
exercise its termination rights for at least three years from
the effective date of the Advisory and Administration
Agreement, except for regulatory reasons.
Description of the Sub-Advisory Agreement
The Sub-Advisory Agreement provides that the Manager
appoints the Sub-Adviser to render, to the Manager and to the
Trust, investment research and advisory services as set forth
below under the supervision of the Manager and subject to the
approval and direction of the Board of Trustees of the Trust.
The Sub-Advisory Agreement provides that the Sub-Adviser will
act as managerial investment adviser to the Trust with respect
to the investment of the Trust's assets, and will supervise and
arrange the purchase of securities for and the sale of
securities held in the portfolio of the Trust.
The Sub-Advisory Agreement provides in general that
subject to the direction and control of the Manager and the
Board of Trustees of the Trust, the Sub-Adviser shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold
by the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust;
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Trust and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Trust's portfolio at least quarterly using
another such source satisfactory to the Trust; and
(v) consult with the Manager in connection with its duties
hereunder.
The Sub-Advisory Agreement provides that any investment
program furnished by the Sub-Adviser shall at all times conform
to, and be in accordance with, any requirements imposed by: (1)
the Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws
of the Trust as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5)
the fundamental policies of the Trust, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Trust.
The Sub-Advisory Agreement provides that the
Sub-Adviser shall bear all of the expenses it incurs in
fulfilling its obligations under the Agreement. In particular,
but without limiting the generality of the foregoing: the
Sub-Adviser shall furnish the Trust, at the Sub-Adviser's
expense, all office space, facilities, equipment and clerical
personnel necessary for carrying out its duties under the
Agreement. The Sub-Adviser shall supply, or cause to be
supplied, to any investment adviser, administrator or principal
underwriter of the Trust all necessary financial information in
connection with such adviser's, administrator's or principal
underwriter's duties under any agreement between such adviser,
administrator or principal underwriter and the Trust. The
Sub-Adviser will also pay all compensation of the Trust's
officers, employees, and Trustees, if any, who are affiliated
persons of the Sub-Adviser.
The Sub-Advisory Agreement provides that the Manager
agrees to pay the Sub-Adviser, and the Sub-Adviser agrees to
accept as full compensation for all services rendered by the
Sub-Adviser as such, a management 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 rates of 0.23 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, the annual fee
shall be payable at the annual rate of 0.18 of 1% of such net
asset value. As noted above, payments under the Trust's
Distribution Plan began in 1994 and in the opinion of the
Trust's management, there is no foreseeable possibility that
they will be eliminated.
The Sub-Advisory Agreement became effective on the day
it was approved by the shareholders of the Trust, October 31,
1997, (the "Effective Date") and shall, unless terminated as
thereinafter provided, continue in effect until the June 30
next preceding the first anniversary of the effective date of
the Agreement, and from year to year thereafter, but only so
long as such continuance is specifically approved at least
annually (1) by a vote of the Trust's Board of Trustees,
including a vote of a majority of the Trustees who are not
parties to the Agreement or "interested persons" (as defined
in the Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval, or
(2) by a vote of the holders of a "majority" (as so defined) of
the outstanding voting securities of the Trust and by such a
vote of the Trustees.
The Sub-Advisory Agreement provides that it may be
terminated by the Sub-Adviser at any time without penalty upon
giving the Manager and the Trust sixty days' written notice
(which notice may be waived). It may be terminated by the
Manager or the Trust at any time without penalty upon giving
the Sub-Adviser sixty days' written notice (which notice may be
waived by the Sub-Adviser), provided that such termination by
the Trust shall be directed or approved by a vote of a majority
of its Trustees in office at the time or by a vote of the
holders of a majority (as defined in the Act) of the voting
securities of the Trust outstanding and entitled to vote. The
Sub-Advisory Agreement will automatically terminate in the
event of its assignment (as defined in the Act) or the
termination of the Investment Advisory Agreement. The
Sub-Adviser agrees that it will not exercise its termination
rights for at least three years from the effective date of the
Agreement, except for regulatory reasons.
Information about the Manager, the Sub-Adviser
and the Distributor
The Sub-Adviser is a subsidiary of U.S. Bancorp
("USB"), 601 Second Avenue South, Minneapolis, Minnesota 55480,
which is a regional multi-state bank holding company,
headquartered in Minneapolis, Minnesota that primarily serves
the Midwestern, Rocky Mountain and Northwestern states. USB
operates five bank and eleven trust companies with offices in
17 contiguous states from Illinois to Washington. USB also has
various other subsidiaries engaged in financial services. At
June 30, 1997, on a pro forma combined basis, USB and its
consolidated subsidiaries had consolidated assets of
approximately $72 billion, consolidated deposits of $51 billion
and shareholder equity of $6 billion. (See the Additional
Statement as to the legality, under the Glass-Steagall Act, of
the Sub-Adviser acting as the Trust's investment adviser.) In
general, under that Act, the Sub-Adviser will not, among other
things, underwrite shares of the Trust.
Mr. Edgar M. Potts, with the position of Fixed-Income
Manager, is the officer of the Sub-Adviser who manages the
Trust's portfolio. He served as such with the Trust's former
adviser, Qualivest Capital Management, Inc. since the Trust's
inception in 1986. He has been employed by the Sub-Adviser and
its predecessors since 1977 and before that by U.S. Bank. He
has more than 35 years of investment experience in those
positions and in other financial institutions. He has a B.S. in
economics from Georgetown University.
Mr. Michael Hamilton is the backup portfolio manager.
Mr. Hamilton has been employed by the parent company of the
Sub-Adviser and its predecessors since 1989. He has been
associated with the Trust since 1994, assisting in
administration and credit analysis. Mr. Hamilton has managed
municipal bond common trust funds, individual municipal bond
portfolios, taxable portfolios and money market funds. He holds
a B.A. from College of Idaho and an M.B.A from Western
Washington University.
The Trust's Manager is founder, investment advisor
and/or administrator to the Aquilasm Group of Funds, which
consists of tax-free municipal bond funds, money market funds
and two equity funds. As of September 30, 1997, these funds had
aggregate assets of approximately $2.8 billion, of which
approximately $1.9 billion consisted of assets of tax-free
municipal bond funds. The Manager, 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,
1997, fees of $617,654 was paid or accrued to the Manager under
the administration agreement then in effect and $617,654 was
paid or accrued to the Trust's former adviser and to the
Sub-Adviser under the former advisory agreement in effect until
August 1, 1997 and an interim advisory agreement in effect
until October 31, 1997, respectively. See the Additional
Statement.
The Distributor currently handles the distribution of the
shares of fourteen funds (seven tax-free municipal bond funds,
five money market funds and two equity funds), 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 75% by Mr. Herrmann and 25% by Diana P.
Herrmann, will be owned by certain directors and/or officers of
the Manager and/or the Distributor, including Mr. Herrmann and
Ms. Herrmann.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust will declare all of its net income, as defined
below, as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business
day. Net income for dividend purposes includes all interest
income accrued by the Trust since the previous dividend
declaration, including accretion of any original issue
discount, less expenses paid or accrued. As such net income
will vary, the Trust's dividends will also vary. Dividends and
other distributions paid by the Trust with respect to each
class of its shares are calculated at the same time and in the
same manner. The per share dividends of Class C Shares will be
lower than the per share dividends on the Class A Shares as a
result of the higher service and distribution fees applicable
to those shares. In addition, the dividends of each class can
vary because each class will bear certain class-specific
charges.
It is the Trust's present policy to pay dividends so
that they will be received or credited by approximately the
first day of each month. On the Application or by completing a
Ready Access Features form, you may elect to have dividends
deposited without charge by electronic funds transfers into
your account at a Financial Institution if it is a member of
the Automated Clearing House.
Redeemed shares continue to earn dividends through and
including 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 third day on
which the New York Stock Exchange is open after the day on
which the net asset value of the redeemed shares has been
determined (see "How To Redeem Your Investment").
Net investment income includes amounts of income from
the Oregon Obligations in the Trust's portfolio which are
allocated as "exempt-interest dividends." "Exempt-interest
dividends" are exempt from regular Federal income tax. The
allocation of "exempt-interest dividends" will be made by the
use of one designated percentage applied uniformly to all
income dividends declared during the Trust's tax year. Such
designation will normally be made in the first month after the
end of each of the Trust's fiscal years as to income dividends
paid in the prior year. It is possible that in certain
circumstances, a small portion of the dividends paid by the
Trust will be subject to income taxes. During the Trust's
fiscal year ended September 30, 1997, 99.11% of the Trust's
dividends were "exempt-interest dividends." For the calendar
year 1996, 0.20% of the total dividends paid were taxable as
ordinary income. The percentage of income designated as
tax-exempt for any particular dividend may be different from
the percentage of the Trust's income that was tax-exempt during
the period covered by the dividend.
Distributions ("short-term gains distributions") from net
realized short-term gains, if any, and distributions
("long-term gains distributions"), if any, from the excess of
net long-term capital gains over net short-term capital losses
realized through October 31st of each year and not previously
paid out will be paid out after that date; the Trust may also
pay supplemental distributions after the end of its fiscal
year. If net capital losses are realized in any year, they are
charged against capital and not against net investment income
which is distributed regardless of gains or losses. The Trust
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders, and from short-
and long-term gains distributions (if any) and any other
distributions that do not qualify as "exempt-interest
dividends," if shareholders do not comply with provisions of
the law relating to the furnishing of taxpayer identification
numbers and reporting of dividends.
Unless you request otherwise by letter addressed to the
Agent or by filing an appropriate Application prior to a given
ex-dividend date, dividends and distributions will be
automatically reinvested in full and fractional shares of the
Trust at net asset value on the record date for the dividend or
distribution or other date fixed by the Board of Trustees. An
election to receive cash will continue in effect until written
notification of a change is received by the Agent. All
shareholders, whether their dividends are received in cash or
are being reinvested, will receive a monthly account summary
indicating the current status of their investment. There is no
fixed dividend rate. Corporate shareholders of the Trust are
not entitled to any deduction for dividends received from the
Trust.
Tax Information
The Trust qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as
dividends and distributions. However, the Code contains a
number of complex tests relating to such qualification and it
is possible although not likely that the Trust might not meet
one or more of these tests in any particular year. If it does
not so qualify, it would be treated for tax purposes as an
ordinary corporation, would receive no tax deduction for
payments made to shareholders and would be unable to pay
dividends or distributions which would qualify as
"exempt-interest dividends" or "capital gains dividends," as
discussed below.
The Trust intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its
shareholders. Exempt-interest dividends which are derived from
net income earned by the Trust on Oregon Obligations will be
excludable from gross income of the shareholders for regular
Federal income tax purposes. Capital gains dividends are not
included in exempt-interest dividends. Although
"exempt-interest dividends" are not taxed, each taxpayer must
report the total amount of tax-exempt interest (including
exempt-interest dividends from the Trust) received or acquired
during the year.
The Code 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 gain from the
sale or exchange of a capital asset held for more than one
year. 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.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Trust
are not distributed but carried forward by the Trust to offset
gains in later years and thereby lessen the later-year capital
gains dividends and amounts taxed to shareholders.
The Trust's gains or losses on sales of Oregon Obligations
will be long-term or short-term depending upon the length of
time the Trust has held such obligations. Capital gains and
losses of the Trust will also include gains and losses on
Futures and options, if any, including gains and losses
actually realized on sales and exchanges and gains and losses
deemed to be realized. Those deemed to be realized are on
Futures and options held by the Trust at year-end, which are
"marked to the market," that is, deemed sold for fair market
value. Net gains or losses realized and deemed realized on
Futures and options will be reportable by the Trust as
long-term to the extent of 60% of the gains or losses and
short-term to the extent of 40% regardless of the actual
holding period of such investments.
Information as to the tax status of the Trust's dividends
and distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Trust may not
be deducted for regular Federal tax purposes. In addition,
under rules used by the Internal Revenue Service for
determining when borrowed funds are deemed used for the purpose
of purchasing or carrying particular assets, the purchase of
shares of the Trust may be considered to have been made with
borrowed funds even though the borrowed funds are not directly
traceable to the purchase of shares. The receipt of
exempt-interest dividends from the Trust by an individual
shareholder may result in some portion of any social security
payments or railroad retirement benefits received by the
shareholder or the shareholder's spouse being included in
taxable income. Persons who are "substantial users" (or persons
related thereto) of facilities financed by industrial
development bonds or private activity bonds should consult
their own tax advisers before purchasing shares.
While interest from all Oregon Obligations is tax-exempt
for purposes of computing the shareholder's regular tax,
interest from so-called private activity bonds issued after
August 7, 1986, constitutes a tax preference for both
individuals and corporations and thus will enter into a
computation of the alternative minimum tax. Whether or not that
computation will result in a tax will depend on the entire
content of the taxpayer's return. The Trust will not invest in
the types of Oregon Obligations which would give rise to
interest that would be subject to alternative minimum taxation
if more than 20% of its net assets would be so invested, and
may refrain from investing in that type of bond completely. The
20% limit is a fundamental policy of the Trust.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference
between what is called adjusted current earnings (essentially
current earnings and profits) and alternative minimum taxable
income, as previously calculated. Since tax-exempt bond
interest is included in earnings and profits and therefore in
adjusted current earnings, this adjustment will tend to make it
more likely that corporate shareholders will be subject to the
alternative minimum tax.
Tax Effects of Redemptions
Normally, when you redeem shares of the Trust you will
recognize capital gain or loss measured by the difference
between the proceeds received in the redemption and the amount
you paid for the shares. If you are required to pay a
contingent deferred sales charge at the time of redemption, the
amount of that charge will reduce the amount of your gain or
increase the amount of your loss as the case may be. Your gain
or loss will be long-term if you held the redeemed shares for
over 18 months, mid-term if you held the redeemed shares for
over one year but not more than 18 months and short-term, if
for a year or less. Long term capital gains are currently taxed
at a maximum rate of 20%, mid-term capital gains are currently
taxed at a maximum rate of 28%, and short-term gains are
currently taxed at ordinary income tax rates. However, if
shares held for six months or less are redeemed and you have a
loss, two special rules apply: the loss is reduced by the
amount of exempt-interest dividends, if any, which you received
on the redeemed shares, and any loss over and above the amount
of such exempt-interest dividends is treated as a long-term
loss to the extent you have received capital gains dividends on
the redeemed shares.
Tax Effect of Conversion
Class C Shares will automatically convert to Class A
Shares approximately six years after purchase. No gain or loss
will be recognized by the Trust or its shareholders upon such
conversions; each shareholder's adjusted tax basis in the Class
A Shares received upon conversion will equal the shareholder's
adjusted tax basis in the Class C Shares held immediately
before the conversion; and each shareholder's holding period
for the Class A Shares received upon conversion will include
the period for which the shareholder held as capital assets the
converted Class C Shares immediately before conversion.
Oregon Tax Information
Individual shareholders of the Trust, resident in Oregon,
will not be subject to Oregon personal income tax on
distributions received from the Trust to the extent such
distributions are attributable to interest on tax-exempt
obligations of the State of Oregon and its political
subdivisions and authorities or on obligations issued by or
under the authority of the governments of Puerto Rico, the
Virgin Islands, Guam and the Northern Mariana Islands, provided
that the Trust complies with the requirement of the Code that
at least 50% of its assets at the close of each quarter of its
taxable year is invested in state, municipal or other
obligations the interest on which is exempt from federal income
tax under Section 103(a) thereof.
Other distributions from the Trust, including all
long-term and short-term capital gains, will generally not be
exempt from Oregon income tax.
Trust distributions are expected to be fully includable in
income in determining the Oregon excise tax on corporations.
Shares of the Trust will not be subject to the Oregon
property tax.
Shareholders of the Trust should consult their tax
advisers about other state and local tax consequences of their
investment in the Trust.
EXCHANGE PRIVILEGE
There is an exchange privilege as set forth below among
this Trust and certain tax-free municipal bond funds and two
equity funds (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 Manager or 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, Aquila Cascadia
Equity Fund, Hawaiian Tax-Free Trust, Tax-Free Trust of
Arizona, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of
Kentucky, Tax-Free Fund For Utah and Narragansett Insured
Tax-Free Income Fund; the Aquila Money-Market Funds are Capital
Cash Management Trust, Pacific Capital Cash Assets Trust
(Original Shares), Pacific Capital Tax-Free Cash Assets Trust
(Original Shares), Pacific Capital U.S. Treasuries Cash Assets
Trust (Original Shares) and Churchill Cash Reserves Trust.
Generally, you can exchange shares of a given class of
a Bond or Equity Funds including the Trust for shares of the
same class of any other Bond or Equity Fund, or for shares of
any Money Market Fund, without the payment of a sales charge or
any other fee, and there is no limit on the number of exchanges
you can make from fund to fund. However, the following
important information should be noted:
(1) CDSCs upon redemptions of shares acquired through
exchanges. If you exchange shares of the following categories,
no CDSC will be imposed at the time of exchange, but the shares
you receive in exchange for them will be subject to the
applicable CDSC if you redeem them before the requisite holding
period (extended, if required) has expired:
- CDSC Class A Shares (See "Purchase of $1 Million or
More");
- Class C Shares: and
- Shares of a Money Market Fund that were received in
exchange for CDSC Class A Shares or Class C
Shares.
If the shares you redeem would have incurred a CDSC if
you had not made any exchanges, then the same CDSC will be
imposed upon the redemption regardless the exchanges that have
taken place since the original purchase.
(2) Extension of Holding Periods by owning Money-Market
Funds. Any period of 30 days or more during which Money-Market
shares received on an exchange of CDSC Class A Shares or Class
C Shares are held is not counted in computing the applicable
holding period for CDSC Class A Shares or Class C Shares.
(3) Originally Purchased Money Market Fund shares.
Shares of a Money Market Fund (and any shares acquired as a
result of reinvestment of dividends and/or distributions on
these shares) acquired directly in a purchase (or in exchange
for Money Market Fund Shares that were themselves directly
purchased), rather than in exchange for shares of a Bond or
Equity Fund, may be exchanged for shares of any class of any
Bond or Equity Fund that the investor is otherwise qualified to
purchase, but the shares received in such an exchange will be
subject to the same sales charge, if any, that they would have
been subject to had they been purchased rather than acquired in
exchange for Money Market Fund shares. If the shares received
in exchange are shares that would be subject to a CDSC if
purchased directly, the holding period governing the CDSC will
run from the date of the exchange, not from the date of the
purchase of Money Market Shares.
This Trust, as well as the Money-Market Funds and other
Bond or Equity Funds, reserves the right to reject any exchange
into its shares, if shares of the fund into which exchange is
desired are not available for sale in your state of residence.
The Trust may also modify or terminate this exchange privilege
at any time. In the case of termination, the Prospectus will be
appropriately supplemented. No such modification or termination
shall take effect on less than 60 days' written notice to
shareholders.
All exercises of the exchange privilege are subject to the
conditions that (i) the shares being acquired are available for
sale in your state of residence; (ii) the aggregate net asset
value of the shares surrendered for exchange is at least equal
to the minimum investment requirement of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-872-6735 toll free
Note: The Trust, the Agent, and the Distributor will not
be responsible for any losses resulting from unauthorized
telephone transactions if the Agent follows reasonable
procedures designed to verify the identity of the caller. The
Agent will request some or all of the following information:
account name(s) and number, name of the caller, the social
security number registered to the account and personal
identification. The Agent may also record calls. You should
verify the accuracy of confirmation statements immediately upon
receipt.
Exchanges will be effected at the relative exchange
prices of the shares being exchanged next determined after
receipt by the Agent of your exchange request. The exchange
prices will be the respective net asset values of the shares,
unless a sales charge is to be deducted in connection with an
exchange of shares, in which case the exchange price of shares
of a Bond or Equity Fund will be their public offering price.
Prices for exchanges are determined in the same manner as for
purchases of the Trust's shares. (See "How to Invest in the
Trust.")
An exchange is treated for Federal tax purposes as a
redemption and purchase of shares and may result in the
realization of a capital gain or loss, depending on the cost or
other tax basis of the shares exchanged and the holding period
(see "Tax Effects of Redemptions" and 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 and Aquila Cascadia 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, at the maximum public offering price (offering price
includes any applicable sales charge) for 1-, 5- and 10-year
periods and for a period since the inception of the Trust, to
the extent applicable, through the end of such periods,
assuming reinvestment (without sales charge) of all
distributions. The Trust may also furnish total return
quotations for other periods or based on investments at various
applicable sales charge levels or at net asset value. For such
purposes total return equals the total of all income and
capital gains paid to shareholders, assuming reinvestment of
all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the
purchase price. (See the Additional Statement.)
Current yield reflects the income per share earned by
each of the Trust's portfolio investments; it is calculated by
(i) dividing the Trust's net investment income per share during
a recent 30-day period by (ii) the maximum public offering
price on the last day of that period and by (iii) annualizing
the result. Taxable equivalent yield shows the yield from a
taxable investment that would be required to produce an
after-tax yield equivalent to that of the Trust, which invests
in tax-exempt obligations. It is computed by dividing the
tax-exempt portion of the Trust's yield (calculated as
indicated) by one minus a stated income tax rate and by adding
the product to the taxable portion (if any) of the Trust's
yield. (See the Additional Statement.)
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities
and Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will
be paid to the Trust's shareholders. Dividends or distributions
paid to shareholders are reflected in the current distribution
rate or taxable equivalent distribution rate which may be
quoted to shareholders. The current distribution rate is
computed by (i) dividing the total amount of dividends per
share paid by the Trust during a recent 30-day period by (ii)
the current maximum offering price and by (iii) annualizing the
result. A taxable equivalent distribution rate shows the
taxable distribution rate that would be required to produce an
after-tax distribution rate equivalent to the Trust's
distribution rate (calculated as indicated above). The current
distribution rate differs from the current yield computation
because it could include distributions to shareholders from
sources, if any, other than dividends and interest, such as
short-term capital gains or return of capital. If distribution
rates are quoted in advertising, they will be accompanied by
calculations of current yield in accordance with the formula of
the Securities and Exchange Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges
against the Trust's income net of fee waivers and reimbursement
of expenses, if any, and will assume the payment of the maximum
sales charge, if any, on the purchase of shares, but not on
reinvestment of income dividends. The investment results of the
Trust, like all other investment companies, will fluctuate over
time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the
Trust's yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any
future period. The annual report of the Trust contains
additional performance information that will be made available
upon request and without charge.
Description of the Trust and Its Shares
The Trust is a series of The Cascades Trust (the "Business
Trust") formed in 1985 under the name Tax-Free Trust of Oregon.
On August 10, 1989, the name of the Business Trust was changed
to The Cascades Trust. The Business Trust presently has only
one active series, the original series, which continues to be
called Tax-Free Trust of Oregon.
The Business Trust is an open-end, non-diversified
management investment company organized as a Massachusetts
business trust. (See "Investment of the Trust's Assets" above
for further information about the Trust's status as "non-
diversified").
The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares and to divide
or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests
in the Business Trust. Each share represents an equal
proportionate interest in the Trust with each other share of
its class; shares of the respective classes represent
proportionate interests in the Trust in accordance with their
respective net asset values. Income, direct liabilities and
direct operating expenses of each series will be allocated
directly to each series, and general liabilities and expenses,
if any, of the Business Trust will be allocated among the
series in a manner acceptable to the Board of Trustees. Upon
liquidation of a series, shareholders of the series are
entitled to share pro-rata in the net assets of that series
available for distribution to shareholders and upon liquidation
of the Business Trust, the respective series are entitled to
share proportionately in the assets available to the Business
Trust after allocation to the various series. Shareholders of
the Trust are entitled to share pro-rata in the net assets of
the Trust available for distribution to shareholders (and in
the assets of the Business Trust otherwise available to
shareholders of the Trust), in accordance with the respective
net asset values of the shares of each of the Trust's classes
at that time. All shares are presently divided into four
classes; however, if they deem it advisable and in the best
interests of shareholders, the Board of Trustees of the Trust
may create additional classes of shares (subject to rules and
regulations of the Securities and Exchange Commission or by
exemptive order) or the Board of Trustees may, at its own
discretion, create additional series of shares, each of which
may have separate assets and liabilities (in which case any
such series will have a designation including the word
"Series"). (See the Additional Statement for further
information about possible additional series.) Shares are fully
paid and non-assessable, except as set forth under the caption
"General Information" in the Additional Statement; the holders
of shares have no pre-emptive or conversion rights.
In addition to Class A Shares and Class C Shares, which
are offered by this Prospectus, the Trust also has (i)
Institutional Class Shares ("Class Y Shares"), which are
offered only to institutions acting for investors in a
fiduciary, advisory, agency, custodial or similar capacity and
are not offered directly to retail customers and (ii) Financial
Intermediary Class Shares ("Class I Shares"), which are offered
and sold only through certain financial intermediaries. Class Y
Shares and Class I Shares are offered are offered by a separate
prospectus, which can be obtained by calling the Trust at
800-872-6734.
The primary distinction among the Trust's classes of
shares lies in their different sales charge structures and
ongoing expenses, which are likely to be reflected in differing
yields and other measures of investment performance. All four
classes represent interests in the same portfolio of Oregon
Obligations and have the same rights, except that each class
bears the separate expenses, if any, of its participation in
the Distribution Plan and Shareholder Services Plan and has
exclusive voting rights with respect to such participation.
Voting Rights
At any meeting of shareholders, shareholders are entitled
to one vote for each dollar of net asset value (determined as
of the record date for the meeting) per share held (and
proportionate fractional votes for fractional dollar amounts).
Shareholders will vote on the election of Trustees and on other
matters submitted to the vote of shareholders. Shares vote by
classes on any matter specifically affecting one or more
classes, such as an amendment of an applicable part of the
Distribution Plan.
Rule 18f-2 under the Investment Company Act of 1940
provides that matters submitted to shareholders affecting any
series must be approved by a majority of the outstanding voting
securities of such series, voting separately from the other
series, unless it is clear that the interests of each series in
the matter are identical or the matter does not affect a
series. However, the rule exempts the selection of accountants
and the election of Trustees from the separate voting
requirement.
No amendment may be made to the Declaration of Trust
without the affirmative vote of the holders of a majority of
the outstanding shares of the Trust, except that the Trust's
Board of Trustees may change the name of the Trust. The Trust
may be terminated (i) upon the sale of its assets to another
issuer, or (ii) upon liquidation and distribution of the assets
of the Trust, in either case if such action is approved by the
vote of the holders of a majority of the outstanding shares of
the Trust. If not so terminated, the Trust will continue
indefinitely.
<PAGE>
APPLICATION FOR TAX-FREE TRUST OF OREGON
FOR CLASS A OR CLASS C SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
PFPC Inc., ATTN: Aquilasm Group of Funds
400 Bellevue Parkway, Wilmington, DE 19809
1-800-872-6735
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.______________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for __________________________________________________________
Minor's First Name Middle Initial Last Name
Under the _____________UGTMA** _________________________________________
Name of State Minor's Social Security Number
4. _____________________________________________________________________
_____________________________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust
may be registered in the name of the Plan or Trust itself.)
________________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
________________________________________________________________________
Street or PO Box City
_________________________________ (______)____________________
State Zip Daytime Phone Number
Occupation:________________________Employer:____________________________
Employer's Address:_____________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
______________________________ ___________________________________
Dealer Name Branch Number
______________________________ ___________________________________
Street Address Rep. Number/Name
______________________________ (_________)________________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
(Indicate Class of Shares)
__ Class A Shares (Front-Payment Class)
__ Class C Shares (Level-Payment Class)
Indicate Method of Payment (For either method, make check payment to
TAX-FREE TRUST OF OREGON)
__ Initial Investment $____________ (Minimum $1,000)
__ Automatic Investment $___________ (Minimum $50)
For Automatic Investments of at least $50 per month, you must complete
Step 3, Section A, Step 4, Sections A & B and attached a PRE-PRINTED
DEPOSIT SLIP OR VOIDED CHECK.
IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE IN
CLASS A SHARES.
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be:___ Reinvested ___Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you to
deposit the dividend. (A Financial Institution is a commercial bank,
savings bank or credit union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your Tax-Free Trust of Oregon Account. To establish this program, please
complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or on
the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling
the Trust toll-free at 1-800-872-6735. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. LETTER OF INTENT
APPLICABLE TO CLASS A SHARES ONLY.
See Terms of Letter of Intent and Escrow at the end of this application
___ Yes ___ No
I/We intend to invest in Class A Shares of the Trust during the 13-month
period from the date of my/our first purchase pursuant to this Letter (which
purchase cannot be more than 90 days prior to the date of this Letter), an
aggregate amount (excluding any reinvestment of dividends or distributions)
of at least $25,000 which, together with my/our present holdings of Trust
shares (at public offering price on date of this Letter), will equal or
exceed the minimum amount checked below:
___ $25,000 ___ $50,000 ___ $100,000 ___ $250,000
___ $500,000 ___ $1,000,000 ___ $2,500,000 ___ $5,000,000
D. AUTOMATIC WITHDRAWAL PLAN
APPLICABLE TO CLASS A SHARES ONLY.
(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, the Trust's Shareholder
Servicing Agent (the "Agent") is authorized to redeem sufficient shares
from this account at the then current Net Asset Value, in accordance with
the terms below:
Dollar Amount of each withdrawal $ ______________beginning________________.
Minimum: $50 Month/Year
Payments to be made: ___ Monthly or ___ Quarterly
Checks should be made payable as indicated below. If check is payable to
a Financial Institution for your account, indicate Financial Institution
name, address and your account number.
_______________________________ ______________________________________
First Name Middle Initial Last Name Financial Institution Name
_______________________________ ______________________________________
Street Financial Institution Street Address
_______________________________ ______________________________________
City State Zip City State Zip
____________________________________
Financial Institution Account Number
E. TELEPHONE EXCHANGE
(Check appropriate box)
___ Yes ___ No
This option allows you to effect exchanges among accounts in your name
within the Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
person's 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 attorney's fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
F. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account listed.
Cash proceeds in any amount from the redemption of shares will be
mailed or wired, whenever possible, upon request, if in an amount of
$1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this Trust
account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ ____________________________________
Account Registration Financial Institution Account Number
_______________________________ ____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ ____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITOR'S AUTHORIZATION TO HONOR DEBITS
IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU MUST
ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge to
my/our account any drafts or debits drawn on my/our account initiated by
the Agent, Administrative Data Management Corp., and to pay such sums in
accordance therewith, provided my/our account has sufficient funds to
cover such drafts or debits. I/We further agree that your treatment of
such orders will be the same as if I/we personally signed or initiated
the drafts or debits.
I/We understand that this authority will remain in effect until you receive
my/our written instructions to cancel this service. I/We also agree that if
any such drafts or debits are dishonored, for any reason, you shall have no
liabilities.
Financial Institution Account Number ____________________________________
Name and Address where my/our account is maintained
Name of Financial Institution____________________________________________
Street Address___________________________________________________________
City__________________________________________State ________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account is
registered
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
______________________________________________
(Please Print)
X_____________________________________________ __________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila Distributors,
Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant to
the above authorization shall be subject to the provisions of the Operating
Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit in the
normal course of business initiated by the Agent (except any loss due to
your payment of any amount drawn against insufficient or uncollected
funds), provided that you promptly notify us in writing of any claim
against you with respect to the same, and further provided that you will
not settle or pay or agree to settle or pay any such claim without the
written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause, any such
electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of legal
age to purchase shares of the Trust and has received and read a current
Prospectus of the Trust and agrees to its terms.
- - I/We authorize the Trust and its agents to act upon these instructions
for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution has
insufficient funds, the Trust and its agents may cancel the purchase
transaction and are authorized to liquidate other shares or fractions
thereof held in my/our Trust account to make up any deficiency resulting
from any decline in the net asset value of shares so purchased and any
dividends paid on those shares. I/We authorize the Trust and its agents
to correct any transfer error by a debit or credit to my/our Financial
Institution account and/or Trust account and to charge the account for any
related charges. I/We acknowledge that shares purchased either through
Automatic Investment or Telephone Investment are subject to applicable
sales charges.
- - The Trust, the Agent and the Distributor and their Trustees, directors,
employees and agents will not be liable for acting upon instructions
believed to be genuine, and will not be responsible for any losses
resulting from unauthorized telephone transactions if the Agent follows
reasonable procedures designed to verify the identity of the caller. The
Agent will request some or all of the following information: account name
and number; name(s) and social security number registered to the account
and personal identification; the Agent may also record calls. Shareholders
should verify the accuracy of confirmation statements immediately upon
receipt. Under penalties of perjury, the undersigned whose Social Security
(Tax I.D.) Number is shown above certifies (i) that Number is my correct
taxpayer identification number and (ii) currently I am not under IRS
notification that I am subject to backup withholding (line out (ii) if
under notification). If no such Number is shown, the undersigned further
certifies, under penalties of perjury, that either (a) no such Number has
been issued, and a Number has been or will soon be applied for; if a Number
is not provided to you within sixty days, the undersigned understands that
all payments (including liquidations) are subject to 31% withholding under
federal tax law, until a Number is provided and the undersigned may be
subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a
citizen or resident of the U.S.; and either does not expect to be in the
U.S. for 183 days during each calendar year and does not conduct a
business in the U.S. which would receive any gain from the Trust, or is
exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST,
ALL TRUSTEES MUST SIGN.*
__________________________ ____________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ ____________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after
this form is received in good order by the Trust's Agent.
- - You may cancel any feature at any time, effective 3 days after the Agent
receives written notice from you.
- - Either the Trust or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Trust reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by the
terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access features form which may be obtained from Aquila
Distributors at 1-800-872-6734 and send it to the Agent together with
a "voided" check or pre-printed deposit slip from the new account.
The new Financial Institution change is effective in 15 days after this
form is received in good order by the Trust's Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 3c 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 3c 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 SUB-ADVISER
US Bank National Association
111 S.W. Fifth Avenue
U.S. Bancorp Tower
Portland, Oregon 97204
INVESTMENT ADVISER, ADMINISTRATOR and FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
James A. Gardner
Diana P. Herrmann
Ann R. Leven
Raymond H. Lung
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
Sue McCarthy-Jones, Senior 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights
Table Of Expenses
Financial Highlights
Introduction
Investment Of The Trust's Assets
Investment Restrictions
Net Asset Value Per Share
How To Invest In The Trust
How To Redeem Your Investment
Automatic Withdrawal Plan
Management Arrangements
Dividend And Tax Information
Exchange Privilege
General Information
Application and Letter of Intent
AQUILA
[EAGLE LOGO]
TAX-FREE TRUST
OF OREGON
[LOGO]
A tax-free
income investment
A Series of The Cascades Trust
PROSPECTUS
One of The
Aquilasm Group of Funds
<PAGE>
Tax-Free Trust of Oregon
380 Madison Avenue, Suite 2300
New York, New York 10017
800-USA-OREG (800-872-6734)
212-697-6666
Prospectus
Class Y Shares January 31, 1998
Class I Shares
The Trust is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Oregon and
regular Federal income taxes as is consistent with preservation
of capital by investing in municipal obligations which pay
interest exempt from Oregon State and Federal income taxes. These
municipal obligations must, at the time of purchase, either be
rated within the four highest credit ratings (considered as
investment grade) assigned by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, or, if unrated, be determined to
be of comparable quality by the Trust's Sub-Adviser, U.S. Bank
National Association, 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, 1998, has been filed with the
Securities and Exchange Commission and is available without
charge upon written request to PFPC Inc., 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, U.S. BANK NATIONAL ASSOCIATION, BY
ANY OF ITS AFFILIATES OR BY 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 Shareholder Servicing Agent:
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
For General Inquiries & Yield Information,
Call 800-872-6734 toll free or 212-697-6666
This Prospectus Should Be Read and Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
HIGHLIGHTS
Tax-Free Trust of Oregon, founded by Aquila Management
Corporation in 1985 and one of the Aquilasm Group of Funds, is an
open-end mutual fund which invests in tax-free municipal bonds,
the kind of obligations issued by the State of Oregon, its
counties and various other local authorities to finance such
long-term projects as schools, airports, roads, hospitals, water
facilities and other vital public purpose projects throughout
Oregon. (See "Introduction.")
Tax-Free Income - The municipal obligations in which the
Trust invests pay interest which is exempt from both regular
Federal and State of Oregon income taxes. Dividends paid by the
Trust from this income are likewise free of both such taxes. It
is, however, possible that in certain circumstances a small
portion of the dividends paid by the Trust will be subject to
income taxes. The Federal alternative minimum tax may apply to
some investors, but its impact will be limited since not more
than 20% of the Trust's net assets can be invested in obligations
paying interest which is subject to this tax. The receipt of
exempt-interest dividends from the Trust may result in some
portion of social security payments or railroad retirement
benefits being included in taxable income. Capital gains
distributions, if any, are taxable. (See "Dividend and Tax
Information.")
Investment Grade - The Trust will acquire only those
municipal obligations which, at the time of purchase, are within
the four highest credit ratings assigned by Moody's Investors
Service, Inc. or Standard & Poor's Corporation, or are determined
by the Sub-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.")
Alternative Purchase Plans -- The Trust provides
alternative ways to invest. (See "How to Invest in the Trust.")
For this purpose the Trust offers classes of shares, which differ
in their expense levels and sales charges. This Prospectus
offers:
Institutional Class Shares ("Class Y Shares") are
offered only to institutions acting for investors in a
fiduciary, advisory, agency, custodial or similar
capacity, and are not offered directly to retail
customers. Class Y Shares are offered at net asset
value with no sales charge, no redemption fee, no
contingent deferred sales charge and no distribution
fee. (See "How to Purchase Class Y Shares.")
Financial Intermediary Class Shares ("Class I
Shares") are offered and sold only through financial
intermediaries with which Aquila Distributors, Inc.
(the "Distributor") has entered into sales agreements,
and are not offered directly to retail customers. Class
I Shares are offered at net asset value with no sales
charge and no redemption fee or contingent deferred
sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other
transaction on behalf of its customers. Class I Shares
may carry a distribution fee of up to 0.25 of 1% of
average annual net assets allocable to Class I Shares,
currently 0.10 of 1% of such net assets, and a service
fee of 0.25 of 1% of such assets. (See "How to Purchase
Class I Shares.")
The Trust's other classes of shares, Front-Payment Class
Shares ("Class A Shares") and Level-Payment Class Shares, ("Class
C Shares"), are not offered by this Prospectus. (See "General
Information - Description of the Trust and Its Shares.")
At the date of the Prospectus, Class Y Shares and Class I
Shares are registered for sale only in certain states. (See "How
to Invest in the Trust.") If Class Y Shares or Class I Shares of
the Trust are sold outside those states, except to certain
institutional investors, the Trust can redeem them. If your state
of residence is not Oregon, dividends from the Trust may be
subject to income taxes of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of the Trust.
Initial Investment - - You may open your account for
Class Y Shares with any purchase of $100,000 or more for
fiduciary accounts and $250,000 for all other eligible
purchasers. These minimums do not apply to shareholders with
accounts open on January 31, 1998. (See the Application, which is
in the back of the Prospectus.) Class I Shares are sold only
through financial intermediaries, which may have their own
minimum investment requirement. (See "How to Invest in the
Trust.")
Additional Investments - You may make additional
investments in Class Y Shares 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. Additional
investments in Class I Shares can be made only through financial
intermediaries, which may have their own requirements for
subsequent investments. (See "How to Invest in the Trust.")
Monthly Income - Dividends are declared daily and paid
monthly. At your choice, dividends on Class Y Shares 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. All arrangements for the payment of dividends with
respect to Class I Shares, including reinvestment of dividends,
must be made through financial intermediaries. (See "Dividend and
Tax Information.")
Many Different Issues - You have the advantages of a
portfolio which consists of over 190 issues with different
maturities. (See "Investment of the Trust's Assets.")
Local Portfolio Management - U.S Bank National
Association, (the "Sub-Adviser") a subsidiary of US Bancorp,
serves as the Trust's Investment Sub-Adviser, providing
experienced local professional management. The Trust pays
management fees at a rate of up to 0.40 of 1% of average annual
net assets to its Manager which in turn pays 0.20 of 1% of
average annual net assets to its Sub-Adviser (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.")
Redemptions - Liquidity - You may redeem any amount of
your Class Y Shares account on any business day at the next
determined net asset value by telephone, FAX or mail request,
with proceeds being sent to a predesignated financial
institution, if you have elected Expedited Redemption. Proceeds
will be wired or transferred through the facilities of the
Automated Clearing House, wherever possible, upon request, if in
an amount of $1,000 or more, or will be mailed. For these and
other redemption procedures see "How to Redeem Your Investment."
All arrangements for redemptions of Class I Shares must be made
through financial intermediaries. The Trust does not impose
redemption fees for redemption of Class Y Shares or Class I
Shares. However, financial intermediaries may charge a fee for
effecting redemptions.
Certain Stabilizing Measures - The Trust may employ such
traditional measures as varying maturities, upgrading credit
standards for portfolio purchases, broadening diversification and
increasing its position in cash, in an attempt to protect against
declines in the value of its investments and other market risks.
(See "Certain Stabilizing Measures.")
Exchanges - You may exchange Class Y Shares of the Trust
into Class Y Shares of other Aquila-sponsored tax-free municipal
bond mutual funds or two Aquila-sponsored equity funds. You may
also exchange them into shares of the Aquila-sponsored money
market funds. Similar exchangability is available for Class I
Shares to the extent that other Aquila-sponsored funds are made
available to its customers by a financial intermediary. The
exchange prices will be the respective net asset values of the
shares. (See "Exchange Privilege.")
Risks and Special Considerations - The share price,
determined on each business day, varies with the market prices of
the Trust's portfolio securities, which fluctuate with market
conditions including prevailing interest rates. Accordingly, the
proceeds of redemptions may be more or less than your original
cost. (See "Factors Which May Affect the Value of the Trust's
Investments and Their Yields.") The Trust's assets, being
primarily or entirely Oregon issues, are subject to economic and
other conditions affecting Oregon. (See "Risk Factors 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 Class Y Shares account monthly as well as each time you add
to your account or take money out. Financial intermediaries
provide their own statements of Class I Shares accounts.
Additionally, you will receive a Semi-Annual Report and an
audited Annual Report.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF OREGON
TABLE OF EXPENSES
Class I Class Y
Shareholder Transaction Expenses Shares Shares
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases ............ None None
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends . None None
Maximum Deferred Sales Charge ........................ None None
Redemption Fees ...................................... None None
Exchange Fee ......................................... None None
Annual Trust Operating Expenses (1)
(as a percentage of average annual net assets)
Management Fee (2) ................................... 0.40% 0.40%
12b-1 Fee (3) ........................................ 0.10% None
All Other Expenses (4) ............................... 0.43% 0.18%
Total Trust Operating Expenses (4) ................... 0.93% 0.58%
Example (5)
You would pay the following expenses on a $1,000 investment, assuming a
5% annual return and redemption at the end of each time period:
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class I Shares $9 $30 $51 $114
Class Y Shares $6 $19 $32 $73
<FN>
(1) Estimated based on amount incurred by the Trust's Class Y Shares
during its most recent fiscal year, restated to reflect current
arrangements.
</FN>
<FN>
(2) The Trust pays the Manager an advisory fee at the annual rate of 0.40
of 1% of average annual net assets; the Manager pays the Sub-Adviser a
sub-advisory fee at the annual rate of 0.18 of 1% of average annual net
assets. (See "Management Arrangements.")
</FN>
<FN>
(3) Current rate; up to 0.25% can be authorized.
</FN>
<FN>
(4) Does not reflect a 0.01% expense offset in custodian fees received for
uninvested cash balances. Reflecting this offset and based on estimates
for Class I, all other expenses and total Trust operating expenses for
Class I Shares would have been 0.42% and 0.92%, respectively; for Class Y
Shares, these expenses would have been 0.17% and 0.57%, respectively.
Operating expenses for Class I Shares include 0.25% Service Fee. (See
"Shareholder Services Plan for Class I Shares.")
</FN>
<FN>
(5) The expense example is based upon the above annual Trust operating
expenses. It is also based upon amounts at the beginning of each year which
includes the prior year's assumed results. A year's results consist of an
assumed 5% annual return less total annual operating expenses; the expense
ratio was applied to an assumed average balance (the year's starting
investment plus one-half the year's results). Each figure represents the
cumulative expenses so determined for the period specified.
</FN>
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL
FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE
EXAMPLE. THE ASSUMED 5% ANNUAL RETURN SHOULD NOT BE INTERPRETED AS A
PREDICTION OF AN ACTUAL RETURN, WHICH MAY BE HIGHER OR LOWER.
The purpose of the above table is to assist the investor in
understanding the various costs that an investor in the Trust will bear
directly or indirectly.
<PAGE>
<TABLE>
<CAPTION>
The table shown below for Class A Shares is for information purposes
only. Class A Shares are not offered by this Prospectus. No historical
information exists for Class I Shares, which were established on
January 31, 1998.
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, 1997 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. A copy of these financial
statements can be obtained without charge by calling or writing the
Shareholder Servicing Agent at the address and telephone numbers on the
cover of the Prospectus.
Class A(1) Class Y(2)
Year ended September 30, Year Period(3)
Ended Ended
1997 1996 1995 9/30/97 9/30/96
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period ............... $10.49 $10.55 $10.20 $10.49 $10.34
Income from Investment
Operations:
Net investment income ... 0.53 0.54 0.55 0.54 0.27
Net gain (loss) on
securities (both
realized and
unrealized) ........... 0.21 (0.05) 0.39 0.21 0.15
Total from Investment
Operations ............ 0.74 0.49 0.94 0.75 0.42
Less Distributions:
Dividends from net
investment income ..... (0.54) (0.54) (0.55) (0.55) (0.27)
Distributions from
capital gains ......... (0.01) (0.01) (0.04) (0.01) -
Total Distributions ..... (0.55) (0.55) (0.59) (0.56) (0.27)
Net Asset Value, End of
Period .................. $10.68 $10.49 $10.55 $10.68 $10.49
Total Return (not
reflecting sales
charge)(%) .............. 7.21 4.76 9.52 7.37 4.14+
Ratios/Supplemental Data
Net Assets, End of Period
(in thousands $) ...... 312,005 305,096 310,554 4,031 242
Ratio of Expenses to
Average Net
Assets (%) .......... 0.72 0.72 0.71 0.57 0.57*
Ratio of Net Investment
Income to Average Net
Assets (%) ............ 5.02 5.16 5.38 5.22 5.36*
Portfolio Turnover Rate ... 5 10 13 5 10
Net investment income per share and the ratios of income and expenses to
average net assets before expense offset in custodian fees for uninvested
cash balances would have been:
Net Investment
Income ($) ............ 0.53 0.54 0.55 0.54 0.27
Ratio of Expenses to
Average Net Assets (%). 0.73 0.73 0.73 0.58 0.58*
Ratio of Net Investment
Income to Average Net
Assets (%) ............ 5.01 5.15 5.37 5.21 5.35*
<CAPTION>
Class A(1)
Year Ended September 30,
1994 1993 1992 1991 1990 1989 1988
<C> <C> <C> <C> <C> <C> <C>
$10.95 $10.48 $10.15 $9.67 $9.76 $9.67 $9.11
0.56 0.58 0.65 0.62 0.66 0.73 0.61
(0.75) 0.50 0.29 0.49 (0.11) 0.01 0.60
(0.19) 1.08 0.94 1.11 0.55 0.74 1.21
(0.56) (0.58) (0.61) (0.63) (0.64) (0.65) (0.65)
- (0.03) - - - - -
(0.56) (0.61) (0.61) (0.63) (0.64) (0.65) (0.65)
$10.20 $10.95 $10.48 $10.15 $9.67 $9.76 $9.67
(1.77) 10.64 9.51 11.83 5.76 7.83 13.66
316,317 331,018 249,953 189,734 140,713 122,096 102,361
0.68 0.66 0.66 0.71 0.71 0.76 0.80
5.28 5.46 5.87 6.30 6.55 6.61 6.77
11 8 11 21 25 45 24
0.56 0.58 0.65 0.62 0.66 0.73 0.61
0.70 0.68 0.66 0.73 0.73 0.78 0.82
5.26 5.44 5.87 6.28 6.53 6.59 6.75
<FN>
(1) Designated as Class A Shares on April 5, 1996.
</FN>
<FN>
(2) New Class of Shares established on April 5, 1996.
</FN>
<FN>
(3) From April 5, 1996 through September 30, 1996.
</FN>
<FN>
+ Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
INTRODUCTION
The Trust's shares are designed to be a suitable investment
for investors who seek income exempt from Oregon State and
regular Federal income taxes.
You may invest in shares of the Trust as an alternative to
direct investments in Oregon Obligations, as defined below, which
may include obligations of certain non-Oregon issuers. The Trust
offers you the opportunity to keep assets fully invested in a
vehicle that provides a professionally managed portfolio of
Oregon Obligations which may, but not necessarily will, be more
diversified, higher yielding or more stable and more liquid than
you might be able to obtain on an individual basis by direct
purchase of Oregon Obligations. Through the convenience of a
single security consisting of shares of the Trust, you are also
relieved of the inconvenience associated with direct investments
of fixed denominations, including the selecting, purchasing,
handling, monitoring call provisions and safekeeping of Oregon
Obligations.
Oregon Obligations are a type of municipal obligation.
Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities to obtain
funds for various public purposes. The two principal
classifications of municipal obligations are "notes" and "bonds."
Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less
while municipal bonds have extended maturities. Municipal notes
include: project notes, which sometimes carry a U.S. Government
guarantee; tax anticipation notes; revenue anticipation notes;
bond anticipation notes; construction loan notes and floating and
variable rate demand notes. Municipal obligations include
municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment. The
purposes for which municipal obligations such as bonds are issued
include the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing,
mass transportation, streets and water and sewer works. Other
public purposes for which municipal obligations may be issued
include the refunding of outstanding obligations, the obtaining
of funds for general operating expenses and the obtaining of
funds to lend to other public institutions and facilities. The
Trust is the only active portfolio of the Cascades Trust.
INVESTMENT OF THE TRUST'S ASSETS
In seeking its objective of providing as high a level of
current income which is exempt from both Oregon State and regular
Federal income taxes as is consistent with the preservation of
capital, the Trust will invest in Oregon Obligations (as defined
below). There is no assurance that the Trust will achieve its
objective, which is a fundamental policy of the Trust. (See
"Investment Restrictions.")
As used in the Prospectus and the Additional Statement, the
term "Oregon Obligations" means obligations, including those of
certain non-Oregon issuers, of any maturity which pay interest
which, in the opinion of bond counsel or other appropriate
counsel, is exempt from regular Federal income taxes and not
subject to Oregon income taxes. Although exempt from regular
Federal income tax, interest paid on certain types of Oregon
Obligations, and dividends which the Trust might pay from this
interest, are preference items as to the Federal alternative
minimum tax; for further information, see "Dividend and Tax
Information." As a fundamental policy, at least 80% of the
Trust's net assets will be invested in Oregon Obligations the
income paid upon which will not be subject to the alternative
minimum tax; accordingly, the Trust can invest up to 20% of its
net assets in obligations which are subject to the Federal
alternative minimum tax. The Trust may refrain entirely from
purchasing these types of Oregon Obligations. (See "Dividend and
Tax Information.")
The non-Oregon bonds or other obligations the interest on
which is exempt under present law from regular Federal and Oregon
income taxes are those issued by or under the authority of Guam,
the Northern Mariana Islands, Puerto Rico and the Virgin Islands.
The Trust will not purchase Oregon Obligations of non-Oregon
issuers unless Oregon Obligations of Oregon issuers of the
desired quality, maturity and interest rate are not available. As
an Oregon-oriented fund, at least 65% of the Trust's total assets
will be invested in Oregon Obligations of Oregon issuers. The
Trust invests only in Oregon Obligations and, possibly, in
Futures and options on Futures (see below) for protective
(hedging) purposes.
In general, there are nine separate credit ratings
ranging from the highest to the lowest quality standards for
municipal obligations. So that the Trust will have a portfolio of
quality oriented (investment grade) securities, the Oregon
Obligations which the Trust will purchase must, at the time of
purchase, either (i) be rated within the four highest credit
ratings assigned by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be
determined to be of comparable quality to municipal obligations
so rated by U.S. Bank National Association the Trust's investment
Sub-Adviser (the "Sub-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 Sub-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 Sub-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 may 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. 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 Sub-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 Sub-Adviser has had no
experience in the use of Futures or options on them.
The liquidity of a secondary market in a Future may be
adversely affected by "daily price fluctuation limits"
established by commodity exchanges which restrict the amount of
change in the contract price allowed during a single trading day.
Thus, once a daily limit is reached, no further trades may be
entered into beyond the limit, thereby preventing the liquidation
of open positions. Prices have in the past reached the daily
limit on a number of consecutive trading days. For further
information about Futures and options, see the Additional
Statement.
When and if the Trust determines to use Futures and options,
the Prospectus will be supplemented.
Floating and Variable Rate Demand Notes
Floating and variable rate demand notes are tax-exempt
obligations which may have a stated maturity in excess of one
year, but permit the holder to demand payment of principal at any
time, or at specified intervals not exceeding one year, in each
case upon not more than 30 days' notice. The issuer of such notes
normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the
note plus accrued interest upon a specified number of days'
notice to the noteholders. The interest rate on a floating rate
demand note is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is
adjusted automatically at specified intervals.
Participation Interests
The Trust may purchase from financial institutions
participation interests in Oregon Obligations (such as industrial
development bonds and municipal lease/purchase agreements). A
participation interest gives the Trust an undivided interest in
the underlying Oregon Obligations in the proportion that the
Trust's participation interest bears to the total amount of the
underlying Oregon Obligations. All such participation interests
must meet the Trust's credit requirements. (See "Limitation to
10% as to Certain Investments.")
When-Issued and Delayed Delivery Purchases
The Trust may buy Oregon Obligations on a when-issued or
delayed delivery basis when it has the intention of acquiring
them. The Oregon Obligations so purchased are subject to market
fluctuation and no interest accrues to the Trust until delivery
and payment take place; their value at the delivery date may be
less than the purchase price. The Trust cannot enter into
when-issued commitments exceeding in the aggregate 15% of the
market value of the Trust's total assets, less liabilities other
than the obligations created by when-issued commitments. If the
Trust chooses to dispose of the right to acquire a when-issued
obligation prior to its acquisition, it could, as with the
disposition of any other portfolio holding, incur a gain or loss
due to market fluctuation; any such gain would be a taxable
short-term gain. The Trust places an amount of assets equal in
value to the amount due on the settlement date for the
when-issued or delayed delivery securities being purchased in a
segregated account with the Custodian, which is marked to market
every business day. (See the Additional Statement for further
information.)
Limitation to 10% as to Certain Investments
The Trust cannot purchase Oregon Obligations that are not
readily marketable if thereafter more than 10% of its net assets
would consist of such investments. However, this 10% limit does
not include any Oregon Obligations as to which the Trust can
exercise the right to demand payment in full within three days
and as to which there is a secondary market. Floating and
variable rate demand notes and participation interests (including
municipal lease/purchase obligations) are considered illiquid
unless determined by the Board of Trustees to be readily
marketable. (See the Additional Statement.)
Current Policy as to Certain Obligations
The Trust will not invest more than 25% of its total assets
in (i) Oregon Obligations the interest on which is paid from
revenues of similar type projects or (ii) industrial development
bonds, unless the Prospectus and/or the Additional Statement are
supplemented to reflect the change and to give additional
information.
Factors Which May Affect the Value of the Trust's
Investments and Their Yields
The value of the Oregon Obligations in which the Trust
invests will fluctuate depending in large part on changes in
prevailing interest rates and may be subject to other market,
credit and economic factors as well. If the prevailing interest
rates go up after the Trust buys Oregon Obligations, the value of
these obligations will normally go down; if interest rates go
down, the value of these obligations will normally go up. Changes
in value and yield based on changes in prevailing interest rates
may have different effects on short-term Oregon Obligations than
on long-term obligations. Long-term obligations (which often have
higher yields) may fluctuate in value more than short-term ones.
For this reason, the Trust may, to achieve a defensive position,
shorten the average maturity of its portfolio.
Risk Factors and Special Considerations Regarding
Investment in Oregon Obligations
The following is a discussion of the general factors that
might influence the ability of Oregon issuers to repay principal
and interest when due on the Oregon Obligations contained in the
portfolio of the Trust. Such information is derived from sources
that are generally available to investors and is believed by the
Trust to be accurate, but has not been independently verified and
may not be complete.
Oregon's economy is substantially diversified among many
industries. The lumber and forest products industry, an industry
highly susceptible to recessionary cycles, has long been a
significant component of the State's economy. However, a
political environment supporting the reduction of logging on
public lands has taken its toll on this industry and the pursuit
of protection for the spotted owl and wild salmon runs have
severely curtailed logging in certain areas.
As employment in the lumber and forest products industries
has declined, other industries have been picking up the slack.
1994 saw many manufacturing plants lured to the State. The
ultimate decision of whether to locate in the State depends on a
company's ability to secure property tax breaks from the county
in which its plant will be located. A relatively new State
property tax exemption program grants counties the right to offer
property tax breaks for new plants costing more than $100 million
to build. The principal sources of State tax revenues are the
personal income and corporate income taxes; Oregon does not have
a sales tax. Recent attempts to institute a sales tax have been
unsuccessful. A recent attempt to introduce a "transaction tax"
was unsuccessful. As a result, State tax revenues are
particularly sensitive to economic recessions.
In addition to general obligation bonds, the State and its
political subdivisions issue revenue obligations payable from
specific projects or sources, including lease rentals. There can
be no assurance that a material downturn in the State's economy,
with the resulting impact on the financial strength of State and
local entities, will not adversely affect the ability of obligors
of the obligations held in the Trust's portfolio to make the
required payments on these obligations, and consequently, the
market value of such obligations.
Additionally, certain municipal securities held by the
Trust may rely in whole or in part for repayment on ad valorem
property taxes. There are limits under Oregon State law on the
issuance of bonds supported by such taxes. In recent years
several voter initiatives have also amended the State
Constitution to "freeze" or roll back such taxes.
At the date of the Prospectus, it is difficult to assess
fully the impact of the tax limitation measures, in part, because
they are relatively recent and are continuing to be phased in
over time. Many provisions of these measures are ambiguous and
implementation of certain key provisions is left to the
Legislature. In addition, the recent health of the Oregon economy
has mitigated the effects of these measures; however, these
conditions may not continue and future effects of these measures
will depend on whether alternative revenue sources are obtained
and, if so, the type and amount of such revenues. The adoption of
these tax limitation measures may have an adverse effect on the
general financial condition of cities, counties, school districts
and other local governmental entities and may in some cases
impair their ability to pay principal and interest on
obligations. In addition, to the extent that the Legislature
provides funds from its general fund to replace tax revenues lost
by the public school system, this could have an adverse effect on
the State's credit rating, particularly if alternative revenue
sources are not obtained. Moreover, the tax limitation measures
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 for more
information about these tax limitation measures.)
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 1996, both the number of
such petitions that qualified and the number of such petitions
that were approved by the voters have increased, and there is no
reason to expect that this pattern will change in the future.
There is a relatively inactive market for municipal bonds
of Oregon issuers other than the general obligations of the State
itself and certain other limited segments of the market.
Consequently, the market price of such other bonds may have a
higher degree of volatility and it may be difficult to execute
sales of blocks of such bonds. 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 in the 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 net asset value of the shares of each of the Trust's
classes of shares and offering price per share of each class is
determined as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open (a "business day"), by dividing
the value of the Trust's net assets (i.e., the value of the
assets less liabilities) allocable to each class by the total
number of shares of such class then 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
This Prospectus offers two separate classes of shares.
All classes represent interests in the same portfolio of Oregon
Obligations.
Institutional Class Shares("Class Y Shares") are
offered only to institutions acting for investors in a
fiduciary, advisory, agency, custodial or similar
capacity,and are not offered directly to retail
customers. Class Y Shares are offered at net asset
value with no sales charge, no redemption fee, no
contingent deferred sales charge and no distribution
fee.
Financial Intermediary Class Shares ("Class I Shares")
are offered and sold only through financial
intermediaries with which Aquila Distributors, Inc.
(the "Distributor") has entered into sales agreements,
and are not offered directly to retail customers. Class
I Shares are offered at net asset value with no sales
charge and no redemption fee or contingent deferred
sales charge, although a financial intermediary may
charge a fee for effecting a purchase or other
transaction on behalf of its customers. Class I Shares
may carry a distribution fee of up to 0.25 of 1% of
average annual net assets allocable to Class I Shares,
currently 0.10 of 1% of such net assets, and a service
fee of 0.25 of 1% of such assets. (See "Distribution
Plan" and Shareholder Services Plan.")
The Trust's other classes of shares, Front-Payment Class
Shares ("Class A Shares") and Level-Payment Class Shares, ("Class
C Shares"), are not offered by this Prospectus. (See "General
Information - Description of the Trust and Its Shares.")
At the date of the Prospectus, Class Y Shares of the
Trust are registered for sale only in Oregon, California,
Colorado, Connecticut, District of Columbia, Florida, Hawaii,
Idaho, Illinois, Missouri, Nevada, New Jersey, New York and
Pennsylvania.
At the date of the Prospectus, Class I Shares of the
Trust are registered for sale only in Oregon and New York.
If you do not reside in one of those states you should not
purchase shares of the Trust. If shares are sold outside of those
states except to certain institutional investors, the Trust can
redeem them. Such a redemption may result in a loss to you and
may have tax consequences. In addition, if your state of
residence is not Oregon, the dividends from the Trust may not be
exempt from income tax of the state in which you reside.
Accordingly, you should consult your tax adviser before acquiring
shares of the Trust.
How to Purchase Class Y Shares
Institutional Class Shares ("Class Y Shares") are offered
only to institutional investors for investments held in a
fiduciary, advisory, agency, custodial or similar capacity, or
through them to their clients, and are not offered directly to
retail customers. Class Y Shares are offered at net asset value
with no sales charge, no redemption fee, no contingent deferred
sales charge and no distribution fee.
Class Y Shares of the Trust may be purchased through any
investment broker or dealer (a "selected dealer") which has a
sales agreement with Aquila Distributors, Inc. (the
"Distributor") or through the Distributor. There are two ways to
make an initial investment: (i) order the shares through your
investment broker or dealer, if it is a selected dealer; or (ii)
mail the Application with payment to the Trust's Shareholder
Servicing Agent (the "Agent") at the address on the Application.
There is no sales charge on initial or subsequent investments.
You are urged to complete an Application and send it to the Agent
so that expedited shareholder services can be established at the
time of your investment.
The minimum initial investment for Class Y Shares is
$100,000 for fiduciaries and $250,000 for all other eligible
purchasers, except that this limitation does not apply to
shareholders with accounts open on January 31, 1998, or as
otherwise stated in the Prospectus or Additional Statement. Such
investment must be drawn in United States dollars on a United
States commercial or savings bank or credit union or a United
States branch of a foreign commercial bank (each of which is a
"Financial Institution"). You may make subsequent investments in
Class Y Shares in any amount (unless you have an Automatic
Withdrawal Plan). Your subsequent investment may be made through
a selected dealer or by forwarding payment to the Agent, with the
name(s) of account owner(s), the account number and the name of
the Trust. With subsequent investments, please send the
pre-printed stub attached to the Trust's confirmations.
Subsequent investments of $50 or more in Class Y Shares can
be made by electronic funds transfer from your demand account at
a Financial Institution. To use electronic funds transfer for
your purchases, your Financial Institution must be a member of
the Automated Clearing House and the Agent must have received
your completed Application designating this feature, or, after
your account has been opened, a Ready Access Features form
available from the Distributor or the Agent. A pre-determined
amount can be regularly transferred for investment ("Automatic
Investment"), or single investments can be made upon receipt by
the Agent of telephone instructions from anyone ("Telephone
Investment"). The maximum amount of each Telephone Investment is
$50,000. Upon 30 days' written notice to shareholders, the Trust
may modify or terminate these investment methods at any time or
charge a service fee, although no such fee is currently
contemplated.
How to Purchase Class I Shares
Initial and subsequent investments in Class I Shares must
be made through financial intermediaries and cannot be made
directly. Financial intermediaries may set minimum amounts for
initial purchase and subsequent investments in Class I Shares and
may charge a fee for effecting a purchase or other transaction on
behalf of customers. Financial intermediaries that make Class I
Shares of the Trust and other mutual funds available to their
customers may offer distinct services, may have their own charges
for services and may impose their own minimum requirements for
initial and subsequent investments. Customers of financial
intermediaries should read the Prospectus in light of the terms
of their accounts with financial intermediaries. Financial
intermediaries that have entered into specific agreements with
the Trust may enter confirmed purchase orders on behalf of
clients and customers, with payment to follow not later than the
Trust's pricing of Class I Shares on the following business day.
If payment is not received by that time the financial
intermediary could be held liable for resulting fees or
losses.
Offering Price
The offering price for Class Y Shares is the net asset
value per share. The offering price determined on any day applies
to all purchase orders received by the Agent from selected
dealers that day, except that orders received by it after 4:00
p.m. New York time will receive that day's offering price only if
such orders were received by selected dealers from customers
prior to such time and transmitted to the Distributor prior to
its close of business that day (normally 5:00 p.m. New York
time); if not so transmitted, such orders will be filled at the
next determined offering price. Selected dealers are required to
transmit orders promptly. Investments by mail are made at the
offering price next determined after receipt of the purchase
order by the Agent. Purchase orders received on other than a
business day will be executed on the next succeeding business
day. Purchases by Automatic Investment and Telephone Investment
will be executed on the first business day occurring on or after
the date an order is considered received by the Agent at the
price determined on that day. In the case of Automatic Investment
your order will be executed on the date you specified for
investment at the price determined on that day. If that day is
not a business day your order will be executed at the price
determined on the next business day. In the case of Telephone
Investment your order will be filled at the next determined
offering price. If your order is placed after the time for
determining the net asset value of the Trust shares for any day,
it will be executed at the price determined on the following
business day. The sale of shares will be suspended during any
period when the determination of net asset value is suspended and
may be suspended by the Distributor when the Distributor judges
it in the Trust's best interest to do so.
The offering price for Class I Shares is the net asset
value per share. The offering price determined on any day applies
to all purchases received by each financial intermediary prior to
4:00 p.m. New York time on any business day. Purchase orders
received by financial intermediaries after that time will be
filled at the next determined offering price.
Possible Compensation for Dealers
The Distributor, at its own expense, may also provide
additional compensation to dealers in connection with sales of
any class of shares of the Trust. Additional compensation may
include payment or partial payment for advertising of the Trust's
shares, payment of travel expenses, including lodging, incurred
in connection with attendance at sales seminars taken by
qualifying registered representatives to locations within or
outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences. In some instances, such compensation may be made
available only to certain dealers whose representatives have sold
or are expected to sell significant amounts of such shares.
Dealers may not use sales of the Trust's shares to qualify for
the incentives to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. The cost to the
Distributor of such promotional activities and such payments to
participating dealers will not exceed the amount of the sales
charges in respect of sales of all classes of shares of the Trust
effected through such participating dealers, whether retained by
the Distributor or reallowed to participating dealers. No such
additional compensation to dealers in connection with sales of
shares of the Trust will affect the price you pay for shares or
the amount that the Trust will receive from such sales. Any of
the foregoing payments to be made by the Distributor may be made
instead by the Manager out of its own funds, directly or through
the Distributor.
Brokers and dealers may receive different levels of
compensation for selling different classes of shares.
Confirmations and Share Certificates
All purchases of Class Y 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). Purchases of Class I Shares will be
confirmed by financial intermediaries. No share certificates will
be issued for Class Y Shares or Class I Shares.
The Trust and the Distributor reserve the right to reject
any order for the purchase of shares. In addition, the offering
of shares may be suspended at any time and resumed at any time
thereafter.
Distribution Plan
The Trust has adopted a Distribution Plan (the "Plan") under
Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in
substance that an investment company may not engage directly or
indirectly in financing any activity which is primarily intended
to result in the sale of its shares except pursuant to a written
plan adopted under the Rule. No payments under the Plan from
assets represented by Class Y Shares are authorized.
Under a part of the Plan, the Trust is authorized to make
payments with respect to Class I Shares ("Class I Permitted
Payments") to Qualified Recipients. Class I Permitted Payments
shall be made through the Distributor or Shareholder Servicing
Agent as disbursing agent, and may not exceed, for any fiscal
year of the Trust (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or
for any fiscal year which is not a full fiscal year), at a rate
set from time to time by the Board of Trustees (currently 0.10 of
1%) but not more than 0.25 of 1% of the average annual net assets
represented by the Class I Shares of the Trust. Such payments
shall be made only out of the Trust's assets allocable to the
Class I Shares. "Qualified Recipients" means financial
intermediaries selected by the Distributor with which the Trust
or the Distributor has entered into written agreements to act in
such capacity.
The Plan contains provisions designed to protect against
any claim against or involving the Trust that some of the
expenses which might be considered to be sales-related which the
Trust pays or may pay come within the purview of the Rule. The
Trust believes that except for payments made with respect to
Class A Shares and Class C Shares it is not financing any such
activity and does not consider any payment enumerated in such
provisions as so financing any such activity. If and to the
extent that any payment as specifically listed in the Plan (see
the Additional Statement) is considered to be primarily intended
to result in or as indirect financing of any activity which is
primarily intended to result in the sale of Trust shares, these
payments are authorized under the Plan. In addition, if the
Manager, out of its own funds, makes payment for distribution
expenses such payments are authorized. (See the Additional
Statement.)
Shareholder Services Plan for Class I Shares
Under a Shareholder Services Plan, (the "Plan") the Trust
is authorized to make payments with respect to Class I Shares
("Service Payments") to Qualified Recipients. Fees paid under the
Plan are subject to such limits as may be necessary for Class I
Shares to qualify as a "no-load" class for purposes of the
Conduct Rules of the National Association of Securities Dealers,
Inc. ("NASD"). The current limitation is as follows: fees paid
under the Plan that satisfy the definition of "service fees" in
Rule 2830(d) of the Conduct Rules of the National Association of
Securities Dealers, Inc. may not exceed an amount equal to the
difference between (i) 0.25 of 1% of the average annual net
assets of the Trust represented by Class I Shares and (ii) the
amount paid under the Trust's Distribution Plan with respect to
the assets represented by the Class I Shares. That is, the total
payments under both plans will be less than 0.25 of 1% of such
net assets. Where necessary or appropriate, the Independent
Trustees, or such appropriate officer or officers of the Trust as
they may designate, shall, with the advice of counsel, determine
what fees paid under this Plan are to be deemed "service fees."
The Trust's management believes that, in general, fees allocable
to activities such as sub-accounting and record-keeping are not
"service fees," while fees allocable to activities such as
account service are "service fees." In like manner, allocation of
payments among activities is also determined by the Independent
Trustees or their delegates. Subject to the foregoing, Service
Payments may not exceed, for any fiscal year of the Trust (as
adjusted for any part or parts of a fiscal year during which
payments under the Plan are not accruable or for any fiscal year
which is not a full fiscal year), 0.25 of 1% of the average
annual net assets represented by the Class I Shares of the Trust.
Such payments shall be made only out of the Trust's assets
represented by the Class I Shares.
"Qualified Recipients" means broker-dealers or others
selected by the Distributor, including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements to provide
personal services to Class I Shares shareholders, maintenance of
Class I Shares shareholder accounts and/or pursuant to specific
agreements entering of confirmed purchase orders on behalf of
customers or clients and which have provided services to holders
of Class I Shares and/or maintenance of Class I Shares
shareholder accounts.
The Distributor is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by
it, the following: (a) the amount of the Qualified Holdings of
the Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Class I Shares,
including without limitation, (i) activities relating to sub-
accounting and record-keeping, including the providing of
necessary personnel and facilities to establish and maintain
shareholder accounts and records, and (ii) activities relating to
account service, such as assisting shareholders in designating
and changing dividend options, account designations and
addresses; answering customer inquiries regarding account status
and history and the manner in which purchases and redemptions of
shares of the Trust may be effected; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares, including, where appropriate, arranging for the wiring of
funds; assisting in processing purchase and redemption
transactions; and verifying and guaranteeing shareholder
signatures in connection with redemption orders and transfers and
changes in shareholder designated accounts. A majority of the
Independent Trustees (as defined in the Plan) may remove any
person as a Qualified Recipient and no fees shall be paid
pursuant to the Plan for activities primarily intended to result
in the sale of shares of the Trust or to finance sales or sales
promotion expenses. No fees shall be paid, or be deemed to have
been paid, for any of the listed activities to the extent that
such payments are deemed by the Independent Trustees to be
intended for distribution. Service Payments shall be paid through
the Distributor or Shareholder Servicing Agent as disbursing
agent. (See the Additional Statement.)
HOW TO REDEEM YOUR INVESTMENT
Redemption of Class Y Shares
You may redeem all or any part of your Class Y Shares at the
net asset value next determined after acceptance of your
redemption request at the Agent. Redemptions can be made by the
various methods described below. There is no minimum period for
any investment in the Trust, except for shares recently purchased
by check, Automatic Investment or Telephone Investment as
discussed below. There are no redemption fees or penalties on
redemption of Class Y Shares. A redemption may result in a
transaction taxable to you.
For your convenience the Trust offers expedited redemption
for Class Y Shares to provide you with a high level of liquidity
for your investment.
Expedited Redemption Methods
You have the flexibility of two expedited methods of
initiating redemptions of Class Y Shares.
1. By Telephone. The Agent will accept instructions by
telephone from anyone to redeem shares and make payments
a) to a Financial Institution account you have
predesignated or
b) by check in the amount of $50,000 or less, mailed to
you, if your shares are registered in your name at the
Trust and the check is sent to your address of record,
provided that there has not been a change of your
address of record during the 30 days preceding your
redemption request. You can make only one request for
telephone redemption by check in any 7-day period.
See "Redemption Payments," below for payment methods. Your
name, your account number and your address of record must be
supplied.
To redeem an investment by this method, telephone:
800-872-6735 toll free
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: PFPC Inc., 400 Bellevue
Parkway, Wilmington, DE 19809. The letter must provide
account name(s), account number, amount to be redeemed, and
any payment directions and be signed by the registered
holder(s). Signature guarantees are not required. See
"Redemption Payments", below for payment methods.
If you wish to have redemption proceeds sent to a Financial
Institution Account, you should so elect on the Expedited
Redemption section of the Application or the Ready Access
Features form and provide the required information concerning
your Financial Institution account number. The Financial
Institution account must be in the exclusive name(s) of the
shareholder(s) as registered with the Trust. You may change the
designated Financial Institution account at any time by
completing and returning a Ready Access Features form. For
protection of your assets, this form requires signature
guarantees and possible additional documentation.
Regular Redemption Method
If you own Class Y Shares and 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 the Trust's
Shareholder Servicing Agent: PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809. The letter must contain:
Account Name(s);
Account Number;
Dollar amount or number of shares to be redeemed or a
statement that all shares held in the account are to be
redeemed;
Payment instructions (normally redemption proceeds will
be mailed to your address as registered with the
Trust);
Signature(s) of the registered shareholder(s); and
Signature guarantee(s), if required, as indicated
below.
For your redemption request to be in "proper form," the
signature or signatures must be the same as in the registration
of the account. In a joint account, the signatures of both
shareholders are necessary. Signature guarantees may be required
if sufficient documentation is not on file with the Agent.
Additional documentation may be required where shares are held by
certain types of shareholders such as corporations, partnerships,
trustees or executors, or if redemption is requested by other
than the shareholder of record. If redemption proceeds of $50,000
or less are payable to the record holder and are to be sent to
the record address, no signature guarantee is required, except as
noted above. In all other cases, signatures must be guaranteed by
a member of a national securities exchange, a U.S. bank or trust
company, a state-chartered savings bank, a federally chartered
savings and loan association, a foreign bank having a U.S.
correspondent bank, a participant in the Securities Transfer
Association Medallion Program (STAMP), the Stock Exchanges
Medallion Program (SEMP) or the New York Stock Exchange, Inc.
Medallion Signature Program (MSP). A notary public is not an
acceptable signature guarantor.
Redemption of Class I Shares
You may redeem all or any part of your Class I Shares at
the net asset value next determined after acceptance of your
redemption request by your financial intermediary. Redemption
requests for Class I Shares must be made through a financial
intermediary and cannot to be made directly. Financial
intermediaries may charge a fee for effecting redemptions. There
is no minimum period for any investment in the Trust. The Trust
does not impose redemption fees or penalties on redemption of
Class I Shares. A redemption may result in a transaction taxable
to you.
Redemption Payments
Redemption payments with respect to Class Y Shares will
ordinarily be mailed to you at your address of record. If you so
request and the amount of your redemption proceeds is $1,000 or
more, the proceeds will, wherever possible, be wired or
transferred through the facilities of the Automated Clearing
House to the Financial Institution account specified in the
Expedited Redemption section of your Application or Ready Access
Features form. The Trust may impose a charge, not exceeding $5.00
per wire redemption, after written notice to shareholders who
have elected this redemption procedure. The Trust has no present
intention of making this charge. Upon 30 days' written notice to
shareholders, the Trust may modify or terminate the use of the
Automated Clearing House to make redemption payments at any time
or charge a service fee, although no such fee is presently
contemplated. If any such changes are made, the Prospectus will
be supplemented to reflect them. If you use a broker or dealer to
arrange for a redemption, it may charge you a fee for this
service. Redemption payments for Class I Shares are made to
financial intermediaries.
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 determination 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 for Class Y Shares can be eliminated by using wire
payments or Federal Reserve drafts to pay for purchases.
If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Trust to
make payment wholly or partly in cash, the Trust may pay the
redemption price in whole or in part by the distribution in kind
of securities from the portfolio of the Trust, in lieu of cash,
in conformity with applicable rules of the Securities and
Exchange Commission. (See the Additional Statement for
details.)
The Trust has the right to compel the redemption of shares
held in any account if the aggregate net asset value of such
shares is less than $500 as a result of shareholder redemptions
or failure to meet the minimum investment level under an
Automatic Purchase Program. If the Board elects to do this,
shareholders who are affected will receive prior written notice
and will be permitted 60 days to bring their accounts up to the
minimum before this redemption is processed.
AUTOMATIC WITHDRAWAL PLAN
If you had a Class Y Shares account before January 31,
1998, you may establish an Automatic Withdrawal Plan if you own
or purchase Class Y Shares of the Trust having a net asset value
of at least $5,000. Under an Automatic Withdrawal Plan you will
receive a monthly or quarterly check in a stated amount, not less
than $50. If such a plan is established, all dividends and
distributions must be reinvested in your shareholder account.
Redemption of shares to make payments under the Automatic
Withdrawal Plan will give rise to a gain or loss for tax
purposes. See the Automatic Withdrawal Plan provisions of the
Application included in the Prospectus, the Additional Statement
under "Automatic Withdrawal Plan," and "Dividend and Tax
Information" below.
MANAGEMENT ARRANGEMENTS
The Board of Trustees
The business and affairs of the Trust are managed under the
direction and control of its Board of Trustees. The Additional
Statement lists the Trust's Trustees and officers and provides
further information about them.
Change in Management Arrangements
On October 31, 1997, the management arrangements
described below were approved by the Trust's shareholders and
went into effect. The new arrangements are designed to change the
form of the Trust's investment advisory and administration
arrangements to a new structure involving an adviser and a
sub-adviser. The proposed arrangements do not result in any
change in overall management fees paid by the Trust. On August 1,
1997, U.S. Bancorp, the parent company of Qualivest Capital
Management, Inc. the Trust's former investment adviser, merged
into First Bank System, Inc., which changed its name to US
Bancorp. One effect of the Merger was that the operations of
Qualivest, including providing investment advisory services to
the Trust, were combined with those of U.S. Bank National
Association ("USBNA"), a subsidiary of US Bancorp, through a
division called First Asset Management. From August 1, 1997
through October 31, 1997 USBNA acted as the Trust's investment
adviser, with no change in fees or personnel from the former
arrangement.
Under the new arrangements, Aquila Management Corporation
("Aquila"), which since inception of the Trust has served as the
Trust's administrator, in addition became investment adviser
under a new agreement (the "Advisory and Administration
Agreement"), under which it is referred to as the "Manager" and
under which it also continues to provide the Trust with all
administrative services. Also, by adoption of a Sub-Advisory
Agreement between Aquila and USBNA ("the Sub-Adviser"), the
interim investment advisory agreement was replaced by one under
which Aquila appointed the Sub-Adviser as Sub-Adviser to the
Trust. Under the Sub-Advisory Agreement, the Sub-Adviser provides
the Trust with advisory services of the kind which it formerly
provided as adviser.
Description of the Investment Advisory and Administration
Agreement
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Trust, the Manager shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust; and
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Trust and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Trust's portfolio at least quarterly using
another such source satisfactory to the Trust.
The Advisory and Administration Agreement provides that,
subject to the termination provisions described below, the
Manager may at its own expense delegate to a qualified
organization ("Sub-Adviser"), affiliated or not affiliated with
the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a
written agreement (the "Sub-Advisory Agreement") approved as
provided in Section 15 of the Investment Company Act of 1940. The
Manager delegated all of such functions to USBNA under the
Sub-Advisory Agreement.
The Advisory and Administration Agreement provides that
subject to the direction and control of the Board of Trustees of
the Trust, the Manager shall provide all administrative services
to the Trust other than those relating to its investment
portfolio which have been delegated to a sub-adviser of the Trust
under a sub-advisory Agreement; as part of such administrative
duties, the Manager shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following functions and
for the maintenance of the headquarters of the Trust;
(ii) oversee all relationships between the Trust and any
sub-adviser, transfer agent, custodian, legal counsel,
auditors and principal underwriter, including the
negotiation of agreements in relation thereto, the
supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters
which are necessary or desirable for the effective operation
of the Trust and for the sale, servicing or redemption of
the Trust's shares;
(iii) either keep the accounting records of the Trust,
including the computation of net asset value per share and
the dividends (provided that if there is a sub-adviser,
daily pricing of the Trust's portfolio shall be the
responsibility of the sub-adviser under the sub-advisory
Agreement) or, at its expense and responsibility, delegate
such duties in whole or in part to a company satisfactory to
the Trust;
(iv) maintain the Trust's books and records, and prepare (or
assist counsel and auditors in the preparation of) all
required proxy statements, reports to the Trust's
shareholders and Trustees, reports to and other filings with
the Securities and Exchange Commission and any other
governmental agencies, and tax returns, and oversee the
insurance relationships of the Trust;
(v) prepare, on behalf of the Trust and at the Trust's
expense, such applications and reports as may be necessary
to register or maintain the registration of the Trust and/or
its shares under the securities or "Blue-Sky" laws of all
such jurisdictions as may be required from time to time;
(vi) respond to any inquiries or other communications of
shareholders of the Trust 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, oversee such shareholder servicing and transfer
agent's or distributor's response thereto.
The Advisory and Administration Agreement contains
provisions relating to compliance of the investment program,
responsibility of the Manager for any investment program managed
by it, allocation of brokerage, and responsibility for errors
that are substantially the same as the corresponding provisions
in the Sub-Advisory Agreement. (See the Additional
Statement.)
The Advisory and Administration Agreement provides that
the Manager shall, at its own expense, provide office space,
facilities, equipment, and personnel for the performance of its
functions hereunder and shall pay all compensation of Trustees,
officers, and employees of the Trust who are affiliated persons
of the Manager.
The Trust shall bear the costs of preparing and setting
in type its prospectuses, statements of additional information
and reports to its 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. All costs and expenses not
expressly assumed by the Manager under this sub-section or
otherwise by the Manager, administrator or principal underwriter
or by any Sub-Adviser shall be paid by the Trust, including, but
not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Trustees other than those affiliated with the
Manager or such adviser, administrator or principal underwriter;
(v) legal and audit expenses; (vi) custodian and transfer agent,
or shareholder servicing agent, fees and expenses; (vii) expenses
incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or State
securities laws of the Trust or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy
material to shareholders of the Trust; (x) all other expenses
incidental to holding meetings of the Trust's shareholders; and
(xi) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations for
which the Trust may have to indemnify its officers and
Trustees.
The Advisory and Administration Agreement provides that
the Trust agrees to pay the Manager, and the Manager agrees to
accept as full compensation for all services rendered by the
Manager 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 0.50 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, the annual fee shall be payable at the
annual rate of 0.40 of 1% of such net asset value. As noted
above, payments under the Trust's Distribution Plan began in 1994
and in the opinion of the Trust's management, there is no
foreseeable possibility that they will be eliminated.
The Advisory and Administration Agreement provides that
the Sub-Advisory Agreement may provide for its termination by the
Manager upon reasonable notice, provided, however, that the
Manager agrees not to terminate the Sub-Advisory Agreement except
in accordance with such authorization and direction of the Board
of Trustees, if any, as may be in effect from time to time.
The Advisory and Administration Agreement became
effective on the date of its approval by the shareholders of the
Trust (October 31, 1997) and will, unless terminated as
hereinafter provided, continue in effect until the June 30 next
preceding the first anniversary of the effective date of the
Advisory and Administration Agreement, and from year to year
thereafter, but only so long as such continuance is specifically
approved at least annually (1) by a vote of the Trust's Board of
Trustees, including a vote of a majority of the Trustees who are
not parties to the Advisory and Administration Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Trust and by such a vote of the Trustees.
The Advisory and Administration Agreement provides that
it may be terminated by the Manager at any time without penalty
upon giving the Trust sixty days' written notice (which notice
may be waived by the Trust) and may be terminated by the Trust at
any time without penalty upon giving the Manager sixty days'
written notice (which notice may be waived by the Manager),
provided that such termination by the Trust shall be directed or
approved by a vote of a majority of its Trustees in office at the
time or by a vote of the holders of a majority (as defined in the
Act) of the voting securities of the Trust outstanding and
entitled to vote. The specific portions of the Advisory and
Administration Agreement which relate to providing investment
advisory services will automatically terminate in the event of
the assignment (as defined in the Act) of the Advisory and
Administration Agreement, but all other provisions relating to
providing services other than investment advisory services will
not terminate, provided however, that upon such an assignment the
annual fee payable monthly and computed on the net asset value of
the Trust as of the close of business each business day shall be
reduced to the annual rate of 0.27 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, the annual fee shall be payable at the
annual rate of 0.22 of 1% of such net asset value. The Manager
agrees that it will not exercise its termination rights for at
least three years from the effective date of the Advisory and
Administration Agreement, except for regulatory reasons.
Description of the Sub-Advisory Agreement
The Sub-Advisory Agreement provides that the Manager
appoints the Sub-Adviser to render, to the Manager and to the
Trust, investment research and advisory services as set forth
below under the supervision of the Manager and subject to the
approval and direction of the Board of Trustees of the Trust. The
Sub-Advisory Agreement provides that the Sub-Adviser will act as
managerial investment adviser to the Trust with respect to the
investment of the Trust's assets, and will supervise and arrange
the purchase of securities for and the sale of securities held in
the portfolio of the Trust.
The Sub-Advisory Agreement provides in general that
subject to the direction and control of the Manager and the Board
of Trustees of the Trust, the Sub-Adviser shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust;
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Trust and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Trust's portfolio at least quarterly using
another such source satisfactory to the Trust; and
(v) consult with the Manager in connection with its duties
hereunder.
The Sub-Advisory Agreement provides that any investment
program furnished by the Sub-Adviser shall at all times conform
to, and be in accordance with, any requirements imposed by: (1)
the Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws
of the Trust as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5) the
fundamental policies of the Trust, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Trust.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall bear all of the expenses it incurs in fulfilling its
obligations under the Agreement. In particular, but without
limiting the generality of the foregoing: the Sub-Adviser shall
furnish the Trust, at the Sub-Adviser's expense, all office
space, facilities, equipment and clerical personnel necessary for
carrying out its duties under the Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Trust all necessary
financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Trust. The Sub-Adviser will also pay all
compensation of the Trust's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
The Sub-Advisory Agreement provides that the Manager
agrees to pay the Sub-Adviser, and the Sub-Adviser agrees to
accept as full compensation for all services rendered by the
Sub-Adviser as such, a management 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 rates of 0.23 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, the annual fee
shall be payable at the annual rate of 0.18 of 1% of such net
asset value. As noted above, payments under the Trust's
Distribution Plan began in 1994 and in the opinion of the Trust's
management, there is no foreseeable possibility that they will be
eliminated.
The Sub-Advisory Agreement became effective on the day it
was approved by the shareholders of the Trust, October 31, 1997,
(the "Effective Date") and shall, unless terminated as
thereinafter provided, continue in effect until the June 30 next
preceding the first anniversary of the effective date of the
Agreement, and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually (1)
by a vote of the Trust's Board of Trustees, including a vote of a
majority of the Trustees who are not parties to the Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Trust and by such a vote of the Trustees.
The Sub-Advisory Agreement provides that it may be
terminated by the Sub-Adviser at any time without penalty upon
giving the Manager and the Trust sixty days' written notice
(which notice may be waived). It may be terminated by the Manager
or the Trust at any time without penalty upon giving the
Sub-Adviser sixty days' written notice (which notice may be
waived by the Sub-Adviser), provided that such termination by the
Trust shall be directed or approved by a vote of a majority of
its Trustees in office at the time or by a vote of the holders of
a majority (as defined in the Act) of the voting securities of
the Trust outstanding and entitled to vote. The Sub-Advisory
Agreement will automatically terminate in the event of its
assignment (as defined in the Act) or the termination of the
Investment Advisory Agreement. The Sub-Adviser agrees that it
will not exercise its termination rights for at least three years
from the effective date of the Agreement, except for regulatory
reasons.
Information about the Manager, the Sub-Adviser
and the Distributor
The Sub-Adviser is a subsidiary of U.S. Bancorp ("USB"),
601 Second Avenue South, Minneapolis, Minnesota 55480, which is a
regional multi-state bank holding company, headquartered in
Minneapolis, Minnesota that primarily serves the Midwestern,
Rocky Mountain and Northwestern states. USB operates five bank
and eleven trust companies with offices in 17 contiguous states
from Illinois to Washington. USB also has various other
subsidiaries engaged in financial services. At June 30, 1997, on
a pro forma combined basis, USB and its consolidated subsidiaries
had consolidated assets of approximately $72 billion,
consolidated deposits of $51 billion and shareholder equity of $6
billion. (See the Additional Statement as to the legality, under
the Glass-Steagall Act, of the Sub-Adviser acting as the Trust's
investment adviser.) In general, under that Act, the Sub-Adviser
will not, among other things, underwrite shares of the Trust.
Mr. Edgar M. Potts, with the position of Fixed-Income
Manager, is the officer of the Sub-Adviser who manages the
Trust's portfolio. He served as such with the Trust's former
adviser, Qualivest Capital Management, Inc. since the Trust's
inception in 1986. He has been employed by the Sub-Adviser and
its predecessors since 1977 and before that by U.S. Bank. He has
more than 35 years of investment experience in those positions
and in other financial institutions. He has a B.S. in economics
from Georgetown University.
Mr. Michael Hamilton is the backup portfolio manager. Mr.
Hamilton has been employed by the parent company of the Sub-
Adviser and its predecessors since 1989. He has been associated
with the Trust since 1994, assisting in administration and credit
analysis. Mr. Hamilton has managed municipal bond common trust
funds, individual municipal bond portfolios, taxable portfolios
and money market funds. He holds a B.A. from College of Idaho and
an M.B.A from Western Washington University.
The Trust's Manager is founder, investment advisor and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money market funds and two equity
funds. As of September 30, 1997, these funds had aggregate assets
of approximately $2.8 billion, of which approximately $1.9
billion consisted of assets of tax-free municipal bond funds. The
Manager, 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,
1997, fees of $617,654 was paid or accrued to the Manager under
the administration agreement then in effect and $617,654 was paid
or accrued to the Trust's former adviser and to the Sub-Adviser
under the former advisory agreement in effect until August 1,
1997 and an interim advisory agreement in effect until October
31, 1997, respectively. See the Additional Statement.
The Distributor currently handles the distribution of the
shares of fourteen funds (seven tax-free municipal bond funds,
five money market funds and two equity funds), 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 75% by Mr. Herrmann and 25% by Diana P.
Herrmann, will be owned by certain directors and/or officers of
the Manager and/or the Distributor, including Mr. Herrmann and
Ms. Herrmann.
DIVIDEND AND TAX INFORMATION
Dividends and Distributions
The Trust will declare all of its net income, as defined
below, as dividends on every day, including weekends and
holidays, on those shares outstanding for which payment was
received by the close of business on the preceding business day.
Net income for dividend purposes includes all interest income
accrued by the Trust since the previous dividend declaration,
including accretion of any original issue discount, less expenses
paid or accrued. As such net income will vary, the Trust's
dividends will also vary. Dividends and other distributions paid
by the Trust with respect to each class of its shares are
calculated at the same time and in the same manner. In addition,
the dividends of each class can vary because each class will bear
certain class-specific charges.
It is the Trust's present policy to pay dividends so that
they will be received or credited by approximately the first day
of each month. On the Application or by completing a Ready Access
Features form, you may elect to have dividends deposited without
charge by electronic funds transfers into your account at a
Financial Institution if it is a member of the Automated Clearing
House.
Redeemed shares continue to earn dividends through and
including 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 third day on which
the New York Stock Exchange is open after the day on which the
net asset value of the redeemed shares has been determined. (See
"How To Redeem Your Investment.")
Net investment income includes amounts of income from the
Oregon Obligations in the Trust's portfolio which are allocated
as "exempt-interest dividends." "Exempt-interest dividends" are
exempt from regular Federal income tax. The allocation of
"exempt-interest dividends" will be made by the use of one
designated percentage applied uniformly to all income dividends
declared during the Trust's tax year. Such designation will
normally be made in the first month after the end of each of the
Trust's fiscal years as to income dividends paid in the prior
year. It is possible that in certain circumstances, a small
portion of the dividends paid by the Trust will be subject to
income taxes. During the Trust's fiscal year ended September 30,
1997, 99.11% of the Trust's dividends were "exempt-interest
dividends." For the calendar year 1996, 0.20% of the total
dividends paid were taxable as ordinary income. 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 of your Class Y Shares and from short- and long-term
gains distributions (if any) and any other distributions with
respect to Class Y Shares that do not qualify as "exempt-interest
dividends," if you 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 Class Y
Shares shareholders, whether their dividends are received in cash
or are being reinvested, will receive a monthly account summary
indicating the current status of their investment. There is no
fixed dividend rate. Corporate shareholders of the Trust are not
entitled to any deduction for dividends received from the
Trust.
Tax Information
The Trust qualified during its last fiscal year as a
"regulated investment company" under the Code, and intends to
continue to so qualify. If it does so qualify, it will not be
liable for Federal income taxes on amounts paid by it as
dividends and distributions. However, the Code contains a number
of complex tests relating to such qualification and it is
possible although not likely that the Trust might not meet one or
more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary
corporation, would receive no tax deduction for payments made to
shareholders and would be unable to pay dividends or
distributions which would qualify as "exempt-interest dividends"
or "capital gains dividends," as discussed below.
The Trust intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net income
earned by the Trust on Oregon Obligations will be excludable from
gross income of the shareholders for regular Federal income tax
purposes. Capital gains dividends are not included in
exempt-interest dividends. Although "exempt-interest dividends"
are not taxed, each taxpayer must report the total amount of
tax-exempt interest (including exempt-interest dividends from the
Trust) received or acquired during the year.
The Code 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 gain from the sale or exchange
of a capital asset held for more than one year. 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.
Short-term gains, when distributed, are taxed to
shareholders as ordinary income. Capital losses of the Trust are
not distributed but carried forward by the Trust to offset gains
in later years and thereby lessen the later-year capital gains
dividends and amounts taxed to shareholders.
The Trust's gains or losses on sales of Oregon Obligations
will be long-term or short-term depending upon the length of time
the Trust has held such obligations. Capital gains and losses of
the Trust will also include gains and losses on Futures and
options, if any, including gains and losses actually realized on
sales and exchanges and gains and losses deemed to be realized.
Those deemed to be realized are on Futures and options held by
the Trust at year-end, which are "marked to the market," that is,
deemed sold for fair market value. Net gains or losses realized
and deemed realized on Futures and options will be reportable by
the Trust as long-term to the extent of 60% of the gains or
losses and short-term to the extent of 40% regardless of the
actual holding period of such investments.
Information as to the tax status of the Trust's dividends
and distributions will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders
to enable them to purchase or carry shares of the Trust may not
be deducted for regular Federal tax purposes. In addition, under
rules used by the Internal Revenue Service for determining when
borrowed funds are deemed used for the purpose of purchasing or
carrying particular assets, the purchase of shares of the Trust
may be considered to have been made with borrowed funds even
though the borrowed funds are not directly traceable to the
purchase of shares. The receipt of exempt-interest dividends from
the Trust by an individual shareholder may result in some portion
of any social security payments or railroad retirement benefits
received by the shareholder or the shareholder's spouse being
included in taxable income. Persons who are "substantial users"
(or persons related thereto) of facilities financed by industrial
development bonds or private activity bonds should consult their
own tax advisers before purchasing shares.
While interest from all Oregon Obligations is tax-exempt for
purposes of computing the shareholder's regular tax, interest
from so-called private activity bonds issued after August 7,
1986, constitutes a tax preference for both individuals and
corporations and thus will enter into a computation of the
alternative minimum tax. Whether or not that computation will
result in a tax will depend on the entire content of the
taxpayer's return. The Trust will not invest in the types of
Oregon Obligations which would give rise to interest that would
be subject to alternative minimum taxation if more than 20% of
its net assets would be so invested, and may refrain from
investing in that type of bond completely. The 20% limit is a
fundamental policy of the Trust.
Corporate shareholders must add to or subtract from
alternative minimum taxable income, as calculated before taking
into consideration this adjustment, 75% of the difference between
what is called adjusted current earnings (essentially current
earnings and profits) and alternative minimum taxable income, as
previously calculated. Since tax-exempt bond interest is included
in earnings and profits and therefore in adjusted current
earnings, this adjustment will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax.
Tax Effects of Redemptions
Normally, when you redeem shares of the Trust you will
recognize capital gain or loss measured by the difference between
the proceeds received in the redemption and the amount you paid
for the shares. If you are required to pay a contingent deferred
sales charge at the time of redemption, the amount of that charge
will reduce the amount of your gain or increase the amount of
your loss as the case may be. Your gain or loss will be long-term
if you held the redeemed shares for over 18 months, mid-term if
you held the redeemed shares for over one year but not more than
18 months and short-term, if for a year or less. Long term
capital gains are currently taxed at a maximum rate of 20%,
mid-term capital gains are currently taxed at a maximum rate of
28%, and short-term gains are currently taxed at ordinary income
tax rates. 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 two
equity funds (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 Manager or Administrator
and Distributor as the Trust. All exchanges are subject to
certain conditions described below. As of the date of the
Prospectus, the Aquila Bond or Equity Funds are this Trust,
Aquila Rocky Mountain Equity Fund, Aquila Cascadia Equity Fund,
Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Fund
of Colorado, Churchill Tax-Free Fund of Kentucky, Tax-Free Fund
For Utah and Narragansett Insured Tax-Free Income Fund; the
Aquila Money-Market Funds are Capital Cash Management Trust,
Pacific Capital Cash Assets Trust (Original Shares), Pacific
Capital Tax-Free Cash Assets Trust (Original Shares), Pacific
Capital U.S. Treasuries Cash Assets Trust (Original Shares) and
Churchill Cash Reserves Trust.
Class Y Shares of the Trust may be exchanged only for
Class Y Shares of the Bond or Equity Funds or for shares of a
Money-Market Fund. Similar exchangability is available to Class I
Shares to the extent that other Aquila-sponsored funds are made
available to its customers by a financial intermediary. All
exchanges of Class I Shares must be made through your financial
intermediary.
Under the Class Y exchange privilege, once Class Y Shares
of any Bond or Equity Fund have been purchased, those shares (and
any Class Y Shares acquired as a result of reinvestment of
dividends and/or distributions) may be exchanged any number of
times between Money-Market Funds and Class Y Shares of the Bond
or Equity Funds without the payment of any sales charge, provided
that the applicable minimum investment requirements for purchase
of Class Y Shares are met. (See "How to Purchase Class Y
Shares.")
The "Class Y Eligible Shares" of any Bond or Equity Fund are
those shares which were (a) acquired by direct purchase including
by exchange by an institutional investor from a Money-Market
Fund, or which were received in exchange for Class Y Shares of
another Bond or Equity Fund; or (b) acquired as a result of
reinvestment of dividends and/or distributions on otherwise Class
Y Eligible Shares. Shares of a Money-Market Fund not acquired in
exchange for Class Y Eligible Shares of a Bond or Equity Fund can
be exchanged for Class Y Shares of a Bond or Equity Fund only by
persons eligible to make an initial purchase of Class Y Shares.
This Trust, as well as the Money-Market Funds and other Bond
or Equity Funds, reserves the right to reject any exchange into
its shares, if shares of the fund into which exchange is desired
are not available for sale in your state of residence. The Trust
may also modify or terminate this exchange privilege at any time.
In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take
effect on less than 60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to
the conditions that (i) the shares being acquired are available
for sale in your state of residence; (ii) the aggregate net asset
value of the shares surrendered for exchange is at least equal to
the minimum investment requirement of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-872-6735 toll free
Note: The Trust, the Agent, and the Distributor will not be
responsible for any losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify the identity of the caller. The Agent will request some
or all of the following information: account name(s) and number,
name of the caller, the social security number registered to the
account and personal identification. The Agent may also record
calls. You should verify the accuracy of confirmation statements
immediately upon receipt.
Exchanges of Class Y Shares will be effected at the
relative net asset values of the Class Y Shares being exchanged
next determined after receipt by the Agent of your exchange
request. Exchanges of Class I Shares will be effected at the
relative net asset values of the Class I Shares being exchanged
next determined after receipt by the financial intermediary of
your exchange request.
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 "Tax Effects of Redemptions" and 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 and Aquila
Cascadia 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, at
the maximum public offering price (offering price includes any
applicable sales charge) for 1-, 5- and 10-year periods and for a
period since the inception of the Trust, to the extent
applicable, through the end of such periods, assuming
reinvestment (without sales charge) of all distributions. The
Trust may also furnish total return quotations for other periods
or based on investments at various applicable sales charge levels
or at net asset value. For such purposes total return equals the
total of all income and capital gains paid to shareholders,
assuming reinvestment of all distributions, plus (or minus) the
change in the value of the original investment, expressed as a
percentage of the purchase price. (See the Additional
Statement.)
Current yield reflects the income per share earned by
each of the Trust's portfolio investments; it is calculated by
(i) dividing the Trust's net investment income per share during a
recent 30-day period by (ii) the maximum public offering price on
the last day of that period and by (iii) annualizing the result.
Taxable equivalent yield shows the yield from a taxable
investment that would be required to produce an after-tax yield
equivalent to that of the Trust, which invests in tax-exempt
obligations. It is computed by dividing the tax-exempt portion of
the Trust's yield (calculated as indicated) by one minus a stated
income tax rate and by adding the product to the taxable portion
(if any) of the Trust's yield. (See the Additional
Statement.)
Current yield and taxable equivalent yield, which are
calculated according to a formula prescribed by the Securities
and Exchange Commission (see the Additional Statement), are not
indicative of the dividends or distributions which were or will
be paid to the Trust's shareholders. Dividends or distributions
paid to shareholders are reflected in the current distribution
rate or taxable equivalent distribution rate which may be quoted
to shareholders. The current distribution rate is computed by (i)
dividing the total amount of dividends per share paid by the
Trust during a recent 30-day period by (ii) the current maximum
offering price and by (iii) annualizing the result. A taxable
equivalent distribution rate shows the taxable distribution rate
that would be required to produce an after-tax distribution rate
equivalent to the Trust's distribution rate (calculated as
indicated above). The current distribution rate differs from the
current yield computation because it could include distributions
to shareholders from sources, if any, other than dividends and
interest, such as short-term capital gains or return of capital.
If distribution rates are quoted in advertising, they will be
accompanied by calculations of current yield in accordance with
the formula of the Securities and Exchange Commission.
In each case performance figures are based upon past
performance, reflect as appropriate all recurring charges against
the Trust's income net of fee waivers and reimbursement of
expenses, if any, and will assume the payment of the maximum
sales charge, if any, on the purchase of shares, but not on
reinvestment of income dividends. The investment results of the
Trust, like all other investment companies, will fluctuate over
time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the
Trust's yield, tax equivalent yield, distribution rate, taxable
equivalent distribution rate or total return may be in any future
period. The annual report of the Trust contains additional
performance information that will be made available upon request
and without charge.
Description of the Trust and Its Shares
The Trust is a series of The Cascades Trust (the "Business
Trust") formed in 1985 under the name Tax-Free Trust of Oregon.
On August 10, 1989, the name of the Business Trust was changed to
The Cascades Trust. The Business Trust presently has only one
active series, the original series, which continues to be called
Tax-Free Trust of Oregon.
The Business Trust is an open-end, non-diversified
management investment company organized as a Massachusetts
business trust. (See "Investment of the Trust Assets" above for
further information about the Trust's status as
"non-diversified").
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares and to divide or
combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests
in the Business Trust. Each share represents an equal
proportionate interest in the Trust with each other share of its
class; shares of the respective classes represent proportionate
interests in the Trust in accordance with their respective net
asset values. Income, direct liabilities and direct operating
expenses of each series will be allocated directly to each
series, and general liabilities and expenses, if any, of the
Business Trust will be allocated among the series in a manner
acceptable to the Board of Trustees. Upon liquidation of a
series, shareholders of the series are entitled to share pro-rata
in the net assets of that series available for distribution to
shareholders and upon liquidation of the Business Trust, the
respective series are entitled to share proportionately in the
assets available to the Business Trust after allocation to the
various series. Shareholders of the Trust are entitled to share
pro-rata in the net assets of the Trust available for
distribution to shareholders (and in the assets of the Business
Trust otherwise available to shareholders of the Trust), in
accordance with the respective net asset values of the shares of
each of the Trust's classes at that time. All shares are
presently divided into four classes; however, if they deem it
advisable and in the best interests of shareholders, the Board of
Trustees of the Trust may create additional classes of shares
(subject to rules and regulations of the Securities and Exchange
Commission or by exemptive order) or the Board of Trustees may,
at its own discretion, create additional series of shares, each
of which may have separate assets and liabilities (in which case
any such series will have a designation including the word
"Series"). See the Additional Statement for further information
about possible additional series. Shares are fully paid and
non-assessable, except as set forth under the caption "General
Information" in the Additional Statement; the holders of shares
have no pre-emptive or conversion rights.
The other two classes of shares of the Trust are
Front-Payment Class Shares ("Class A Shares") and Level-Payment
Class Shares ("Class C Shares"), which are fully described in a
separate prospectus that can be obtained by calling the Trust at
800-872-6734.
The primary distinction among the Trust's classes of
shares lies in their different sales charge structures and
ongoing expenses, which are likely to be reflected in differing
yields and other measures of investment performance. All four
classes represent interests in the same portfolio of Oregon
Obligations and have the same rights, except that each class
bears the separate expenses, if any, of its participation in the
Distribution Plan and Shareholder Services Plan and has exclusive
voting rights with respect to such participation. There are no
Distribution fees with respect to Class Y Shares.
Dividends and other distributions paid by the Trust with
respect to shares of each class are calculated in the same manner
and at the same time, but may differ depending upon the
distribution and service fees, if any, and other class-specific
expenses borne by each class.
The Trust's Distribution Plan has four parts. In addition to
the defensive provisions described above, Parts I and II of the
Plan authorize payments, to certain "Qualified Recipients," out
of the Trust assets allocable to the Class A Shares and Class C
Shares, respectively. See the Additional Statement. The Trust has
also adopted a Shareholder Services Plan under which the Trust is
authorized to make certain payments out of the Trust assets
allocable to the Class C Shares. See the Additional Statement.
Voting Rights
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of the
record date for the meeting) per share held (and proportionate
fractional votes for fractional dollar amounts). Shareholders
will vote on the election of Trustees and on other matters
submitted to the vote of shareholders. Shares vote by classes on
any matter specifically affecting one or more classes, such as an
amendment of an applicable part of the Distribution Plan.
Rule 18f-2 under the Investment Company Act of 1940 provides
that matters submitted to shareholders affecting any series must
be approved by a majority of the outstanding voting securities of
such series, voting separately from the other series, unless it
is clear that the interests of each series in the matter are
identical or the matter does not affect a series. However, the
rule exempts the selection of accountants and the election of
Trustees from the separate voting requirement.
No amendment may be made to the Declaration of Trust without
the affirmative vote of the holders of a majority of the
outstanding shares of the Trust, except that the Trust's Board of
Trustees may change the name of the Trust. The Trust may be
terminated (i) upon the sale of its assets to another issuer, or
(ii) upon liquidation and distribution of the assets of the
Trust, in either case if such action is approved by the vote of
the holders of a majority of the outstanding shares of the Trust.
If not so terminated, the Trust will continue indefinitely.
<PAGE>
APPLICATION FOR TAX-FREE TRUST OF OREGON
FOR CLASS Y SHARES ONLY
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
PFPC Inc., ATTN: Aquilasm Group of Funds
400 Bellevue Parkway, Wilmington, DE 19809
1-800-872-6735
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.______________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for __________________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** ___________________________________________
Name of State Minor's Social Security Number
4. _____________________________________________________________________
_____________________________________________________________________
(Name of Corporation or Partnership. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust
may be registered in the name of the Plan or Trust itself.)
________________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
________________________________________________________________________
Street or PO Box City
_________________________________ (______)_______________________
State Zip Daytime Phone Number
Occupation:________________________Employer:____________________________
Employer's Address:_____________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
______________________________ ____________________________________
Dealer Name Branch Number
______________________________ ____________________________________
Street Address Rep. Number/Name
______________________________ (_________)_________________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
(Make check payment to TAX-FREE TRUST OF OREGON)
__ Initial Investment $______________ (Minimum $1,000 for shareholders
with Class Y Shares accounts before January 31, 1998)
(After January 31, 1998:
Minimum $100,000 for fiduciaries and $250,000 for all other
eligible purchasers)
B. DISTRIBUTIONS
All income dividends and capital gains distributions are automatically
reinvested in additional shares at Net Asset Value unless otherwise
indicated below.
Dividends are to be: ___ Reinvested ___ Paid in cash*
Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash*
* For cash dividends, please choose one of the following options:
___ Deposit directly into my/our Financial Institution account.
ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK
showing the Financial Institution account where I/we would like you to
deposit the dividend. (A Financial Institution is a commercial bank,
savings bank or credit union.)
___ Mail check to my/our address listed in Step 1.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your Tax-Free Trust of Oregon Account. To establish this program, please
complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling
the Trust toll-free at 1-800-872-6735. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Available only to shareholders who had Class Y Shares accounts before
January 31, 1998)
(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, the Trust's Shareholder
Servicing Agent (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 Aquilasm Group of Funds by telephone.
The Agent is authorized to accept and act upon my/our or any other
person's 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 attorney's fees, resulting
from acceptance of, or acting or failure to act upon, this Authorization.
E. EXPEDITED REDEMPTION
(Check appropriate box)
___ Yes ___ No
The proceeds will be deposited to your Financial Institution account listed.
Cash proceeds in any amount from the redemption of shares will be
mailed or wired, whenever possible, upon request, if in an amount of
$1,000 or more to my/our account at a Financial Institution. The
Financial Institution account must be in the same name(s) as this Trust
account is registered.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK).
_______________________________ _____________________________________
Account Registration Financial Institution Account Number
_______________________________ _____________________________________
Financial Institution Name Financial Institution Transit/Routing
Number
_______________________________ _____________________________________
Street City State Zip
STEP 4 Section A
DEPOSITOR'S 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, and to pay such sums in accordance therewith, provided my/our account
has sufficient funds to cover such drafts or debits. I/We further agree that
your treatment of such orders will be the same as if I/we personally signed
or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you
receive my/our written instructions to cancel this service. I/We also
agree that if any such drafts or debits are dishonored, for any reason,
you shall have no liabilities.
Financial Institution Account Number __________________________________
Name and Address where my/our account is maintained
Name of Financial Institution__________________________________________
Street Address_________________________________________________________
City_______________________________State _________________ Zip ________
Name(s) and Signature(s) of Depositor(s) as they appear where account
is registered
_________________________________________________
(Please Print)
X________________________________________________ ____________________
(Signature) (Date)
_________________________________________________
(Please Print)
X________________________________________________ ____________________
(Signature) (Date)
INDEMNIFICATION AGREEMENT
To: Financial Institution Named Above
So that you may comply with your depositor's request, Aquila Distributors,
Inc. (the "Distributor") agrees:
1 Electronic Funds Transfer debit and credit items transmitted pursuant
to the above authorization shall be subject to the provisions of the
Operating Rules of the National Automated Clearing House Association.
2 To indemnify and hold you harmless from any loss you may suffer in
connection with the execution and issuance of any electronic debit
in the normal course of business initiated by the Agent (except any
loss due to your payment of any amount drawn against insufficient or
uncollected funds), provided that you promptly notify us in writing
of any claim against you with respect to the same, and further
provided that you will not settle or pay or agree to settle or pay
any such claim without the written permission of the Distributor.
3 To indemnify you for any loss including your reasonable costs and
expenses in the event that you dishonor, with or without cause, any
such electronic debit.
STEP 4 Section B
SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED
- - The undersigned warrants that he/she has full authority and is of
legal age to purchase shares of the Trust and has received and
read a current Prospectus of the Trust and agrees to its terms.
- - I/We authorize the Trust and its agents to act upon these
instructions for the features that have been checked.
- - I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution
has insufficient funds, the Trust and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Trust account to make up any
deficiency resulting from any decline in the net asset value of shares
so purchased and any dividends paid on those shares. I/We authorize the
Trust and its agents to correct any transfer error by a debit or credit
to my/our Financial Institution account and/or Trust account and to
charge the account for any related charges. I/We acknowledge that
shares purchased either through Automatic Investment or Telephone
Investment are subject to applicable sales charges.
- - The Trust, the Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for
any losses resulting from unauthorized telephone transactions if the
Agent follows reasonable procedures designed to verify the identity of
the caller. The Agent will request some or all of the following
information: account name and number; name(s) and social security
number registered to the account and personal identification; the
Agent may also record calls. Shareholders should verify the accuracy
of confirmation statements immediately upon receipt. Under penalties
of perjury, the undersigned whose Social Security (Tax I.D.) Number is
shown above certifies (i) that Number is my correct taxpayer
identification number and (ii) currently I am not under IRS
notification that I am subject to backup withholding (line out (ii) if
under notification). If no such Number is shown, the undersigned
further certifies, under penalties of perjury, that either (a) no such
Number has been issued, and a Number has been or will soon be applied
for; if a Number is not provided to you within sixty days, the
undersigned understands that all payments (including liquidations) are
subject to 31% withholding under federal tax law, until a Number is
provided and the undersigned may be subject to a $50 I.R.S. penalty; or
(b) that the undersigned is not a citizen or resident of the U.S.; and
either does not expect to be in the U.S. for 183 days during each
calendar year and does not conduct a business in the U.S. which would
receive any gain from the Trust, or is exempt under an income tax treaty.
NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST,
ALL TRUSTEES MUST SIGN.*
__________________________ __________________________ _________
Individual (or Custodian) Joint Registrant, if any Date
__________________________ __________________________ _________
Corporate Officer, Partner, Title Date
Trustee, etc.
* For Trust, Corporations or Associations, this form must be accompanied
by proof of authority to sign, such as a certified copy of the corporate
resolution or a certificate of incumbency under the trust instrument.
SPECIAL INFORMATION
- - Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after
this form is received in good order by the Trust's Agent.
- - You may cancel any feature at any time, effective 3 days after the
Agent receives written notice from you.
- - Either the Trust or the Agent may cancel any feature, without prior
notice, if in its judgment your use of any feature involves unusual
effort or difficulty in the administration of your account.
- - The Trust reserves the right to alter, amend or terminate any or all
features or to charge a service fee upon 30 days written notice to
shareholders except if additional notice is specifically required by
the terms of the Prospectus.
BANKING INFORMATION
- - If your Financial Institution account changes, you must complete a
Ready Access features form which may be obtained from Aquila
Distributors at 1-800-872-6735 and send it to the Agent together
with a "voided" check or pre-printed deposit slip from the new
account. The new Financial Institution change is effective in 15
days after this form is received in good order by the Trust's Agent.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees
to the terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan")
as agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Trust purchased for
and held under the Plan, but the Agent will credit all such shares to
the Planholder on the records of the Trust. Any share certificates now
held by the Planholder may be surrendered unendorsed to the Agent with
the application so that the shares represented by the certificate may
be held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Trust
at Net Asset Value without a sales charge.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of
business on the last business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
Prospectus of the Trust) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Trust's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Trust. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Trust, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue
as a dividend-reinvestment, uncertificated account unless and until
proper instructions are received from the Planholder, his executor or
guardian, or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for
the Trust, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
10.Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while simultaneously
making regular purchases. While an occasional lump sum investment may
be made, such investment should normally be an amount equivalent to
three times the annual withdrawal or $5,000, whichever is less.
<PAGE>
INVESTMENT SUB-ADVISER
US Bank National Association
111 S.W. Fifth Avenue
U.S. Bancorp Tower
Portland, Oregon 97204
INVESTMENT ADVISER, ADMINISTRATOR and FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
James A. Gardner
Diana P. Herrmann
Ann R. Leven
Raymond H. Lung
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
Sue McCarthy-Jones, Senior 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
COUNSEL
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
TABLE OF CONTENTS
Highlights
Table Of Expenses
Financial Highlights
Introduction
Investment Of The Trust's Assets
Investment Restrictions
Net Asset Value Per Share
How To Invest In The Trust
How To Redeem Your Investment
Automatic Withdrawal Plan
Management Arrangements
Dividend And Tax Information
Exchange Privilege
General Information
Application
AQUILA
[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, 1998
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for
the Trust dated January 31, 1998: one Prospectus describes Front-
Payment Class Shares ("Class A Shares") and Level-Payment Class
Shares ("Class C Shares") of the Trust and the other describes
Institutional Class Shares ("Class Y Shares") and Financial
Intermediary Class Shares ("Class I Shares") of the Trust.
References in the Additional Statement to "the Prospectus" refer
to either of these Prospectuses. The Additional Statement should
be read in conjunction with the Prospectus for the class of
shares in which you are considering investing. Either or both
Prospectuses may be obtained from the Trust's Shareholder
Servicing Agent, PFPC Inc., by writing to: 400 Bellevue Parkway,
Wilmington, DE 19809 or by calling the following number:
800-872-6735 toll free
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, 1997, will be delivered with the Additional
Statement.
TABLE OF CONTENTS
Investment of the Trust's Assets . . . . . . . . . . . . . . . .2
Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . .6
Performance . . . . . . . . . . . . . . . . . . . . . . . . . .8
Investment Restrictions . . . . . . . . . . . . . . . . . . . 14
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 15
Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 21
Limitation of Redemptions in Kind . . . . . . . . . . . . . . 23
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 23
Additional Information as to Management Arrangements . . . . . 30
Computation of Net Asset Value . . . . . . . . . . . . . . . . 33
Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 34
Additional Tax Information . . . . . . . . . . . . . . . . . . 35
Conversion of Class C Shares . . . . . . . . . . . . . . . . . 35
General Information . . . . . . . . . . . . . . . . . . . . . 36
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 39
<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, 1996, in Oregon
Obligations in the various rating categories:
Highest rating (1) . . . . . . . . . . . . . . . . . . . . .47.7%
Second highest rating (2). . . . . . . . . . . . . . . . . .46.0%
Third highest rating (3) . . . . . . . . . . . . . . . . . . 4.1%
Fourth highest rating (4). . . . . . . . . . . . . . . . . . 0.2%
Not rated: . . . . . . . . . . . . . . . . . . . . . . . . . 2.0%
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 Sub-Adviser's opinion as to marketability of the
issue and other factors that may be applicable to any particular
issue.
Futures Contracts and Options
Although the Trust does not presently do so, it 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
the Trust may never do so. The following discussion is intended
to explain briefly the workings of Futures and options on them
which would be applicable if the Trust were to use 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 Futures to
attempt to protect against the price volatility of the Trust's
Oregon Obligations is that the Sub-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 or limits on upward or downward price
movements 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 as to its long and short positions in
Futures under in conformity with rules of the Commodity Futures
Trading Commission ("CFTC") under the Commodity Exchange Act (the
"CEA"). 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 a right 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, the 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
In 1990, Oregon voters approved a property tax limitation
initiative measure known as Measure 5. The measure imposed
increased restrictions on property taxes, phased in over a period
of years. Now fully implemented as Article XI, section 11b of the
Oregon Constitution, the measure limits the amount of ad valorem
property taxes that may be levied against property to not more
than $5 per $1,000 of real market value of the property for the
operation of the public school system, including community
colleges, and not more than $10 per $1,000 for operation of local
governments other than the school system. Taxes may be levied
outside Measure 5 limits for State of Oregon bonds authorized by
a specific provision of the Oregon Constitution, and for general
obligation bonds that were issued for capital construction or
improvements either before November 6, 1990, or were approved by
the electors of the issuing governmental unit.
The measure required the legislature to replace revenue lost
by the public school system through fiscal year 1995-96. As a
consequence of the measure, the legislature has increased the
amount of state funding for the public school system, even though
the legal obligation to do so under the measure has ended.
On November 5, 1996, Oregon voters approved a further
constitutional property tax limitation known as Measure 47. The
measure "cuts" ad valorem property taxes for the 1997-98 fiscal
year to the lesser of the operating tax levy against each
property for 1996-97, minus 10 percent, or the amount of the
operating levy against the property for 1995-96. Beginning in
1998-99, and in subsequent years, the levy may not be increased
more than a "cap" of 3 percent each year. The measure does permit
increased taxes when property is improved, subdivided, rezoned,
ceases to be eligible for property tax exemption, or is placed in
a different tax code area by annexation approved by the voters.
The taxes on such property may not exceed the average property
taxes paid on similar property in the same tax code area.
The Measure 47 limits do not apply to taxes for voter-
approved bonded indebtedness or refunding bonds. The proceeds of
general obligation bonds may be used only for capital
construction or improvements. Capital improvements do not include
supplies or equipment unless they are intrinsically part of a
structure, except for public safety and law enforcement vehicles.
Capital improvements do not include maintenance and repairs, the
need for which could reasonably have been anticipated.
The measure permits voters to approve property taxes in
excess of Measure 47 limits, but not in excess of Measure 5
limits. Elections to authorize new or increased taxes, including
taxes for payment of bonds, must be held at a general election in
an even-numbered year, or other election at which not less than
50 percent of the registered voters eligible to vote cast
ballots. The measure also provides additional requirements for
notices of elections for new or increased taxes or unlimited tax
bonds.
The measure does not determine how reductions in tax
revenues will be allocated among taxing entities. The measure
authorizes the legislature to make that allocation, directing the
legislature to give priority to public safety and public
education, and to minimize any loss of local control of cities
and counties to state government.
Measure 47 also limits the ability of local governments to
impose new or increased fees for products or services that have
been partially funded from property taxes, if the result is to
shift funding for the products or services from taxes to fees,
unless the new or increased fees are approved by the voters.
In May, 1997, the voters of Oregon approved Measure 50
which somewhat modified the effects of Measure 47. Measure 50
cuts taxes significantly but provides exceptions for certain
police and firefighter pensions, hospital districts and
communities that passed tax levies in 1996. The measure requires
the legislature to replace property taxes that schools lost with
money from the general fund.
PERFORMANCE
As noted in the Prospectus, the Trust may from time to time
quote various performance figures to illustrate its past
performance.
Performance quotations by investment companies are
subject to rules of the Securities and Exchange Commission
("SEC"). These rules require the use of standardized performance
quotations or, alternatively, that every non-standardized
performance quotation furnished by the Trust be accompanied by
certain standardized performance information computed as required
by the SEC. Current yield and average annual compounded total
return quotations used by the Trust are based on these
standardized methods and are computed separately for each of the
Trust's three classes of shares. Prior to April 5, 1996, the
Trust had outstanding only one class of shares which are
currently designated Class A Shares. On that date the trust began
to offer shares of two other classes, Class C Shares and Class Y
Shares. During most of the historical periods listed below, there
were no Class C Shares or Class Y Shares outstanding and the
information below relates solely to Class A Shares unless
otherwise indicated. Class I Shares were first offered on January
31, 1998, and none were outstanding during the periods indicated.
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-, 5- and 10 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 in each of the Trust's three
classes to the value such an investment would have if it were
completely redeemed at the end of each such period.
In the case of Class A Shares, the calculation assumes
the maximum sales charge is deducted from the hypothetical
initial $1,000 purchase. In the case of Class C Shares, the
calculation assumes the applicable Contingent Deferred Sales
Charge ("CDSC") imposed on a redemption of Class C shares held
for the period is deducted. In the case of Class Y Shares, the
calculation assumes that no sales charge is deducted and no CDSC
is imposed. For all three classes, it is assumed 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 for any class). 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 for
Class A Shares, 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.
<TABLE>
<CAPTION>
Average Annual Compounded Rates of Return:
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 2.90% 5.26% 7.37%
Five Years 5.17% N/A N/A
Ten Years 7.38% N/A N/A
Since
inception
June 16, 1986 6.82% 6.84%(1) 7.80%(1)
<FN>
(1) Period from April 5, 1996 (inception of class) through
September 30, 1997.
</FN>
</TABLE>
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-, 5- and 10-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
for each of its three classes. 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.
Total Return
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
One Year 2.90% 5.26% 7.37%
Five Years 28.28% N/A N/A
Ten Years 103.73% N/A N/A
Since
inception on
June 16, 1986 110.76% 10.04%(1) 11.82%(1)
<FN>
(1) Period from April 5, 1996 (inception of class) through
September 30, 1997.
</FN>
</TABLE>
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 for each of
the Trust's three classes 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 of each class during
the base period net of fee waivers and reimbursements of
expenses, if any.
The Trust may also quote a taxable equivalent yield for each
of its three classes of shares 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 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 45.04% respectively. The latter rate reflects
currently-enacted Federal income tax law. 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.
Yield for the 30-day period ended September 30, 1997 (the date
of the Trust's most recent audited financial statements:
<TABLE>
<CAPTION>
Class A Shares Class C Shares Class Y Shares
<S> <C> <C> <C>
Yield 4.04% 3.36% 4.36%
Taxable
Equivalent
Yield 7.32% 6.09% 7.90%
</TABLE>
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
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.
Other Performance Quotations
With respect to those categories of investors who are
permitted to purchase Class A Shares of the Trust at net asset
value, the Trust may quote a "Current Distribution Rate for Net
Asset Value Investments." This rate is computed by (i) dividing
the total amount of dividends per share paid by the Trust during
a recent 30-day period by (ii) the current net asset value of the
Trust and by (iii) annualizing the result. Figures for yield,
total return and other measures of performance for Net Asset
Value Investments may also be quoted. These will be derived as
described above with the substitution of net asset value for
public offering price.
Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of
the return to shareholders only for the limited historical period
used. If distribution rates are quoted in advertising, they will
be accompanied by calculations of current yield in accordance
with the formula of the Securities and Exchange Commission.
The Trust may include in advertisements and sales
literature, information, examples and statistics that illustrate
the effect of taxable versus tax-free compounding income at a
fixed rate of return to demonstrate the growth of an investment
over a stated period of time resulting from the payment of
dividends and capital gains distributions in additional shares.
The examples used will be for illustrative purposes only and are
not representations by the Trust of past or future yield or
return.
From time to time, in reports and promotional literature,
the Trust may compare its performance to, or cite the historical
performance of, U.S. Treasury bills, notes and bonds, or indices
of broad groups of unmanaged securities considered to be
representative of, or similar to, the Trust's portfolio holdings,
such as:
Lipper Analytical Services, Inc. ("Lipper") is a
widely-recognized independent service that monitors and ranks the
performance of regulated investment companies. The Lipper
performance analysis includes the reinvestment of capital gain
distributions and income dividends but does not take sales
charges into consideration. The method of calculating total
return data on indices utilizes actual dividends on ex-dividend
dates accumulated for the quarter and reinvested at quarter end.
Morningstar Mutual Funds ("Morningstar"), a semi-monthly
publication of Morningstar, Inc. Morningstar proprietary ratings
reflect historical risk-adjusted performance and are subject to
change every month. Funds with at least three years of
performance history are assigned ratings from one star (lowest)
to five stars (highest). Morningstar ratings are calculated from
the funds' three-, five-, and ten-year average annual returns
(when available) and a risk factor that reflects fund performance
relative to three-month Treasury bill monthly returns. Fund's
returns are adjusted for fees and sales loads. Ten percent of the
funds in an investment category receive five stars, 22.5% receive
four stars, 35% receive three stars, 22.5% receive two stars, and
the bottom 10% receive one star.
Salomon Brothers Inc., "Market Performance," a monthly
publication which tracks principal return, total return and yield
on the Salomon Brothers Broad Investment-Grade Bond Index and the
components of the Index.
Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond
Indices," a monthly corporate government index publication which
lists principal, coupon and total return on over 100 different
taxable bond indices which Merrill Lynch tracks. They also list
the par weighted characteristics of each Index.
Lehman Brothers, Inc., "The Bond Market Report," a monthly
publication which tracks principal, coupon and total return on
the Lehman Govt./Corp. Index and Lehman Aggregate Bond Index, as
well as all the components of these Indices.
The Consumer Price Index, prepared by the U.S. Bureau of
Labor Statistics, is a commonly used measure of inflation. The
Index shows changes in the cost of selected consumer goods and
does not represent a return on an investment vehicle.
From time to time, in reports and promotional literature,
performance rankings and ratings reported periodically in
national financial publications such as MONEY, FORBES, BUSINESS
WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may also be used. In
addition, quotations from articles and performance ratings and
ratings appearing in daily newspaper publications such as THE
WALL STREET JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS
may be cited.
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 the 1940 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 Sub-Adviser individually owning beneficially
more than 0.5 of 1% of the securities of that issuer together own
in the aggregate more than 5% of such securities.
The Trust cannot buy real estate or any non-liquid interests
in real estate investment trusts; however, it can buy any
securities which it can otherwise buy even though the issuer
invests in real estate or has interests in real estate.
2. The Trust does not buy for control.
The Trust cannot invest for the purpose of exercising
control or management of other companies.
3. The Trust does not sell securities it does not own or borrow
from brokers to buy securities.
Thus, it cannot sell short or buy on margin; however, the
Trust can make margin deposits in connection with the purchase or
sale of Municipal Bond Index Futures, U.S. Government Securities
Futures and options on them, and can pay premiums on these
options.
4. The Trust is not an underwriter.
The Trust cannot engage in the underwriting of securities,
that is, the selling of securities for others. Also, it cannot
invest in restricted securities. Restricted securities are
securities which cannot freely be sold for legal reasons.
DISTRIBUTION PLAN
The Trust's Distribution Plan has four parts, relating
respectively to distribution payments with respect to Class A
Shares (Part I), to distribution payments relating to Class C
Shares (Part II), to distribution payments relating to Class I
Shares (Part III) and to certain defensive provisions (Part
IV).
Provisions Relating to Class A Shares (Part I)
At the date of the Additional Statement, most of the
outstanding shares of the Trust would be considered Qualified
Holdings of various broker-dealers unaffiliated with the Sub-
Adviser or the Distributor. The Distributor will consider shares
which are not Qualified Holdings of such unrelated broker-dealers
to be Qualified Holdings of the Distributor and will authorize
Permitted Payments to the Distributor with respect to such shares
whenever Permitted Payments are being made under the Plan.
Part I of the Plan applies only to the Front-Payment Class
Shares ("Class A Shares") of the Trust (regardless of whether
such class is so designated or is redesignated by some other
name).
As used in Part I of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part I ("Class A Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Front-Payment Class
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Front-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Class A Permitted
Payments") to Qualified Recipients, which Class A Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), 0.15 of 1% of the average annual net assets of the
Trust represented by the Front-Payment Class Shares. Such
payments shall be made only out of the Trust's assets allocable
to the Front-Payment Class Shares. The Distributor shall have
sole authority (i) as to the selection of any Qualified Recipient
or Recipients; (ii) not to select any Qualified Recipient; and
(iii) the amount of Class A Permitted Payments, if any, to each
Qualified Recipient provided that the total Class A Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above.
The Distributor is authorized, but not directed, to take
into account, in addition to any other factors deemed relevant by
it, the following: (a) the amount of the Qualified Holdings of
the Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front- Payment Class
Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year-end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving,
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part I is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class A Permitted
Payments made under Section 9 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Sub-Adviser, the Administrator or the Distributor,
such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees of the Trust an accounting,
in form and detail satisfactory to the Board of Trustees, to
enable the Board of Trustees to make the determinations of the
fairness of the compensation paid to such affiliated person, not
less often than annually.
Part I originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part I of the Plan; and (ii) by a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Front-Payment Class Shares class (or of any
predecessor class or category of shares, whether or not
designated as a class) and a vote of holders of at least a
"majority" (as so defined) of the outstanding voting securities
of the Level-Payment Class Shares and/or of any other class whose
shares are convertible into Front-Payment Class Shares. Part I
has continued, and will, unless terminated as hereinafter
provided, continue in effect, until the June 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part I may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part I
applies. Part I may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part I as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class A Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class A Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class A Plan Agreements entered into thereafter.
Provisions relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level-Payment Shares
Class ("Class C Shares") of the Trust (regardless of whether such
class is so designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall
mean broker-dealers or others selected by Aquila Distributors,
Inc. (the "Distributor"), including but not limited to any
principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection
with Part II ("Class C Plan Agreements") and which have rendered
assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Level- Payment
Class Shares or servicing of shareholder accounts with respect to
such shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Level-Payment Class Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of
Trustees, the Trust may make payments ("Class C Permitted
Payments") to Qualified Recipients, which Class C Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), 0.75 of 1% of the average annual net assets of the
Trust represented by the Level-Payment Class Shares. Such
payments shall be made only out of the Trust's assets allocable
to the Level-Payment Class Shares. The Distributor shall have
sole authority (i) as to the selection of any Qualified Recipient
or Recipients; (ii) not to select any Qualified Recipient; and
(iii) the amount of Class C Permitted Payments, if any, to each
Qualified Recipient provided that the total Class C Permitted
Payments to all Qualified Recipients do not exceed the amount set
forth above. The Distributor is authorized, but not directed, to
take into account, in addition to any other factors deemed
relevant by it, the following: (a) the amount of the Qualified
Holdings of the Qualified Recipient; (b) the extent to which the
Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of
Level-Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Trust may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts;
furnishing (either alone or together with other reports sent to a
shareholder by such person) monthly and year-end statements and
confirmations of purchases and redemptions; transmitting, on
behalf of the Trust, proxy statements, annual reports, updating
prospectuses and other communications from the Trust to its
shareholders; receiving, tabulating and transmitting to the Trust
proxies executed by shareholders with respect to meetings of
shareholders of the Trust; and providing such other related
services as the Distributor or a shareholder may request from
time to time; and (c) the possibility that the Qualified Holdings
of the Qualified Recipient would be redeemed in the absence of
its selection or continuance as a Qualified Recipient.
Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees (as defined below) may remove any person as
a Qualified Recipient. Amounts within the above limits accrued to
a Qualified Recipient but not paid during a fiscal year may be
paid thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part II is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for
their review on the following matters: (i) all Class C Permitted
Payments made under Section 15 of the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, the Sub-Adviser, the Administrator or the Distributor,
such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees of the Trust an
accounting, in form and detail satisfactory to the Board of
Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
Part II originally went into effect when it was approved (i)
by a vote of the Trustees, including the Independent Trustees,
with votes cast in person at a meeting called for the purpose of
voting on Part II of the Plan; and (ii) by a vote of holders of
at least a "majority" (as so defined) of the outstanding voting
securities of the Level-Payment Class Shares. Part II has
continued, and will, unless terminated as hereinafter provided,
continue in effect, until the April 30 next succeeding such
effectiveness, and from year to year thereafter only so long as
such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part II
applies. Part II may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class C Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 5, 1996 or
(ii) Class C Plan Agreements entered into thereafter.
Payments under the Plan
Permitted Payments under the Plan commenced July 1, 1994.
During the fiscal year ended September 30, 1997, $459,662 was
paid to Qualified Recipients with respect to Class A Shares, of
which $12,019 was retained by the Distributor. All of such
payments were for compensation. Until April 5, 1996, all
outstanding shares of the Trust were what are currently
designated Class A Shares. During the fiscal year ended September
30, 1996, $461,538 was paid under the Plan as then in effect to
Qualified Recipients, of which $9,987 was paid to the
Distributor. All of such payments were for compensation. No or
nominal payments were made with respect to Class C Shares. 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. All of such payments were for compensation.
During the fiscal year ended September 30, 1997, $4,910
was paid to Qualified Recipients with respect to Class C Shares.
All of such payments were for compensation. (See the Additional
Statement for a description of the Distribution Plan.)
Provisions relating to Class I Shares (Part III)
Part III of the Plan applies only to the Financial
Intermediary Class Shares ("Class I Shares") of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
As used in Part III of the Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to any principal underwriter of the Trust, with which the Trust
or the Distributor has entered into written agreements in
connection with Part III ("Class I Plan Agreements") and which
have rendered assistance (whether direct, administrative, or
both) in the distribution and/or retention of the Trust's Class I
Shares or servicing of shareholder accounts with respect to such
shares. "Qualified Holdings" shall mean, as to any Qualified
Recipient, all Class I Shares beneficially owned by such
Qualified Recipient, or beneficially owned by its brokerage
customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the
sole judgment of the Distributor, instrumental in the purchase
and/or retention of such shares and/or in providing
administrative assistance or other services in relation
thereto.
Subject to the direction and control of the Trust's Board
of Trustees, the Trust may make payments ("Class I Permitted
Payments") to Qualified Recipients, which Class I Permitted
Payments may be made directly, or through the Distributor or
shareholder servicing agent as disbursing agent, which may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year), at a rate fixed for time to time by the Board of
Trustees, initially 0.10 of 1% of the average annual net assets
of the Trust represented by the Class I Shares, but not more than
0.25 of 1% of such assets. Such payments shall be made only out
of the Trust's assets allocable to Class I Shares. The
Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class I Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Class I Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year-end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving,
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
While Part III is in effect, the Trust's Distributor
shall report at least quarterly to the Trust's Trustees in
writing for their review on the following matters: (i) all Class
I Permitted Payments made under the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the 1940 Act, of
the Trust, the Sub-Adviser, the Administrator or the Distributor,
such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees of the Trust an accounting,
in form and detail satisfactory to the Board of Trustees, to
enable the Board of Trustees to make the determinations of the
fairness of the compensation paid to such affiliated person, not
less often than annually.
Part III originally went into effect when it was approved
(i) by a vote of the Trustees, including the Independent
Trustees, with votes cast in person at a meeting called for the
purpose of voting on Part III of the Plan; and (ii) by a vote of
holders of at least a "majority" (as so defined) of the
outstanding voting securities of the Class I Shares Class. Part
III has continued, and will, unless terminated as thereinafter
provided, continue in effect, until the June 30 next succeeding
such effectiveness, and from year to year thereafter only so long
as such continuance is specifically approved at least annually by
the Trust's Trustees and its Independent Trustees with votes cast
in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote of
a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust to which Part III
applies. Part III may not be amended to increase materially the
amount of payments to be made without shareholder approval of the
class or classes of shares affected by Part III as set forth in
(ii) above, and all amendments must be approved in the manner set
forth in (i) above.
In the case of a Qualified Recipient which is a principal
underwriter of the Trust, the Class C Plan Agreement shall be the
agreement contemplated by Section 15(b) of the 1940 Act since
each such agreement must be approved in accordance with, and
contain the provisions required by, the Rule. In the case of
Qualified Recipients which are not principal underwriters of the
Trust, the Class I Plan Agreements with them shall be (i) their
agreements with the Distributor with respect to payments under
the Trust's Distribution Plan in effect prior to April 1, 1996 or
(ii) Class I Plan Agreements entered into thereafter.
Defensive Provisions (Part IV)
Another part of the Plan (Part IV) states that if and to
the extent that any of the payments listed below are considered
to be "primarily intended to result in the sale of" shares issued
by the Trust within the meaning of Rule 12b-1, such payments are
authorized under the Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Trust or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of
preparation, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Trust's shares; (iv) all legal and accounting fees relating
to the preparation of any such reports, prospectuses, statements
of additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Trust and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Trust's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors or
prospective investors.
The Plan states that while it is in effect, the selection
and nomination of those Trustees of the Trust who are not
"interested persons" of the Trust shall be committed to the
discretion of such disinterested Trustees but that nothing in the
Plan shall prevent the involvement of others in such selection
and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested
Trustees.
The Plan states that while it is in effect, the Trust's
Administrator and Distributor shall report at least quarterly to
the Trust's Board of Trustees in writing for their review on the
following matters: (i) all Permitted Payments made under this
Plan, the identity of the Qualified Recipient of each Payment,
and the purposes for which the amounts were expended; (ii) all
costs of each item of cost specified in the Plan (making
estimates of such costs where necessary or desirable) during the
preceding calendar or fiscal quarter; and (iii) all fees of the
Trust to the distributor, sub-adviser or administrator paid or
accrued during such quarter. In addition if any such Qualified
Recipient is an affiliate, as that term is defined in the Act, of
the Trust, the Sub-Adviser, the Administrator or the Distributor,
such person shall agree to furnish to the Distributor for
transmission to the Board of Trustees of the Trust an accounting,
in form and detail satisfactory to the Board of Trustees, to
enable the Board of Trustees to make the determinations of the
fairness of the compensation paid to such affiliated person, not
less often than annually.
The Plan defines as the Trust's Independent Trustees those
Trustees who are not "interested persons" of the Trust as defined
in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements
related to the Plan. The Plan, unless terminated as thereinafter
provided, continues in effect from year to year only so long as
such continuance is specifically approved at least annually by
the Trust's Board of Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of
voting on such continuance. In voting on the implementation or
continuance of the Plan, those Trustees who vote to approve such
implementation or continuance must conclude that there is a
reasonable likelihood that the Plan will benefit the Trust and
its shareholders. The Plan may be terminated at any time by vote
of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the
outstanding voting securities of the Trust. The Plan may not be
amended to increase materially the amount of payments to be made
without shareholder approval and all amendments must be approved
in the manner set forth above as to continuance of the Plan.
The Plan and each Part of it shall also be subject to all
applicable terms and conditions of Rule 18f-3 under the 1940 Act
as now in force or hereafter amended. Specifically, but without
limitation, the provisions of Part III shall be deemed to be
severable, within the meaning of and to the extent required by
Rule 18f-3, with respect to each outstanding class of shares of
the Trust.
SHAREHOLDER SERVICES PLAN
The Trust has adopted a Shareholder Services Plan (the
"Services Plan") to provide for the payment with respect to Class
C Shares and Class I Shares of the Trust of "Service Fees" within
the meaning of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. The Services Plan applies
only to the Class C Shares and Class I Shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
Provisions for Level-Payment Class Shares (Part I)
As used in Part I of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Trust, who have, pursuant to written agreements with the
Trust or the Distributor, agreed to provide personal services to
shareholders of Level-Payment Class Shares and/or maintenance of
Level-Payment Class Shares shareholder accounts. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Level-Payment Class Shares beneficially owned by such Qualified
Recipient's customers, clients or other contacts. "Administrator"
shall mean Aquila Management Corporation or any successor serving
as sub-adviser or administrator of the Trust.
Subject to the direction and control of the Trust's Board
of Trustees, the Trust may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) may not exceed, for any fiscal year of
the Trust (as adjusted for any part or parts of a fiscal year
during which payments under the Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Trust represented by
the Level-Payment Class Shares. Such payments shall be made only
out of the Trust's assets allocable to the Level-Payment Class
Shares. The Distributor shall have sole authority with respect to
the selection of any Qualified Recipient or Recipients and the
amount of Service Fees, if any, paid to each Qualified Recipient,
provided that the total Service Fees paid to all Qualified
Recipients may not exceed the amount set forth above and
provided, further, that no Qualified Recipient may receive more
than 0.25 of 1% of the average annual net asset value of shares
sold by such Recipient. The Distributor is authorized, but not
directed, to take into account, in addition to any other factors
deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient and (b) the extent
to which the Qualified Recipient has, at its expense, taken steps
in the shareholder servicing area with respect to holders of
Level-Payment Class Shares, including without limitation, any or
all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which
purchases and redemptions of shares of the Trust may be effected;
assisting shareholders in designating and changing dividend
options, account designations and addresses; providing necessary
personnel and facilities to establish and maintain shareholder
accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds;
transmitting and receiving funds in connection with customer
orders to purchase or redeem shares; verifying and guaranteeing
shareholder signatures in connection with redemption orders and
transfers and changes in shareholder designated accounts; and
providing such other related services as the Distributor or a
shareholder may request from time to time. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years. During the fiscal year ended September 31,
1997, $1,636 of Service Fees was paid to Qualified Recipients
with respect to the Trust's Class C Shares.
Provisions for Financial Intermediary Class Shares (Part
II)
As used in Part II of the Services Plan, "Qualified
Recipients" shall mean broker-dealers or others selected by
Aquila Distributors, Inc. (the "Distributor"), including but not
limited to the Distributor and any other principal underwriter of
the Trust, who have, pursuant to written agreements with the
Trust or the Distributor, agreed to provide personal services to
shareholders of Financial Intermediary Class Shares, maintenance
of Financial Intermediary Class Shares shareholder accounts
and/or pursuant to specific agreements entering confirmed
purchase orders on behalf of customers or clients. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all
Financial Intermediary Class Shares beneficially owned by such
Qualified Recipient's customers, clients or other contacts.
"Administrator" shall mean Aquila Management Corporation or any
successor serving as sub-adviser or administrator of the
Trust.
Subject to the direction and control of the Trust's Board
of Trustees, the Trust may make payments ("Service Fees") to
Qualified Recipients, which Service Fees (i) may be paid directly
or through the Distributor or shareholder servicing agent as
disbursing agent and (ii) may not exceed, for any fiscal year of
the Trust (as adjusted for any part or parts of a fiscal year
during which payments under the Services Plan are not accruable
or for any fiscal year which is not a full fiscal year), 0.25 of
1% of the average annual net assets of the Trust represented by
the Financial Intermediary Class Shares. Such payments shall be
made only out of the Trust's assets allocable to the Financial
Intermediary Class Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The Distributor
is authorized, but not directed, to take into account, in
addition to any other factors deemed relevant by it, the
following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Financial Intermediary
Class Shares, including without limitation, any or all of the
following activities: answering customer inquiries regarding
account status and history, and the manner in which purchases and
redemptions of shares of the Trust may be effected; assisting
shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel
and facilities to establish and maintain shareholder accounts and
records; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or
redeem shares; verifying and guaranteeing shareholder signatures
in connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years. No Class I Shares
were outstanding during the fiscal year ended September 30,
1997.
General Provisions
While the Services Plan is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Services Plan, the identity
of the Qualified Recipient of each payment, and the purposes for
which the amounts were expended; and (ii) all fees of the Trust
to the Distributor paid or accrued during such quarter. In
addition, if any Qualified Recipient is an "affiliated person,"
as that term is defined in the 1940 Act, of the Trust, the Sub-
Adviser, the Administrator or the Distributor, such person shall
agree to furnish to the Distributor for transmission to the Board
of Trustees of the Trust an accounting, in form and detail
satisfactory to the Board of Trustees, to enable the Board of
Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than
annually.
The Services Plan has been approved by a vote of the
Trustees, including those Trustees who, at the time of such vote,
were not "interested persons" (as defined in the 1940 Act) of the
Trust and had no direct or indirect financial interest in the
operation of the Services Plan or in any agreements related to
the Services Plan (the "Independent Trustees"), with votes cast
in person at a meeting called for the purpose of voting on the
Services Plan. It will continue in effect for a period of more
than one year from its original effective date only so long as
such continuance is specifically approved at least annually as
set forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
The Services Plan is also be subject to all applicable
terms and conditions of Rule 18f-3 under the 1940 Act as now in
force or hereafter amended.
While the Services Plan is in effect, the selection and
nomination of those Trustees of the Trust who are not "interested
persons" of the Trust, as that term is defined in the 1940 Act,
shall be committed to the discretion of such disinterested
Trustees. Nothing herein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
LIMITATION OF REDEMPTIONS IN KIND
The Trust has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which the Trust is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1 percent
of the net asset value of the Trust during any 90-day period for
any one shareholder. Should redemptions by any shareholder exceed
such limitation, the Trust will have the option of redeeming the
excess in cash or in kind. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting
the assets into cash. The method of valuing securities used to
make redemptions in kind will be the same as the method of
valuing portfolio securities described under "Net Asset Value Per
Share" in the Prospectus, and such valuation will be made as of
the same time the redemption price is determined.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their
affiliations, if any, with the Manager 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 Sub-Adviser, except as
indicated.
As of December 31, 1997, 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 Sub-Adviser's
parent. Interested persons are so designated by an asterisk.
Lacy B. Herrmann*, President and Chairman of the Board of
Trustees, 380 Madison Avenue, New York, New York 10017
Founder, President and Chairman of the Board of Aquila Management
Corporation since 1984, the sponsoring organization and
Administrator and/or Adviser or Sub-Adviser to the following
open-end investment companies, and Founder, Chairman of the Board
of Trustees, and President of each: Hawaiian Tax-Free Trust since
1984; Tax-Free Trust of Arizona since 1986; Tax-Free Fund of
Colorado since 1987; Churchill Tax-Free Fund of Kentucky since
1987; Tax-Free Fund For Utah since 1992; and Narragansett Insured
Tax-Free Income Fund since 1992; each of which is a tax-free
municipal bond fund, and two equity funds, Aquila Rocky Mountain
Equity Fund since 1993 and Aquila Cascadia Equity Fund, since
1996, which, together with this Trust are called the Aquila Bond
and Equity Funds; and Pacific Capital Cash Assets Trust since
1984; Churchill Cash Reserves Trust since 1985; Pacific Capital
U.S. Treasuries Cash Assets Trust since 1988; Pacific Capital
Tax-Free Cash Assets Trust since 1988; each of which is a money
market fund, and together with Capital Cash Management Trust
("CCMT") are called the Aquila Money-Market Funds; Vice
President, Director, Secretary and formerly Treasurer of Aquila
Distributors, Inc. since 1981, distributor of the above funds;
President and Chairman of the Board of Trustees of CCMT, a money
market fund since 1981, and an Officer and Trustee/Director of
its predecessors since 1974; Chairman of the Board of Trustees
and President of Prime Cash Fund (which is inactive), since 1982
and of Short Term Asset Reserves 1984-1996; President and a
Director of STCM Management Company, Inc., sponsor and
sub-adviser to CCMT; Chairman, President, and a Director since
1984, of InCap Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term Asset Reserves,
and Founder and Chairman of several other money market funds;
Director or Trustee of OCC Cash Reserves, Inc., Oppenheimer Quest
Global Value Fund, Inc., Oppenheimer Quest Value Fund, Inc., and
Trustee of Quest For Value Accumulation Trust, The Saratoga
Advantage Trust, and of the Rochester Group of Funds, each of
which is an open-end investment company; Trustee of Brown
University, 1990-1996 and currently Trustee Emeritus; 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 Digital Equipment Corporation, a computer
manufacturing corporation, since 1959, Intermet Corporation, an
independent foundry, since 1986, and Sonesta International Hotels
Corporation since 1978; Former Director of Colgate Palmolive,
McGraw Hill and the Mead Corporation; Chairman of the Board and
Executive Committee of The Boston Company, Inc., a financial
services company, 1969-1978; Trustee of Tax-Free Trust of Oregon
since 1988, 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, of Narragansett Insured Tax-Free
Income Fund since 1992, and of Aquila Cascadia Equity Fund since
1996; 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 of
various other cultural and educational organizations; Honorary
Consul General of the Royal Kingdom of Thailand; Received
Decorations from the Emperor of Japan (1986) and the King of
Thailand (1996 and 1997).
Warren C. Coloney, Trustee, 7304 Millwood Road, Bethesda,
Maryland 20817
Consultant to management and governing boards on issues of
corporate governance, strategy, organization, marketing and human
resource management; Advisory Director of the Washington, D.C.
office of Management Practice, Inc. since 1992; Chairman of The
Global Business Association, Bethesda, MD since 1996; Director of
Bradley Energy International, Inc., Alexandria, VA since 1997;
Trustee of Cascades Cash Fund, 1989-1994 and of Aquila Cascadia
Equity Fund since 1996; Managing Director-Europe of Towers,
Perrin, Forster & Crosby, Inc., London, England, 1974-1984;
President of Coloney, Cannon, Main & Pursell, Inc., New York, NY
and London, England, 1968-1974; Senior Engagement Manager,
McKinsey & Company, Inc., New York, NY and London, England, 1959-
1967; Sales Engineer, American Oil Company, Tampa, FL, 1955-1956;
Managing Engineer, J.E. Greiner, Co., Tampa, FL 1956-1957; Lt(jg)
Civil Engineer Corps, U.S.N.R., 1952-1955; MBA, The Darden
School, University of Virginia, 1959; Bachelor of Civil
Engineering, University of Florida, 1951; Life Member of the
American Society of Civil Engineers; Founding Member of the
Institute of Management Consultants.
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; Program
Officer and County Representative of 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; Member of the Council on Foreign
Relations since 1988; Founding Member of the Pacific Council
since 1995; Trustee of Cascades Cash Fund, 1989-1994 and of
Aquila Cascadia Equity Fund, since 1996; Director of the Oregon
High Desert Museum since 1989; active in civic, business,
educational and church organizations in Oregon.
Diana P. Herrmann*, Trustee and Vice President, 380 Madison
Avenue, New York, New York 10017
Trustee of Tax-Free Trust of Arizona since 1994, of Churchill
Tax-Free Fund of Kentucky and Churchill Cash Reserves Trust since
1995, of Aquila Cascadia Equity Fund since 1996 and of Aquila
Rocky Mountain Equity Fund and Tax-Free Fund For Utah since 1997;
President and Chief Operating Officer of the Manager since 1997;
Senior Vice President and Secretary, formerly Vice President of
the Administrator since 1986 and Director since 1984; Senior Vice
President or Vice President and formerly Assistant Vice President
of the Aquila Money-Market Funds since 1986; Vice President of
the Aquila Bond and Equity Funds since 1997; Vice President of
InCap Management Corporation since 1986 and Director since
1983;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, of Churchill Cash Reserves Trust
since 1995, and of Aquila Cascadia Equity Fund since 1996;
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, 16199 N.W. Canterwood Way, Portland,
Oregon 97229
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 and of Aquila Cascadia Equity Fund since 1996.
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 and of Aquila Cascadia Equity Fund since 1996; 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.
Sue McCarthy-Jones, Senior Vice President, 15230 SW 141st
Avenue, Tigard, Oregon 97244
Senior Vice President of Aquila Cascadia Equity Fund and
Aquila Rocky Mountain Equity Fund since 1997; Investment
Executive, US Bancorp Securities, 1996-1997; Training and Sales
supervision, Marketing One, Inc., 1991-1996; Account executive,
Security Pacific Bank, 1990-1991; various investment related
positions, 1980-1990;
Nancy L. Kayani, Vice President, 4800 Macadam Avenue, Suite 330,
Portland, Oregon 97201
Vice President of Cascades Cash Fund, 1992-1994 and of Aquila
Cascadia Equity Fund since 1996; Customer Service Representative
of U.S. National Bank of Oregon, 1990-1991; Securities Trader of
Bidwell & Co., 1988-1989; Securities Trader and Mutual Fund
Regional Representative of Fidelity Investments Southwest,
1985-1987; Stockbroker of Dean Witter Reynolds, 1983-1984; Mutual
Regional Representative of Columbia Management Company,
1980-1983;
William C. Wallace, Vice President, 380 Madison Avenue, New York,
New York 10017
Vice President of Capital Cash Management Trust and Pacific
Capital Cash Assets Trust since 1984; Senior Vice President of
Hawaiian Tax-Free Trust since 1985 and Vice President, 1984-1985;
Senior Vice President of Tax-Free Trust of Arizona since 1989 and
Vice President, 1986-1988; Vice President of Churchill Tax-Free
Fund of Kentucky and Tax-Free Fund of Colorado since 1987, of
Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital
U.S. Treasuries Cash Assets Trust since 1988 and of Narragansett
Insured Tax-Free Income Fund since 1992; Secretary and Director
of STCM Management Company, Inc. since 1974; President of the
Distributor since 1995 and formerly Vice President of the
Distributor, 1986-1992; Member of the Panel of Arbitrators,
American Arbitration Association, since 1978; Assistant Vice
President, American Stock Exchange, Market Development Division,
and Director of Marketing, American Gold Coin Exchange, a
subsidiary of the American Stock Exchange, 1976-1984.
Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New
York, New York 10017
Chief Financial Officer of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1991 and Treasurer, 1981-1991;
formerly Treasurer of the predecessor of CCMT; Treasurer and
Director of STCM Management Company, Inc., since 1974; Treasurer
of Trinity Liquid Assets Trust, 1982-1986 and of Oxford Cash
Management Fund, 1982-1988; Treasurer of InCap Management
Corporation since 1982, of the Manager since 1984 and of the
Distributor since 1985.
Richard F. West, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Aquila Money-Market Funds and the Aquila Bond
and Equity Funds and of Aquila Distributors, Inc. since 1992;
Associate Director of Furman Selz Incorporated, 1991-1992; Vice
President of Scudder, Stevens & Clark, Inc. and Treasurer of
Scudder Institutional Funds, 1989-1991; Vice President of Lazard
Freres Institutional Funds Group, Treasurer of Lazard Freres
Group of Investment Companies and HT Insight Funds, Inc.,
1986-1988; Vice President of Lehman Management Co., Inc. and
Assistant Treasurer of Lehman Money Market Funds, 1981-1985;
Controller of Seligman Group of Investment Companies, 1960-1980.
Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New
York 10176
Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines &
Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary
of the Aquila Money-Market Funds and the Aquila Bond and Equity
Funds since 1982; Secretary of Trinity Liquid Assets Trust,
1982-1985 and Trustee of that Trust, 1985-1986; Secretary of
Oxford Cash Management Fund, 1982-1988.
John M. Herndon, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995 and Vice President of the
Aquila Money-Market Funds since 1990; Vice President of the
Manager since 1990; Investment Services Consultant and Bank
Services Executive of Wright Investors' Service, a registered
investment adviser, 1983-1989; Member of the American Finance
Association, the Western Finance Association and the Society of
Quantitative Analysts.
Patricia A. Craven, Assistant Secretary & Compliance Officer, 380
Madison Avenue, New York, New York 10017
Assistant Secretary of the Aquila Money-Market Funds and the
Aquila Bond and Equity Funds since 1995; Counsel to the Manager
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 Manager or Sub-Adviser or to any of the Trust's officers.
During the fiscal year ended September 30, 1997, the Trust paid
$79,387 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 two equity funds. The following table lists the
compensation of all Trustees who received compensation from the
Trust and the compensation each received during the Trust's
fiscal year from all funds in the Aquilasm Group of Funds and the
number of such funds. None of such Trustees has any pension or
retirement benefits from the Trust or any of the other funds in
the Aquila group.
<TABLE>
<CAPTION>
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Trust Group serves
<S> <C> <C> <C>
Vernon R.
Alden $11,077 $52,789 7
Warren C.
Coloney $11,318 $12,418 2
James A.
Gardner $9,400 $10,508 2
Ann R.
Leven $9,625 $21,608 4
Raymond H.
Lung $9,900 $11,008 2
Richard C.
Ross $9,844 $11,292 2
</TABLE>
ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS
Changes in Management Arrangements
From the inception of the Trust Aquila Management
Corporation (the "Manager") served as sub-advisor (1986-1989) or
administrator (1989-1997) of the Trust. On October 31, 1997 it
became manager under a new Investment Advisory and Administration
Agreement. From the inception of the Trust, Qualivest Capital
Management Inc., served as the Trust's investment advisor. On
August 1, 1997, its corporate parent was merged into First Bank
System, Inc. A subsidiary of First Bank System, Inc., First Bank
National Association, the name of which has been changed to
U.S.National Bank National Association, succeeded to the business
of Qualivest and became the investment advisor of the Trust under
an interim agreement, pursuant to an exemptive order of the
Securities and Exchange Commission. On October 31, 1997, the
shareholders of the Trust approved the interim agreement and also
approved the Investment Advisory and Administration Agreement,
described below and the Sub-Advisory Agreement, described below,
pursuant to which, Aquila became Manager and U.S. National Bank
National Association became Sub-Adviser.
Additional Information as to the Investment Advisory and
Administration Agreement
The Advisory and Administration Agreement provides that
it will become effective on the date of its approval by the
shareholders of the Trust and will, unless terminated as
thereinafter provided, continue in effect until the June 30 next
preceding the first anniversary of the effective date of the
Advisory and Administration Agreement, and from year to year
thereafter, but only so long as such continuance is specifically
approved at least annually (1) by a vote of the Trust's Board of
Trustees, including a vote of a majority of the Trustees who are
not parties to the Advisory and Administration Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Trust and by such a vote of the Trustees.
For the fiscal year of the Trust ended September 30,
1997, fees of $617,654 was paid or accrued to the Manager under
the administration agreement then in effect. For the fiscal years
ended September 30, 1996 and 1995, respectively, fees of $615,409
and $729,908 were paid or accrued to the Manager under the former
administration agreement.
Additional Information as to the Sub-Advisory Agreement
The Sub-Advisory Agreement provides that any investment
program furnished by the Sub-Adviser shall at all times conform
to, and be in accordance with, any requirements imposed by: (1)
the Investment Company Act of 1940 (the "Act") and any rules or
regulations in force thereunder; (2) any other applicable laws,
rules and regulations; (3) the Declaration of Trust and By-Laws
of the Trust as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5) the
fundamental policies of the Trust, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Trust.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall give to the Manager, as defined therein, and to the Trust
the benefit of its best judgment and effort in rendering services
hereunder, but the Sub-Adviser shall not be liable for any loss
sustained by reason of the adoption of any investment policy or
the purchase, sale or retention of any security, whether or not
such purchase, sale or retention shall have been based upon (i)
its own investigation and research or (ii) investigation and
research made by any other individual, firm or corporation, if
such purchase, sale or retention shall have been made and such
other individual, firm or corporation shall have been selected in
good faith by the Sub-Adviser. Nothing therein contained shall,
however, be construed to protect the Sub-Adviser against any
liability to the Trust or its security holders by reason of
willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard
of its obligations and duties under the Agreement.
The Sub-Advisory Agreement provides that nothing in it
shall prevent the Sub-Adviser or any affiliated person (as
defined in the Act) of the Sub-Adviser from acting as investment
adviser or manager for any other person, firm or corporation and
shall not in any way limit or restrict the Sub-Adviser or any
such affiliated person from buying, selling or trading any
securities for its own or their own accounts or for the accounts
of others for whom it or they may be acting, provided, however,
that the Sub-Adviser expressly represents that, while acting as
Sub-Adviser, it will undertake no activities which, in its
judgment, will adversely affect the performance of its
obligations to the Trust under the Agreement. It is agreed that
the Sub-Adviser shall have no responsibility or liability for the
accuracy or completeness of the Trust's Registration Statement
under the Act and the Securities Act of 1933, except for
information supplied by the Sub-Adviser for inclusion therein.
The Sub-Adviser shall promptly inform the Trust as to any
information concerning the Sub-Adviser appropriate for inclusion
in such Registration Statement, or as to any transaction or
proposed transaction which might result in an assignment (as
defined in the Act) of the Agreement. To the extent that the
Manager is indemnified under the Trust's Declaration of Trust
with respect to the services provided hereunder by the Sub-
Adviser, the Manager agrees to provide the Sub-Adviser the
benefits of such indemnification.
The Sub-Advisory Agreement provides that in connection
with its duties to arrange for the purchase and sale of the
Trust's portfolio securities, the Sub-Adviser shall select such
broker-dealers ("dealers") as shall, in the Sub-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 Sub-Adviser shall
cause the Trust to deal directly with the selling or purchasing
principal or market maker without incurring brokerage commissions
unless the Sub-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 prices. In
allocating transactions to dealers, the Sub-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 Sub-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
Sub-Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or
more dealers, the Sub-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. 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 and that such research services may or may not
be useful to the Trust and may be used for the benefit of the
Sub-Adviser or its other clients.
During the fiscal years ended June 30, 1997, 1996 and
1995, all of the Trust's transactions were principal transactions
and no brokerage commissions were paid.
The Sub-Advisory Agreement provides that the Sub-Adviser
agrees to maintain, and to preserve for the periods prescribed,
such books and records with respect to the portfolio transactions
of the Trust as are required by applicable law and regulation,
and agrees that all records which it maintains for the Trust on
behalf of the Manager shall be the property of the Trust and
shall be surrendered promptly to the Trust or the Manager upon
request. The Sub-Adviser agrees to furnish to the Manager and to
the Board of Trustees of the Trust such periodic and special
reports as each may reasonably request.
The Sub-Advisory Agreement provides that the Sub-Adviser
shall bear all of the expenses it incurs in fulfilling its
obligations under the Agreement. In particular, but without
limiting the generality of the foregoing: the Sub-Adviser shall
furnish the Trust, at the Sub-Adviser's expense, all office
space, facilities, equipment and clerical personnel necessary for
carrying out its duties under the Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Trust all necessary
financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Trust. The Sub-Adviser will also pay all
compensation of the Trust's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
The Sub-Advisory Agreement provides that it will become
effective on the day it is approved by the shareholders of the
Trust (the "Effective Date") and shall, unless terminated as
thereinafter provided, continue in effect until the December 31
next preceding the first anniversary of the effective date of the
Agreement, and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually (1)
by a vote of the Trust's Board of Trustees, including a vote of a
majority of the Trustees who are not parties to the Agreement or
"interested persons" (as defined in the Act) of any such party,
with votes cast in person at a meeting called for the purpose of
voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the outstanding voting securities
of the Trust and by such a vote of the Trustees.
The Sub-Advisory Agreement provides that it may be
terminated by the Sub-Adviser at any time without penalty upon
giving the Manager and the Trust sixty days' written notice
(which notice may be waived). It may be terminated by the Manager
or the Trust at any time without penalty upon giving the
Sub-Adviser sixty days' written notice (which notice may be
waived by the Sub-Adviser), provided that such termination by the
Trust shall be directed or approved by a vote of a majority of
its Trustees in office at the time or by a vote of the holders of
a majority (as defined in the Act) of the voting securities of
the Trust outstanding and entitled to vote. The Sub-Advisory
Agreement will automatically terminate in the event of its
assignment (as defined in the Act) or the termination of the
Investment Advisory Agreement. The Sub-Adviser agrees that it
will not exercise its termination rights for at least three years
from the effective date of the Agreement, except for regulatory
reasons.
For the fiscal year ended September 30, 1997, fees of
$617,654 were paid or accrued to the Trust's former adviser and
to the Sub-Adviser under the former advisory agreement in effect
until August 1, 1997 and an interim advisory agreement in effect
until October 31, 1997, respectively. For the two fiscal years
ended September 30, 1996 and 1995, respectively, fees of $615,409
and $729,908 were paid or accrued to the former adviser.
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 Sub-Adviser is a national bank and is an affiliate of
a bank holding company. Therefore, it is subject to applicable
federal banking laws and regulations. The Sub-Adviser has been
advised that the Sub-Adviser may perform the advisory services
for the Trust required by the Sub-Advisory Agreement, without
violating federal banking laws and regulations. Moreover, it has
been 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 Sub-Adviser from continuing to serve as
investment sub-adviser to the Trust or could restrict the
services which the Sub-Adviser is permitted to perform for the
Trust.
In the event that the Sub-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 shares of each of the Trust's
classes 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 allocable to each class by the total
number of its shares of such class then outstanding. 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 Sub-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, Martin Luther King 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 Class A 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 Class A
Shares of other funds having such discounts; and (ii) they are
designed to avoid an unduly large dollar amount of sales charge
on substantial purchases in view of reduced selling expenses.
Quantity discounts are made available to certain related persons
("single purchasers") for reasons of family unity and to provide
a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are
reduced or eliminated sales charges are as follows. Exchanges at
net asset value are permitted because a sales charge has already
been paid on the shares exchanged. Sales without sales charge for
Class A Shares 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 of Class A Shares and Class
C Shares 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
If you own or purchase Class A Shares or Class Y Shares
(Plan only available to shareholders with Class Y accounts on
January 31, 1998) of the Trust having a net asset value of at
least $5,000 you 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
If you incur a sales commission on a purchase of shares
of one mutual fund (the original fund) and then sell or exchange
them for shares of a different mutual fund without having held
them at least 91 days, you 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 your gain or reduce
your loss on the original fund shares. The amount of the basis
reduction on the original fund shares, however, is added on the
investor's basis for the fund shares acquired in the exchange or
later acquired. The provision applies to commissions charged
after October 3, 1989.
CONVERSION OF CLASS C SHARES
Level-Payment Class Shares ("Class C Shares") of the Trust,
which you hold will automatically convert to Front-Payment Class
Shares ("Class A Shares") of the Trust based on the relative net
asset values per share of the two classes as of the close of
business on the first business day of the month in which the
sixth anniversary of the your initial purchase of such Class C
Shares occurs. For these purposes, the date of your initial
purchase shall mean (1) the first business day of the month in
which such Class C Shares were issued to you, or (2) for Class C
Shares of the Trust you have obtained through an exchange or
series of exchanges under the Exchange Privilege (see "Exchange
Privilege" in the Prospectus), the first business day of the
month in which you made the original purchase of Class C Shares
so exchanged. For conversion purposes, Class C Shares purchased
through reinvestment of dividends or other distributions paid in
respect of Class C Shares will be held in a separate sub-account.
Each time any Class C Shares in your regular account (other than
those in the sub-account) convert to Class A Shares, a pro-rata
portion of the Class C Shares in the sub-account will also
convert to Class A Shares. The portion will be determined by the
ratio that your Class C Shares then converting to Class A Shares
bears to the total of your Class C Shares not acquired through
reinvestment of dividends and distributions.
The availability of the conversion feature is subject to the
continuing applicability of a ruling of the Internal Revenue
Service ("IRS"), or an opinion of counsel, that: (1) the
dividends and other distributions paid on Class A Shares and
Class C Shares will not result in "preferential dividends" under
the Code; and (2) the conversion of shares does not constitute a
taxable event. If the conversion feature ceased to be available,
the Class C Shares of the Trust would not be converted and would
continue to be subject to the higher ongoing expenses of the
Class C Shares beyond six years from the date of purchase. The
Trust has no reason to believe that these conditions for the
availability of the conversion feature will not continue to be
met.
If the Trust implements any amendments to its Distribution
Plan that would increase materially the costs that may be borne
under such Distribution Plan by Class A Shares shareholders,
Class C Shares will stop converting into Class A Shares unless a
majority of Class C Shares shareholders, voting separately as a
class, approve the proposal.
GENERAL INFORMATION
Additional Series
Shares of each Series of the Business Trust created by the
Board of Trustees are entitled to vote as a Series only to the
extent permitted by the 1940 Act (see below) or as permitted by
the Board of Trustees. Income and operating expenses are
allocated among Series in a manner acceptable to the Board of
Trustees. As of the date of this Additional Statement, the Trust
is the only operational Series of the Business Trust.
Under Rule 18f-2 under the 1940 Act, as to any investment
company which has two or more Series outstanding, on any matter
required to be submitted to shareholder vote, such matter is not
deemed to have been effectively acted upon unless approved by the
holders of a "majority" (as defined in that Rule) of the voting
securities of each Series affected by the matter. Such separate
voting requirements do not apply to the election of trustees or
the ratification of the selection of accountants. Rule 18f-2
contains special provisions for cases in which an advisory
contract is approved by one or more, but not all, Series. A
change in investment policy may go into effect as to one or more
Series whose holders so approve the change, even though the
required vote is not obtained as to the holders of other affected
Series.
Ownership of Securities
Of the Class A Shares of the Trust outstanding on January
2, 1997, Merrill, Lynch, Pierce, Fenner & Smith, Inc., P.O. Box
30561 New Brunswick, NJ held of record 2,329,049 shares (8.0%),
BHC Securities Inc., 2005 Market Street, Philadelphia, PA held of
record 2,695,089 shares (9.3%) and Smith Barney, Inc., 388
Greenwich Street, New York, NY held of record 2,069,828 shares
(7.1%). Of the Class C Shares of the Trust outstanding on January
2, 1997, Merrill, Lynch, Pierce, Fenner & Smith, Inc., P.O. Box
30561 New Brunswick, NJ held of record 45,049 shares (86.7%). On
the basis of information received from those holders, the Trust's
management believes that all of such shares are held for the
benefit of brokerage clients. Of the Class Y Shares of the Trust
outstanding on January 2, 1997, U.S. National Bank of Oregon,
P.O. Box 3168, 555 S.W. Oak Street, Portland, OR held of record
42,123 shares (61.8%) and through an nominee, 25,857 shares
(38.0%). On the basis of information received from those holders,
the Trust's management believes that all of such shares are held
for the benefit of clients. The Trust's management is not aware
of any other person owning of record or beneficially 5% or more
of the shares of any class of Trust's outstanding shares as of
that date.
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, 1997, 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, 1997,
the aggregate dollar amount of sales charges on the sales of the
Trust's shares was $864,852 and the amount retained by the
Distributor was $78,595.
<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 SUB-ADVISER
US Bank National Association
111 S.W. Fifth Avenue
U.S. Bancorp Tower
Portland, Oregon 97204
INVESTMENT ADVISER, ADMINISTRATOR and FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
James A. Gardner
Diana P. Herrmann
Ann R. Leven
Raymond H. Lung
Richard C. Ross
OFFICERS
Lacy B. Herrmann, President
Sue McCarthy-Jones, Senior 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
PFPC Inc.
400 Bellevue Parkway
Wilmington, DE 19809
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
[LOGO]
One of The
Aquilasm Group of Funds
<PAGE>
THE CASCADES TRUST
PART C: OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements:
Tax-Free Trust of Oregon Portfolio:
Included in Part A:
Financial Highlights
Incorporated by reference into Part B:
Report of Independent Auditors
Statement of Assets and Liabilities as of
September 30, 1997
Statement of Operations for the year ended
September 30, 1997
Statement of Changes in Net Assets for the
years ended September 30, 1997 and 1996
Statement of Investments as of
September 30, 1997
Notes to Financial Statements
Included in Part C:
Consent of Independent Auditors
(b) Exhibits:
(1) Supplemental Declaration of Trust Amending
and Restating the Declaration of Trust (ii)
(2) By-laws (ii)
(3) Not applicable
(4) Specimen share certificate for Tax-Free
Trust of Oregon Portfolio (iii)
(5) Investment Advisory and Administration
Agreement (iv)
(5) (a) Sub-Advisory Agreement (iv)
(6) (a) Distribution Agreement (iii)
(b) Sales Agreement for Brokerage
Firms for Tax-Free Trust of
Oregon Portfolio (iii)
(c) Sales Agreement for Financial
Institutions for Tax-Free Trust
of Oregon Portfolio (iii)
(d) Sales Agreement for Investment
Advisers for Tax-Free Trust of
Oregon Portfolio (iii)
(h) Services Agreement (ii)
(7) Not applicable
(8) (b) Custody Agreement for Tax-Free
Trust of Oregon Portfolio (i)
(9) (a) Transfer Agency Agreement for Tax-Free
Trust of Oregon Portfolio (iv)
(10) Opinion & consent of Trust's counsel (iv)
(12) Not applicable
(13) Not Applicable
(14) Not applicable
(15) Distribution Plan (iv)
(15) (a) Shareholder Services Plan (iv)
(16) Schedule for computation of
performance quotations (iv)
(17) Financial Data Schedules (iv)
(18) Plan Pursuant to Rule 18f-3 (iv)
(i) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 17 dated January 31, 1996 and
incorporated herein by reference.
(ii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 18 dated April 3, 1996 and incorporated
herein by reference.
(iii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 19 dated January 24, 1997, and
incorporated herein by reference.
(iv) Filed herewith.
ITEM 25. Persons Controlled By Or Under Common Control With
Registrant
None
ITEM 26. Number of Holders of Securities
As of November 12, 1997, Registrant had 5,613 holders of
record of its Class A Shares, 13 of its Class C Shares and 4
of its Class Y Shares, all in its Tax-Free Trust of Oregon
portfolio, its only operating portfolio.
ITEM 27. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of
Registrant's Amended and Restated Declaration of Trust,
filed as Exhibit 1 to Registrant's Post Effective Amendment
No. 18 dated April 3, 1996. is incorporated herein by
reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees,
officers, and controlling persons of Registrant pursuant to
the foregoing provisions, or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in that Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of
expenses incurred or paid by a Trustee, officer, or
controlling person of Registrant in the successful defense
of any action, suit, or proceeding) is asserted by such
Trustee, officer, or controlling person in connection with
the securities being registered, Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by
it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 28. Business and Other Connections of Investment
Adviser and Sub-Adviser
The business and other connections of Aquila Management
Corporation, the Trust's Investment Adviser and
Administrator is set forth in the prospectus (Part A); the
business and other connections of Mr. Lacy B. Herrmann, its
controlling shareholder are set forth in the Statement of
Additional Information (Part B). For information as to the
business, profession, vocation, or employment of a
substantial nature of its Directors and officers, reference
is made to the Form ADV filed by it under the Investment
Advisers Act of 1940.
U.S. Bank National Association, Registrant's Sub-Adviser is
a bank. It performs investment advisory services for mutual
fund and non-mutual fund clients. The Sub-Adviser is a
subsidiary of U.S. Bancorp ("USB"), 601 Second Avenue
South, Minneapolis, Minnesota 55480, which is a regional
multi-state bank holding company, headquartered in
Minneapolis, Minnesota that primarily serves the Midwestern,
Rocky Mountain and Northwestern states. USB operates five
bank and eleven trust companies with offices in 17
contiguous states from Illinois to Washington. For
information as to the business, profession, vocation, or
employment of a substantial nature of its Directors and
officers, reference is made to the Form ADV filed by it
under the Investment Advisers Act of 1940.
ITEM 29. Principal Underwriters
(a) Aquila Distributors, Inc. serves as principal
underwriter to the following Funds, including the
Registrant: Capital Cash Management Trust, Churchill
Cash Reserves Trust, Churchill Tax-Free Fund of
Kentucky, Hawaiian Tax-Free Trust, Narragansett Insured
Tax-Free Income Fund, Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust,
Pacific Capital U.S. Treasuries Cash Assets Trust,
Prime Cash Fund, Tax-Free Fund For Utah, Tax-Free Fund
of Colorado, Tax-Free Trust of Arizona, Aquila Rocky
Mountain Equity Fund, Aquila Cascadia Equity Fund and
Tax-Free Trust of Oregon.
(b) For information about the directors and officers of
Aquila Distributors, Inc., reference is made to the
Form BD filed by it under the Securities Exchange Act
of 1934.
(c) Not applicable.
ITEM 30. Location of Accounts and Records
All such accounts, books, and other documents are maintained
by the adviser, the administrator, the sub- adviser the
custodian, and the transfer agent, whose addresses appear on the
back cover pages of the Prospectus and the Statement of
Additional Information.
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) If the information called for by Item 5A is contained
in the Registrant's latest annual report to
shareholders, the Registrant undertakes to furnish each
person to whom a prospectus is delivered with a copy of
the Registrant's latest Annual Report to Shareholders,
upon request and without charge.
<PAGE>
Independent Auditors' Consent
To the Trustees and Shareholders of
Tax-Free Trust of Oregon:
We consent to the use of our report dated October 31, 1997,
incorporated herein by reference and to the reference to our firm
under the headings "Financial Highlights" in the Prospectuses and
"Custodian and Auditors" in the Statement of Additional
Information.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
November 21, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement or Amendment to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York, on the 1st day of
December, 1997.
THE CASCADES TRUST
(Registrant)
/s/Lacy B. Herrmann
By____________________________
Lacy B. Herrmann, President
and Chairman of the Board
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement or Amendment has been signed
below by the following persons in the capacities and on the date
indicated.
SIGNATURE TITLE DATE
/s/Lacy B. Herrmann 12/1/97
______________________ President, Chairman of ___________
Lacy B. Herrmann the Board and Trustee
(Principal Executive
Officer)
/s/Vernon R. Alden 12/1/97
______________________ Trustee ___________
Vernon R. Alden
/s/Warren C. Coloney 12/1/97
______________________ Trustee ___________
Warren C. Coloney
/s/James A. Gardner 12/1/97
______________________ Trustee ___________
James A. Gardner
/s/Diana P. Herrmann 12/1/97
______________________ Trustee ___________
Diana P. Herrmann
/s/Ann R. Leven 12/1/97
______________________ Trustee ___________
Ann R. Leven
/s/Raymond H. Lung 12/1/97
______________________ Trustee ___________
Raymond H. Lung
/s/Richard C. Ross 12/1/97
______________________ Trustee ___________
Richard C. Ross
/s/Rose F. Marotta 12/1/97
______________________ Chief Financial Officer ___________
Rose F. Marotta (Principal Financial and
Accounting Officer)
<PAGE>
THE CASCADES TRUST
EXHIBIT INDEX
Number Name
(5) Investment Advisory and Administration
Agreement
(5) (a) Sub-Advisory Agreement
(9) (a) Transfer Agency Agreement for Tax-Free
Trust of Oregon Portfolio
(10) Opinion & consent of Trust's counsel
(15) Distribution Plan
(15) (a) Shareholder Services Plan
(16) Schedule for computation
of performance quotations
(17) Financial Data Schedules
(18) Plan Pursuant to Rule 18f-3
Correspondence
TAX-FREE TRUST OF OREGON
ADVISORY AND ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of October 31, 1997 by and
between The Cascades Trust (the "Business Trust"), a
Massachusetts business trust, 380 Madison Avenue, Suite
2300, New York, New York 10017 and AQUILA MANAGEMENT
CORPORATION (the "Manager"), a New York corporation, 380
Madison Avenue, Suite 2300, New York, New York 10017
W I T N E S S E T H:
WHEREAS, the Business Trust and the Manager wish to
enter into an Advisory and Administration Agreement
referred to hereafter as "this Agreement," with respect to
a portfolio of the Business Trust entitled Tax-Free Trust
of Oregon (the "Trust").
NOW THEREFORE, in consideration of the mutual promises
and agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. In General
The Manager shall perform (at its own expense) the
functions set forth more fully herein for the Trust.
2. Duties and Obligations of the Manager
(a) Investment Advisory Services Subject to the
succeeding provisions of this section and subject to the
direction and control of the Board of Trustees of the
Trust, the Manager shall:
(i) supervise continuously the investment program of
the Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or
sold by the Trust;
(iii) arrange for the purchase and the sale of
securities held in the portfolio of the Trust;
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other
source of pricing information satisfactory to the
Trust and, unless otherwise directed by the Board of
Trustees, provide for pricing of the Trust's portfolio
at least quarterly using another such source
satisfactory to the Trust; and
Subject to the provisions of Section 5 hereof, the Manager
may at its own expense delegate to a qualified organization
("Sub-Adviser"), affiliated or not affiliated with the
Manager, any or all of the above duties. Any such
delegation of the duties set forth in (i), (ii) or (iii)
above shall be by a written agreement (the "Sub-Advisory
Agreement") approved as provided in Section 15 of the
Investment Company Act of 1940.
(b) Administration. Subject to the succeeding
provisions of this section and subject to the direction and
control of the Board of Trustees of the Trust, the Manager
shall provide all administrative services to the Trust
other than those relating to its investment portfolio
delegated to a Sub-Adviser of the Trust under a Sub-
Advisory Agreement; as part of such administrative duties,
the Manager shall:
(i) provide office space, personnel, facilities and
equipment for the performance of the following
functions and for the maintenance of the headquarters
of the Trust;
(ii) oversee all relationships between the Trust and
any sub-adviser, transfer agent, custodian, legal
counsel, auditors and principal underwriter, including
the negotiation of agreements in relation thereto, the
supervision and coordination of the performance of
such agreements, and the overseeing of all
administrative matters which are necessary or
desirable for the effective operation of the Trust and
for the sale, servicing or redemption of the Trust's
shares;
(iii) either keep the accounting records of the Trust,
including the computation of net asset value per share
and the dividends (provided that if there is a Sub-
Adviser, daily pricing of the Trust's portfolio shall
be the responsibility of the Sub-Adviser under the
Sub-Advisory Agreement) or, at its expense and
responsibility, delegate such duties in whole or in
part to a company satisfactory to the Trust;
(iv) maintain the Trust's books and records, and
prepare (or assist counsel and auditors in the
preparation of) all required proxy statements, reports
to the Trust's shareholders and Trustees, reports to
and other filings with the Securities and Exchange
Commission and any other governmental agencies, and
tax returns, and oversee the insurance relationships
of the Trust;
(v) prepare, on behalf of the Trust and at the Trust's
expense, such applications and reports as may be
necessary to register or maintain the registration of
the Trust and/or its shares under the securities or
"Blue-Sky" laws of all such jurisdictions as may be
required from time to time;
(vi) respond to any inquiries or other communications
of shareholders of the Trust 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, oversee such
shareholder servicing and transfer agent's or
distributor's response thereto.
(c) Compliance with Requirements. Any investment
program furnished, and any activities performed, by the
Manager or by a Sub-Adviser under this section shall at all
times conform to, and be in accordance with, any
requirements imposed by: (1) the Investment Company Act of
1940 (the "Act") and any rules or regulations in force
thereunder; (2) any other applicable laws, rules and
regulations; (3) the Declaration of Trust and By-Laws of
the Trust as amended from time to time; (4) any policies
and determinations of the Board of Trustees of the Trust;
and (5) the fundamental policies of the Trust, as reflected
in its registration statement under the Act or as amended
by the shareholders of the Trust.
(d) Best Efforts; Responsibility. The Manager shall
give the Trust the benefit of its best judgment and effort
in rendering services hereunder, but the Manager shall not
be liable for any loss sustained by reason of the adoption
of any investment policy or the purchase, sale or retention
of any security, whether or not such purchase, sale or
retention shall have been based upon (i) its own
investigation and research or (ii) investigation and
research made by any other individual, firm or corporation,
if such purchase, sale or retention shall have been made
and such other individual, firm or corporation shall have
been selected in good faith by the Manager or a Sub-
Adviser.
(e) Other Customers. Nothing in this Agreement shall
prevent the Manager or any officer thereof from acting as
investment adviser, sub-adviser, administrator or manager
for any other person, firm, or corporation, and shall not
in any way limit or restrict the Manager or any of its
officers, stockholders or employees from buying, selling or
trading any securities for its own or their own accounts or
for the accounts of others for whom it or they may be
acting, provided, however, that the Manager expressly
represents that it will undertake no activities which, in
its judgment, will adversely affect the performance of its
obligations under this Agreement.
(f) Order Allocation. In connection with any duties
for which it may become responsible to arrange for the
purchase and sale of the Trust's portfolio securities, the
Manager shall select, and shall cause any Sub-Adviser to
select, such broker-dealers ("dealers") as shall, in the
Manager'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 Manager shall cause the Trust to deal directly
with the selling or purchasing principal or market maker
without incurring brokerage commissions unless the Manager
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
prices. In allocating transactions to dealers, the Manager
is authorized and shall authorize any Sub-Adviser, 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 Manager 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 Manager's overall
responsibilities. If, on the foregoing basis, the
transaction in question could be allocated to two or more
dealers, the Manager 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. 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 and that such research services may or
may not be useful to the Trust and may be used for the
benefit of the Manager or its other clients. The Manager
shall cause the foregoing provisions, in substantially the
same form, to be included in any Sub-Advisory Agreement.
(g) Registration Statement; Information. It is agreed
that the Manager shall have no responsibility or liability
for the accuracy or completeness of the Trust's
Registration Statement under the Act and the Securities Act
of 1933, except for information supplied by the Manager for
inclusion therein. The Manager shall promptly inform the
Trust as to any information concerning the Manager
appropriate for inclusion in such Registration Statement,
or as to any transaction or proposed transaction which
might result in an assignment of the Agreement.
(h) Liability for Error. The Manager shall not be
liable for any error in judgment or for any loss suffered
by the Trust or its security holders in connection with the
matters to which this Agreement relates, except a loss
resulting from wilful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties
under this Agreement. Nothing in this Agreement shall, or
shall be construed to, waive or limit any rights which the
Trust may have under federal and state securities laws
which may impose liability under certain circumstances on
persons who act in good faith.
(j) Indemnification. The Trust shall indemnify the
Manager to the full extent permitted by the Trust's
Declaration of Trust.
3. Allocation of Expenses
The Manager shall, at its own expense, provide office
space, facilities, equipment, and personnel for the
performance of its functions hereunder and shall pay all
compensation of Trustees, officers, and employees of the
Trust who are affiliated persons of the Manager.
The Trust agrees to bear the costs of preparing and
setting in type its prospectuses, statements of additional
information and reports to its 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.
All costs and expenses not expressly assumed by the Manager
under this sub-section or otherwise by the Manager,
administrator or principal underwriter or by any Sub-
Adviser shall be paid by the Trust, including, but not
limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation
and expenses of its Trustees other than those affiliated
with the Manager or such adviser, administrator or
principal underwriter; (v) legal and audit expenses; (vi)
custodian and transfer agent, or shareholder servicing
agent, fees and expenses; (vii) expenses incident to the
issuance of its shares (including issuance on the payment
of, or reinvestment of, dividends); (viii) fees and
expenses incident to the registration under Federal or
State securities laws of the Trust or its shares; (ix)
expenses of preparing, printing and mailing reports and
notices and proxy material to shareholders of the Trust;
(x) all other expenses incidental to holding meetings of
the Trust's shareholders; and (xi) such non-recurring
expenses as may arise, including litigation affecting the
Trust and the legal obligations for which the Trust may
have to indemnify its officers and Trustees.
4. Compensation of the Manager The Trust agrees to pay the
Manager, and the Manager agrees to accept as full
compensation for all services rendered by the Manager 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 0.50 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, the annual
fee shall be payable at the annual rate of 0.40 of 1% of
such net asset value.
5. Termination of Sub-Advisory Agreement
The Sub-Advisory Agreement may provide for its
termination by the Manager upon reasonable notice,
provided, however, that the Manager agrees not to terminate
the Sub-Advisory Agreement except in accordance with such
authorization and direction of the Board of Trustees, if
any, as may be in effect from time to time.
6. Duration and Termination of this Agreement
(a) Duration. This Agreement shall become effective
on the day it is approved by the shareholders of the Trust
and shall, unless terminated as hereinafter provided,
continue in effect until the June 30 next preceding the
first anniversary of the effective date of this Agreement,
and from year to year thereafter, but only so long as such
continuance is specifically approved at least annually (1)
by a vote of the Trust's Board of Trustees, including a
vote of a majority of the Trustees who are not parties to
this Agreement or "interested persons" (as defined in the
Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval,
or (2) by a vote of the holders of a "majority" (as so
defined) of the outstanding voting securities of the Trust
and by such a vote of the Trustees.
(b) Termination. This Agreement may be terminated by
the Manager at any time without penalty upon giving the
Trust sixty days' written notice (which notice may be
waived by the Trust) and may be terminated by the Trust at
any time without penalty upon giving the Manager sixty
days' written notice (which notice may be waived by the
Manager), provided that such termination by the Trust shall
be directed or approved by a vote of a majority of its
Trustees in office at the time or by a vote of the holders
of a majority (as defined in the Act) of the voting
securities of the Trust outstanding and entitled to vote.
The portions of this Agreement which relate to providing
investment advisory services (Sections 2(a), (c), (d) and
(e)) shall automatically terminate in the event of the
assignment (as defined in the Act) of this Agreement, but
all other provisions relating to providing services other
than investment advisory services shall not terminate,
provided however, that upon such an assignment the annual
fee payable monthly and computed on the net asset value of
the Trust as of the close of business each business day
shall be reduced to the annual rate of 0.27 of 1% of such
net asset value and provided further, 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, the annual
fee shall be payable at the annual rate of 0.22 of 1% of
such asset value.
7. Disclaimer of Shareholder Liability
The Manager understands that the obligations of this
Agreement are not binding upon any shareholder of the Trust
personally, but bind only the Trust's property; the Manager
represents that it has notice of the provisions of the
Trust's Declaration of Trust disclaiming shareholder
liability for acts or obligations of the Trust.
8. Notices of Meetings
The Trust agrees that notice of each meeting of
the Board of Trustees of the Trust will be sent to the
Manager and that the Trust will make appropriate
arrangements for the attendance (as persons present by
invitation) of such person or persons as the Manager may
designate.
IN WITNESS WHEREOF, the parties hereto have caused
this instrument to be executed by their duly authorized
officers and their seals to be hereunto affixed, all as of
the day and year first above written.
ATTEST: THE CASCADES TRUST
_______________________ By:_____________________________
ATTEST: AQUILA MANAGEMENT CORPORATION
_______________________ By:______________________________
TAX-FREE TRUST OF OREGON
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of October 31, 1997 by and between
Aquila Management Corporation, a New York Corporation (the
"Manager"), 380 Madison Avenue, Suite 2300, New York, New York
10017 and U.S. BANK NATIONAL ASSOCIATION (the "Sub-Adviser"), 601
Second Avenue, Minneapolis, MN 55402
W I T N E S S E T H :
WHEREAS, Tax-Free Trust of Oregon (the "Trust") is a series
of The Cascades Trust, a Massachusetts business trust which is
registered under the Investment Company Act of 1940 (the "Act")
as an open-end, non-diversified management investment company;
WHEREAS, the Manager has entered into an Advisory and
Administration Agreement as of the date hereof with the Trust
(the "Advisory and Administration Agreement") pursuant to which
the Manager shall act as investment adviser with respect to the
Trust; and
WHEREAS, pursuant to paragraph 2 of the Advisory and
Administration Agreement, the Manager wishes to retain the Sub-
Adviser for purposes of rendering investment advisory services to
the Manager in connection with the Trust upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. In General
The Manager hereby appoints the Sub-Adviser to render, to
the Manager and to the Trust, investment research and advisory
services as set forth below under the supervision of the Manager
and subject to the approval and direction of the Board of
Trustees of the Trust. The Sub-Adviser shall, all as more fully
set forth herein, act as managerial investment adviser to the
Trust with respect to the investment of the Trust's assets, and
supervise and arrange the purchase of securities for and the sale
of securities held in the portfolio of the Trust.
2. Duties and Obligations of the Sub-Adviser With Respect To
Investment of the Assets of the Trust
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Manager and the Board
of Trustees of the Trust, the Sub-Adviser shall:
(i) supervise continuously the investment program of the
Trust and the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by
the Trust;
(iii) arrange for the purchase and the sale of securities
held in the portfolio of the Trust;
(iv) at its expense provide for pricing of the Trust's
portfolio daily using a pricing service or other source of
pricing information satisfactory to the Trust and, unless
otherwise directed by the Board of Trustees, provide for
pricing of the Trust's portfolio at least quarterly using
another such source satisfactory to the Trust; and
(v) consult with the Manager in connection with its duties
hereunder.
(b) Any investment program furnished by the Sub-Adviser
under this section shall at all times conform to, and be in
accordance with, any requirements imposed by: (1) the Investment
Company Act of 1940 (the "Act") and any rules or regulations in
force thereunder; (2) any other applicable laws, rules and
regulations; (3) the Declaration of Trust and By-Laws of the
Trust as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5) the
fundamental policies of the Trust, as reflected in its
registration statement under the Act or as amended by the
shareholders of the Trust.
(c) The Sub-Adviser shall give to the Manager and to the
Trust the benefit of its best judgment and effort in rendering
services hereunder, but the Sub-Adviser shall not be liable for
any loss sustained by reason of the adoption of any investment
policy or the purchase, sale or retention of any security,
whether or not such purchase, sale or retention shall have been
based upon (i) its own investigation and research or (ii)
investigation and research made by any other individual, firm or
corporation, if such purchase, sale or retention shall have been
made and such other individual, firm or corporation shall have
been selected in good faith by the Sub-Adviser.
(d) Nothing in this Agreement shall prevent the Sub-Adviser
or any affiliated person (as defined in the Act) of the Sub-
Adviser from acting as investment adviser or manager for any
other person, firm or corporation and shall not in any way limit
or restrict the Sub-Adviser or any such affiliated person from
buying, selling or trading any securities for its own or their
own accounts or for the accounts of others for whom it or they
may be acting, provided, however, that the Sub-Adviser expressly
represents that, while acting as Sub-Adviser, it will undertake
no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
(e) In connection with its duties to arrange for the
purchase and sale of the Trust's portfolio securities, the Sub-
Adviser shall select such broker-dealers ("dealers") as shall, in
the Sub-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 Sub-
Adviser shall cause the Trust to deal directly with the selling
or purchasing principal or market maker without incurring
brokerage commissions unless the Sub-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 prices. In allocating transactions to dealers, the
Sub-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 Sub-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 Sub-Adviser's overall responsibilities. If,
on the foregoing basis, the transaction in question could be
allocated to two or more dealers, the Sub-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. 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 and that such research services may or may not
be useful to the Trust and may be used for the benefit of the
Sub-Adviser or its other clients.
(f) The Sub-Adviser agrees to maintain, and to preserve for
the periods prescribed, such books and records with respect to
the portfolio transactions of the Trust as are required by
applicable law and regulation, and agrees that all records which
it maintains for the Trust on behalf of the Manager shall be the
property of the Trust and shall be surrendered promptly to the
Trust or the Manager upon request.
(g) The Sub-Adviser agrees to furnish to the Manager and to
the Board of Trustees of the Trust such periodic and special
reports as each may reasonably request.
(h) It is agreed that the Sub-Adviser shall have no
responsibility or liability for the accuracy or completeness of
the Trust's Registration Statement under the Act and the
Securities Act of 1933, except for information supplied by the
Sub-Adviser for inclusion therein. The Sub-Adviser shall
promptly inform the Trust as to any information concerning the
Sub-Adviser appropriate for inclusion in such Registration
Statement, or as to any transaction or proposed transaction which
might result in an assignment (as defined in the Act) of this
Agreement.
(i) The Sub-Adviser shall not be liable for any error in
judgment or for any loss suffered by the Trust or its security
holders in connection with the matters to which this Agreement
relates, except a loss resulting from wilful misfeasance, bad
faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and
duties under this Agreement. Nothing in this Agreement shall, or
shall be construed to, waive or limit any rights which the Trust
may have under federal and state securities laws which may impose
liability under certain circumstances on persons who act in good
faith.
(j) To the extent that the Manager is indemnified under the
Trust's Declaration of Trust with respect to the services
provided hereunder by the Sub-Adviser, the Manager agrees to
provide the Sub-Adviser the benefits of such indemnification.
3. Allocation of Expenses
The Sub-Adviser shall bear all of the expenses it incurs in
fulfilling its obligations under this Agreement. In particular,
but without limiting the generality of the foregoing: the Sub-
Adviser shall furnish, at the Sub-Adviser's expense, all office
space, facilities, equipment and clerical personnel necessary for
carrying out its duties under this Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser,
administrator or principal underwriter of the Trust all necessary
financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any
agreement between such adviser, administrator or principal
underwriter and the Trust. The Sub-Adviser will also pay all
compensation of the Trust's officers, employees, and Trustees, if
any, who are affiliated persons of the Sub-Adviser.
4. Compensation of the Sub-Adviser
The Manager agrees to pay the Sub-Adviser, and the Sub-
Adviser agrees to accept as full compensation for all services
rendered by the Sub-Adviser as such, a management 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 rates of
0.23 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, the annual fee shall be payable at the annual rate of 0.18
of 1% of such net asset value.
5. Duration and Termination
(a) This Agreement shall become effective on the day it is
approved by the shareholders of the Trust and shall, unless
terminated as hereinafter provided, continue in effect until the
June 30 next preceding the first anniversary of the effective
date of this Agreement, and from year to year thereafter, but
only so long as such continuance is specifically approved at
least annually (1) by a vote of the Trust's Board of Trustees,
including a vote of a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in
the Act) of any such party, with votes cast in person at a
meeting called for the purpose of voting on such approval, or (2)
by a vote of the holders of a "majority" (as so defined) of the
outstanding voting securities of the Trust and by such a vote of
the Trustees.
(b) This Agreement may be terminated by the Sub-Adviser at
any time without penalty upon giving the Manager and the Trust
sixty days' written notice (which notice may be waived). This
Agreement may be terminated by the Manager or the Trust at any
time without penalty upon giving the Sub-Adviser sixty days'
written notice (which notice may be waived by the Sub-Adviser),
provided that such termination by the Trust shall be directed or
approved by a vote of a majority of its Trustees in office at the
time or by a vote of the holders of a majority (as defined in the
Act) of the voting securities of the Trust outstanding and
entitled to vote. This Agreement shall automatically terminate in
the event of its assignment (as defined in the Act) or the
termination of the Advisory and Administration Agreement. The
Sub-Adviser agrees that it will not exercise its termination
rights for at least three years from the effective date of this
Agreement, except for regulatory reasons.
6. Notices of Meetings
The Manager agrees that notice of each meeting of the Board
of Trustees of the Trust will be sent to the Sub-Adviser and that
Sub-Adviser will make appropriate arrangements for the attendance
(as persons present by invitation) of such person or persons as
the Sub-Adviser may designate.
7. Special Provisions
(a) For the duration of this Agreement, the Sub-Adviser will
not cause or permit any Converted Fund, as hereafter defined, to
offer or sell its shares directly to retail customers, but shall
restrict such offers or sales to institutions acting for
investors in a fiduciary, advisory, agency, custodial or similar
capacity. A Converted Fund is an investment company registered
under the Investment Company Act of 1940 which (i) is provided
with portfolio management by the Sub-Adviser or any affiliate
thereof; (ii) has acquired, otherwise than by portfolio purchases
in the normal course of business, assets previously held in a
common trust fund managed by the Sub-Adviser or its predecessors
in interest, including Qualivest Capital Management, Inc. or any
affiliate thereof; and (iii) invests in municipal securities
issued by the State of Oregon or its political subdivisions.
(b) The Sub-Adviser, under the supervision of the Manager,
shall provide at its expense portfolio management particularly
qualified to manage investments in
which the Trust primarily invests, and such portfolio management
shall be located in the state of issuers of such investments.
IN WITNESS WHEREOF, the parties hereto have caused the
foregoing instrument to be executed by their duly authorized
officers and their seals to be hereunto affixed, all as of the
day and year first above written.
ATTEST: AQUILA MANAGEMENT CORPORATION
___________________ By:______________________________
ATTEST: U.S. BANK NATIONAL ASSOCIATION
__________________ By_______________________________
TRANSFER AGENCY SERVICES AGREEMENT
THIS AGREEMENT is made as of November 7, 1997 by and between
PFPC INC., a Delaware corporation ("PFPC"), and The Cascades
Trust, a Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to retain PFPC to serve as transfer
agent, registrar, dividend disbursing agent and shareholder
servicing agent to its investment portfolios listed on Exhibit A
attached hereto and made a part hereof, as such Exhibit A may be
amended from time to time (each a "Portfolio"), and PFPC wishes
to furnish such services, on the terms and for the considerations
set forth in this agreement (the "Agreement").
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. Definitions. As used in this Agreement:
(a) "1933 Act" means the Securities Act of 1933, as
amended.
(b) "1934 Act" means the Securities Exchange Act of
1934, as amended.
(c) "Authorized Person" means any officer of the Fund
and any other person duly authorized by the Fund's Board of
Trustees to give Oral Instructions and Written Instructions on
behalf of the Fund and listed on the Authorized Persons Appendix
attached hereto and made a part hereof or any amendment thereto
as may be received by PFPC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such
limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as
amended.
(e) "Oral Instructions" mean oral instructions
received by PFPC from an Authorized Person or from a person
reasonably believed by PFPC to be an Authorized Person.
(f) "SEC" means the Securities and Exchange
Commission.
(g) "Securities Laws" mean the 1933 Act, the 1934 Act,
the 1940 Act and the CEA.
(h) "Shares" mean the shares of beneficial interest
of any series or class of the Fund.
(i) "Written Instructions" mean written instructions
signed by an Authorized Person and received by PFPC. The
instructions may be delivered by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as
transfer agent, registrar, dividend disbursing agent and
shareholder servicing agent to the Fund in accordance with the
terms set forth in this Agreement. PFPC accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where
applicable, will provide PFPC with the following:
(a) Certified or authenticated copies of the
resolutions of the Fund's Board of Trustees,
approving the appointment of PFPC or its
affiliates to provide services to the Fund and
approving this Agreement;
(b) A copy, and all amendments thereto, of the Fund's
most recent effective registration statement;
(c) A copy of the applicable administration, advisory
and/or sub-advisory agreements, and all amendments
thereto, with respect to each Portfolio;
(d) A copy of the distribution agreement, and all
amendments thereto, with respect to each class of
Shares;
(e) Copies of any shareholder servicing agreements,
and all amendments thereto, made in respect of the
Fund or a Portfolio;
(f) The Fund's Declaration of Trust filed with the
Secretary of State of the Commonwealth of
Massachusetts and all amendments thereto (such
Declaration of Trust, as presently in effect and
as it shall from time to time be amended, is
herein called the "Declaration of Trust"); and
(g) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they
shall from time to time be amended, are
hereinafter called the "By-Laws").
PFPC has furnished the Fund with copies properly
certified or authenticated of its Registration Statement on Form
TA-1 under the Securities and Exchange Act of 1934, as amended
and all other public reports filed with the SEC related to the
services provided to the Fund as may be requested from time to
time by the Fund.
4. Compliance with Rules and Regulations. PFPC undertakes
to comply with all applicable requirements of the Securities Laws
and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by
PFPC hereunder. Except as specifically set forth herein, PFPC
assumes no responsibility for such compliance by the Fund or any
of its investment portfolios.
5. Instructions.
(a) Unless otherwise provided in this Agreement, PFPC
shall act only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral
Instructions and Written Instructions it receives from an
Authorized Person (or from a person reasonably believed by PFPC
to be an Authorized Person) pursuant to this Agreement. PFPC may
assume that any Oral Instruction or Written Instruction received
hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote,
resolution or proceeding of the Fund's Board of Trustees or of
the Fund's shareholders, unless and until PFPC receives Written
Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written
Instructions confirming Oral Instructions so that PFPC receives
the Written Instructions by the close of business on the same day
that such Oral Instructions are received. The fact that such
confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral
Instructions or Written Instructions reasonably appear to have
been received from an Authorized Person, PFPC shall incur no
liability to the Fund in acting upon such Oral Instructions or
Written Instructions provided that PFPC's actions comply with the
other provisions of this Agreement.
6. Right to Receive Advice.
(a) Advice of the Fund. If PFPC is in doubt as to any
action it should or should not take, PFPC may request directions
or advice, including Oral Instructions or Written Instructions,
from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as
to any question of law pertaining to any action it should or
should not take, PFPC may request advice at its own cost from
such counsel of its own choosing (who may be counsel for the
Fund, the Fund's investment adviser or PFPC, at the option of
PFPC).
(c) Conflicting Advice. In the event of a conflict
between directions, advice or Oral Instructions or Written
Instructions PFPC receives from the Fund, and the advice it
receives from counsel, PFPC may rely upon and follow the advice
of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the
part of PFPC which constitutes willful misfeasance, bad faith,
negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in
any action it takes or does not take in reliance upon directions,
advice or Oral Instructions or Written Instructions it receives
from the Fund or from counsel and which PFPC believes, in good
faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon PFPC (i) to
seek such directions, advice or Oral Instructions or Written
Instructions, or (ii) to act in accordance with such directions,
advice or Oral Instructions or Written Instructions unless, under
the terms of other provisions of this Agreement, the same is a
condition of PFPC's properly taking or not taking such action.
Nothing in this subsection shall excuse PFPC when an action or
omission on the part of PFPC constitutes willful misfeasance, bad
faith, negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
7. Records; Visits. The books and records pertaining to
the Fund which are in the possession or under the control of PFPC
shall be the property of the Fund. Such books and records shall
be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. PFPC will,
if so requested by counsel to the Fund, work with such counsel to
develop an acceptable modification to the manner in which such
books and records are prepared and maintained so as to comply
with the reasonable opinion of such counsel as to such laws and
rules. Such modification will be subject to additional mutually-
agreed upon pricing, if any. The Fund and Authorized Persons
shall have access to such books and records at all times during
PFPC's normal business hours. Copies of any such books and
records shall be provided by PFPC to the Fund or to an Authorized
Person at the Fund's expense. Prior to any destruction of any
books or records, PFPC will advise the Fund of the proposed
destruction and in accordance with instructions of the Fund, the
records will be destroyed or, at the expense of the Fund,
delivered to the Fund or as it may otherwise direct.
8. Confidentiality. PFPC agrees to keep confidential all
records of the Fund and information relating to the Fund and its
shareholders, unless the release of such records or information
is otherwise consented to, in writing, by the Fund, and shall
maintain procedures reasonably designed to protect such
confidentiality. The Fund agrees that its consent shall not be
unreasonably withheld and may not be withheld where PFPC may be
exposed to civil or criminal contempt proceedings or when
required to divulge such information or records to duly
constituted authorities, and that such consent shall not be
required where consent or notice to the Fund is not permitted by
law or regulation.
9. Cooperation with Accountants. PFPC shall cooperate
with the Fund's independent public accountants and shall take all
reasonable actions in the performance of its obligations under
this Agreement to ensure that the necessary information is made
available on a timely basis to such accountants for the
expression of their opinion, as required by the Fund.
10. Adequate Facilities; Disaster Recovery. PFPC shall
maintain adequate personnel and facilities, as well as adequate
and reliable computer and other equipment, necessary and
appropriate to carry out its obligations under this Agreement,
including appropriate duplicate files (which shall be readable
by computer or otherwise or maintained in hard copy form, and
shall be maintained at a frequency and in a detail reasonably
designed pursuant to industry standards to provide for protection
of such files in the event of a disaster to PFPC's facilities).
PFPC shall enter into and shall maintain in effect with
appropriate parties one or more agreements making adequate and
reliable provisions for emergency use of electronic data
processing equipment to the extent appropriate equipment is
available. In the event of equipment failures, PFPC shall, at no
additional expense to the Fund, take reasonable steps to minimize
service interruptions. PFPC shall periodically back up data
(including all predecessor transfer agent data delivered to PFPC
by the Fund's prior transfer agent in a machine readable format
and converted by PFPC) on appropriate media to be stored at an
offsite facility of PFPC's choosing. PFPC shall have no
liability with respect to the loss of data or service
interruptions caused by equipment failure or otherwise, provided
such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, negligence or reckless disregard of its
duties or obligations under this Agreement.
11. Insurance. PFPC shall maintain adequate fidelity,
error and omissions and other insurance coverage in connection
with its transfer agent services throughout the duration of this
Agreement.
12. Compensation. As compensation for services rendered by
PFPC during the term of this Agreement, for the period commencing
on the date upon which PFPC becomes transfer agent for the Fund,
the Fund will pay to PFPC a fee or fees as agreed to from time to
time in writing by the Fund and PFPC. All services detailed in
this Agreement and expenses incurred in the performance of these
services will be provided by PFPC without cost to the Fund except
as otherwise stated in this Agreement or otherwise agreed to in
writing.
13. Indemnification. The Fund agrees to indemnify and hold
harmless PFPC and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and any
state and foreign securities and blue sky laws, and amendments
thereto), and expenses, including (without limitation) attorneys'
fees and disbursements, arising directly or indirectly from (i)
any action or omission to act which PFPC takes (a) at the request
or on the direction of or in reliance on the advice of the Fund
or (b) upon Oral Instructions or Written Instructions or (ii) the
acceptance, processing and/or negotiation of checks or other
methods utilized for the purchase of Shares. Neither PFPC nor
any of its affiliates shall be indemnified against any liability
(or any expenses incident to such liability) arising out of
PFPC's or its affiliates' own willful misfeasance, bad faith,
negligence or reckless disregard of its duties and obligations
under this Agreement.
14. Release. PFPC understands that the obligations of this
Agreement are not binding upon any shareholder of the Fund
personally, but bind only the Fund's property; PFPC represents
that it has notice of the provision in the Fund's Declaration of
Trust disclaiming shareholder liability for acts or obligations
of the Fund.
15. Responsibility of PFPC.
(a) PFPC shall be under no duty to take any action on
behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by PFPC in writing. PFPC shall be
obligated to exercise care and diligence in the performance of
its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, to ensure the accuracy and
completeness of all services performed under this Agreement.
PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent
such damages arise out of PFPC's willful misfeasance, bad faith,
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing
or of any other provision of this Agreement, (i) PFPC shall not
be liable for losses beyond its control, provided that PFPC has
acted in accordance with the standard of care set forth above;
and (ii) PFPC shall not be under any duty or obligation to
inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction
or Written Instruction, notice or other instrument which conforms
to the applicable requirements of this Agreement, and which PFPC
reasonably believes to be genuine; or (B) subject to Section 10,
delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or
military authority, national emergencies, labor difficulties,
fire, flood, catastrophe, acts of God, insurrection, war, riots
or failure of the mails, transportation, communication or power
supply.
(c) Notwithstanding anything in this Agreement to the
contrary, neither PFPC nor its affiliates shall be liable to the
Fund for any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of
PFPC's or its affiliates' performance of the services provided
hereunder, whether or not the likelihood of such losses or
damages was known by PFPC or its affiliates.
16. Description of Services.
(a) Itemized Services. PFPC shall:
(i) Calculate 12b-1 payments and payments under
any Shareholder Services Plan of the Fund,
produce and mail statements and checks where
applicable or generate payments through the
National Securities Clearing Corp. (the
"NSCC") to all eligible dealers, and forward
ineligible checks and statements to Aquila
Distributors, Inc. (the "Distributor");
(ii) Make weekly payment of direct commissions,
including settlement through NSCC;
(iii) Establish and maintain proper shareholder
registrations;
(iv) Review new applications for required
information and correspond with shareholders
to complete or correct information;
(v) Provide payment processing of checks or
wires;
(vi) Prepare and certify stockholder lists in
conjunction with proxy solicitations;
(vii) Issue and countersign share certificates
(when requested in writing by a shareholder)
and cancel share certificates;
(viii) Prepare and mail to shareholders confirmation
of activity;
(ix) Provide toll-free lines and voice response
unit for direct shareholder use, plus
customer liaison staff for on-line inquiry
response (generally until 6 p.m., New York
time, on days on which the New York Stock
Exchange is open), including the ability to
receive redirected toll-free calls from the
Distributor on an as-needed basis;
(x) On a monthly basis, mail duplicate statements
to: (1) broker-dealers of their clients'
activity, whether executed through the
broker-dealer or directly with PFPC, and (2)
other parties (e.g., lawyers and accountants)
as requested by the shareholders;
(xi) Provide periodic shareholder lists and
statistics to the Fund;
(xii) Provide detailed data for underwriter/broker
confirmations, including daily outstanding
confirmed purchases, redemptions, and paid
not issued shares;
(xiii) Prepare periodic mailing of year-end tax and
statement information;
(xiv) Provide reports, notification, and where
applicable reconciliation on a timely basis
to the investment adviser, sub-adviser,
administrator, accounting agent, and
custodian of fund activity;
(xv) Perform other participating broker-dealer
shareholder services, including Fund/Serv,
Automated Customer Account Transfer System
("ACATS"), Networking and terminal access for
selected dealers, and such other services as
may be agreed upon from time to time;
(xvi) Promptly transmit to the Fund all reports,
documents and information as are requested by
the Fund and agreed to by PFPC, which
agreement shall not be unreasonably withheld,
that are necessary to enable the Fund and its
service providers to comply with the
requirements of the Internal Revenue Service,
the SEC, the National Association of
Securities Dealers, Inc, the National
Securities Clearing Corp., the state blue sky
authorities and any other regulatory bodies
having jurisdiction over the Fund, it being
understood and agreed that such reports shall
include those on the list contained in
Exhibit __ hereto, as such list may be
amended from time to time by agreement
between the parties;
(xvii) Process all clerical transactions;
(xviii) Screen and maintain Transfer on Death
registrations according to Fund guidelines
(except those guidelines hereafter adopted by
the Fund which are considered in PFPC's sole
good-faith discretion to be more burdensome
than the guidelines in effect on the date of
this Agreement);
(xix) Provide electronic imaging and time-stamping
of all incoming mail;
(xx) Compute and track all front-end and
contingent deferred sales charges imposed
upon the purchase and redemption of Shares;
(xxi) Track and convert Shares in accordance with
the share conversion features described in
the prospectus of the Fund;
(xxii) Answer written or telephonic correspondence
relating to its duties hereunder (including
providing written acknowledgement of address
changes to previous addresses of record) and
such other correspondence as may from time to
time be mutually agreed upon between PFPC and
the Fund; inquiries of a non-routine nature
shall be referred to the Fund;
(xxiii) Remit supporting detail of underwriter fees
to the Distributor on a semi-monthly basis;
(xxiv) Until such time as Fund management and legal
counsel to the Fund determine otherwise and
so inform PFPC in Written Instructions,
establish, maintain for the benefit of the
Fund and control the flow of funds through
separate subscription, redemption and
dividend disbursement accounts (each an
"Operational Account") provided by PNC Bank,
N.A. or by such other financial institution
as may be agreed upon by the Fund and PFPC;
(xxv) To the extent reasonably feasible, reverse
trades (including backing out dividends) due
to nonreceipt of funds, improper
registration, or other sufficient reason;
(xxvi) Compute and track all letters of intent;
(xxvii) Screen all transactions with respect to the
Fund's Blue Sky requirements of which PFPC is
informed by the Fund by Written Instructions,
and comply with the Written Instructions of
the Fund in effect from time to time limiting
issuance of Shares to specified states (based
on address of registration), including
screening for Shares sold in states other
than those so specified (but relating only to
those Shares sold after PFPC commences its
duties as transfer agent hereunder);
(xxviii) Provide abandoned property reporting and
filing to meet the escheat requirements of
each of the states named by the Fund in
Written Instructions;
(xxix) Maintain a record of all incoming checks, new
account applications and documentation set
forth in Section 16(g), on filmstrips,
another microfilm retrieval method or
otherwise so as to be retrievable and
reproducible, upon reasonable request, within
time frames that meet reasonable industry
standards;
(xxx) Process W-9 or similar forms received by PFPC
and review taxpayer identification numbers
for all same number (e.g., 888 88 8888),
sequential numbering (e.g., 123 45 6789) and
non-numeric numbers (e.g., 128 4A 3927) and
other conditions of obvious irregularity in
accordance with PFPC's normal operating
procedures;
(xxxi) On a semi-monthly or other basis acceptable
to PFPC and the Fund (but in no event more
frequently than once per month per
shareholder account) initiate, accept and
process pre-authorized checks or, when
available, electronic funds transfers drawn
against shareholders' checking accounts;
(xxxii) In accordance with policies and procedures
established by the Fund and PFPC, furnish to
shareholders dividend and redemption checks
alleged to have been lost, stolen, destroyed
or not received; and
(xxxiii) Record all incoming telephone conversations
and telephonic transactions that are received
via the Fund's published customer service
numbers and retain such recordings for a
minimum of six months.
(xxxiv) Post and perform shareholder transfers and
post and perform exchanges for shares of
other funds with which the Fund has exchange
privileges, pursuant to shareholder
instructions; and
(xxxv) Reconcile to Fund accounting records and pay
dividends and other distributions, including
direct deposit credits through the Automatic
Clearing House ("ACH") upon proper written
shareholder authorization.
(b) Purchase of Shares. PFPC shall issue Shares and
credit an account of an investor, in the manner described in the
Fund's prospectus, once it has screened for blue sky compliance
pursuant to Section 16(a)(xxvii) and Transfer on Death
registration compliance pursuant to Section 16(a)(xviii) and
receives:
(i) A purchase order or application, either
directly from an investor or otherwise,
complying with requirements for purchases
prescribed by the prospectus;
(ii) Proper information to establish a shareholder
account; and
(iii) A purchase check or confirmation of receipt
or crediting of available funds for such
order to the Fund's custodian.
In opening new shareholder accounts, PFPC will assign account
numbers. PFPC shall assign Aquila Distributors, Inc. as broker
of record whenever dealer information is omitted and send a copy
of any related application to Aquila Distributors, Inc.
PFPC must receive a completed application before any
redemption orders are accepted and processed for an account
opened directly by an investor.
(c) Redemption of Shares. PFPC shall redeem Shares
only if that function is properly authorized by the Declaration
of Trust or resolution of the Fund's Board of Trustees. If the
Fund is a money-market fund, PFPC shall arrange, in accordance
with the Fund's prospectus, for a shareholder's redemption of
shares from a shareholder's account with a checkwriting
privilege. Shares shall be redeemed and payment therefor shall
be made in accordance with the Fund's prospectus, including
provisions set forth therein for automatic redemption, telephone
redemption requests and check-writing privileges, when the
recordholder tenders Shares in proper form and amount and
properly directs the method of redemption. If Shares are
received in proper form, Shares shall be redeemed before the
funds are provided to PFPC from the Fund's custodian. If the
recordholder has not directed that redemption proceeds be wired,
when the custodian provides PFPC with funds, a redemption check
shall be sent to and made payable to the recordholder, unless:
(i) the surrendered certificate is drawn to the
order of an assignee or holder and transfer
authorization is signed by the recordholder;
(ii) Transfer authorizations are signed by the
recordholder when Shares are held in
book-entry form;
(iii) Such redemption is through money market fund
check-writing capabilities; or
(iv) such redemption is in settlement of dealer
confirmed redemptions via Fund/Serv.
Consistent with provisions set forth in the prospectus,
redemption proceeds shall be wired upon request. When a
broker-dealer notifies PFPC of a redemption desired by a
customer, and the Fund's custodian provides PFPC with funds, PFPC
shall prepare and send the redemption check to the broker-dealer,
made payable to the broker-dealer on behalf of its customer.
PFPC shall establish procedures reasonably designed to
ensure that redemption requirements established by PFPC and
agreed to by the Fund have been met, including the receipt and
examination of stock certificates and related endorsements,
signature guarantees and obtaining any needed papers or
documents, including a properly completed application, where
required. No redemptions in accounts represented in whole or in
part by certificates shall be effected without cancellation of an
adequate number of certificate Shares, if necessary. No
signature guarantees shall be acceptable if received by facsimile
and signature guarantees must reasonably appear to have been
provided by an eligible guarantor institution of a type described
as such in the prospectus which is a participant in a medallion
program recognized by the Securities Transfer Association or in
instructions received from the Fund; provided, however, that PFPC
may accept a signature guarantee received by facsimile if so
instructed by Oral or Written Instructions.
(d) Dividends and Distributions. Upon receipt of a
resolution of the Fund's Board of Trustees authorizing the
declaration and payment of dividends and distributions, PFPC
shall issue dividends and distributions declared by the Fund in
Shares, or, upon shareholder election, pay such dividends and
distributions in cash, if and as provided for in the Fund's
prospectus. Such issuance or payment, as well as payments upon
redemption as described above, shall be made after deduction and
payment of the required amount of funds to be withheld in
accordance with any applicable tax laws or other laws, rules or
regulations. PFPC shall timely mail to the Fund's shareholders
and appropriate taxing authorities such tax forms and other
information, or permissible substitute notice, relating to
dividends and distributions paid by the Fund as are required to
be filed and mailed by applicable law, rule or regulation. PFPC
shall prepare, maintain and file with the IRS and other
appropriate taxing authorities reports relating to all dividends
paid by the Fund to its shareholders as required by tax or other
law, rule or regulation.
(e) Communications to Shareholders. PFPC shall
address, enclose and mail all communications by the Fund to its
shareholders (pre-sorting where reasonably practicable),
including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of
Shares;
(iii) Monthly or quarterly statements (with extra
print lines for additional information, such
as additional dividend information, to
shareholders), generally by the fifth
business day after the dividend payable date,
providing a combined check and statement to
shareholders electing cash distributions;
(iv) Dividend and distribution notices (at year-
end, such notices will be upon Written
Instructions);
(v) Tax form information (upon Written
Instructions);
(vi) Forms W-9 or W-8 as appropriate;
(vii) Prospectuses;
(viii) Account-related shareholder correspondence
that is considered in PFPC's sole discretion
to be routine; and
(ix) Any other routine shareholder communications
as agreed to between the Fund and PFPC.
(f) Third Party Proxy Provider. PFPC shall assist the
Fund in obtaining competitive bids for proxy services. Proxy
services shall be provided by a third party. The Fund understands
and agrees that PFPC bears no responsibility for the provision of
any proxy services or the manner in which any proxy services are
provided, that PFPC will not be considered the Fund's agent in
connection with the provision of any proxy services, and that any
party providing proxy services to the Fund shall not be
considered to be the agent of PFPC or to have any other
relationship with PFPC with respect to such services. Such proxy
services, which will be decided upon solely between the Fund and
the third party provider, shall include proxy mailing, receiving
and tabulating proxy cards for the meetings of the Fund's
shareholders, communicating to the Fund daily and final results
of such tabulation accompanied by appropriate certificates, and
preparing and furnishing to the Fund certified lists of
shareholders as of such date, and in such form and containing
such information as may be required by the Fund to comply with
any applicable provisions of law or its Declaration of Trust
and/or By-Laws relating to such meetings. Notwithstanding the
foregoing provisions of this Subsection (f), PFPC shall furnish
to the third-party proxy provider such information as is
reasonably requested by such provider pertaining to shareholder
registration information and record-date share positions to
permit the Fund to obtain the benefits of the services necessary
for conduct of its shareholder meetings.
(g) Records. PFPC shall maintain records of the
accounts for each shareholder showing the following information:
(i) Name, address, United States Tax
Identification or Social Security number, and
any pertinent beneficiary information;
(ii) Number and class of Shares held and number
and class of Shares for which certificates,
if any, have been issued, including
certificate numbers and denominations;
(iii) Historical information regarding the account
of each shareholder, including dividends and
distributions paid and the date and price for
all transactions in a shareholder's account;
(iv) Any stop or restraining order placed against
a shareholder's account;
(v) Any correspondence relating to the current
maintenance of a shareholder's account;
(vi) Information with respect to withholdings,
including withholdings in the case of a
foreign account and accounts subject to
backup withholding; and
(vii) Any information required in order for the
transfer agent to perform any calculations
contemplated or required by this Agreement.
PFPC shall use its best efforts to convert for use in
its system such data of the predecessor transfer agent that has
been provided to PFPC as shall permit PFPC to maintain on its
system such converted data covering a minimum of 18 months prior
to commencement of its services as transfer agent of the Fund.
PFPC is not responsible for errors or omissions in or caused by
the records of any predecessor transfer agent. PFPC shall inform
the Fund of material errors coming to its attention in the course
of performance of its duties hereunder. PFPC shall maintain on
its system in a readily viewable form pertinent account
information (i.e., the information listed in this Section 16(g))
relating to shareholders of the Fund (including all predecessor
transfer agent data delivered to PFPC by the Fund's prior
transfer agent in a machine readable format and converted by
PFPC) for a minimum of 13 months after the date of the
transaction or other matter to which the information relates and
shall thereafter maintain such information in a readily
accessible format to the extent required by the 1940 Act and
other applicable securities laws, rules and regulations.
(h) Lost or Stolen Certificates. PFPC shall place a
stop notice against any certificate reported to be lost, stolen,
destroyed or not received and comply with all applicable federal
regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and
issued only upon:
(i) The shareholder's pledge of a lost instrument
bond or such other appropriate indemnity bond
issued by a surety company approved by PFPC;
and
(ii) Completion of a release and indemnification
agreement signed by the shareholder to
protect PFPC and its affiliates.
(i) Shareholder Inspection of Fund Records. Upon a
request from any Fund shareholder to inspect Fund records, PFPC
will notify the Fund and the Fund will issue instructions
granting or denying each such request. Unless PFPC has acted
contrary to the Fund's instructions, the Fund agrees and does
hereby release PFPC from any liability for refusal of permission
for a particular shareholder to inspect the Fund's records.
(j) Withdrawal of Shares and Cancellation of
Certificates. Upon receipt of Written Instructions, PFPC shall
cancel outstanding certificates surrendered by the Fund to reduce
the total amount of outstanding Shares by the number of Shares
surrendered by the Fund.
(k) Fraud Detection Procedures. PFPC shall establish
procedures that are reasonably designed to detect fraudulent
purchase, redemption and distribution checks (including
fraudulent or forged endorsements and altered payment amounts);
however, PFPC shall have no liability for loss resulting from any
fraud perpetrated or attempted to be perpetrated on the Fund,
unless PFPC has acted with willful misfeasance, bad faith,
negligence or reckless disregard of its duties hereunder. Such
procedures shall take into account the type of accounts involved,
the sums involved and cost/benefit considerations.
(l) Third Party Checks. PFPC shall not accept any
third party check (i.e., an investment check whose payee is other
than the Fund or PFPC) except pursuant to Written Instructions.
(m) Relationship Officer. PFPC agrees to provide a
Relationship Officer to serve as the primary point of contact
between the Fund and PFPC. PFPC will exercise due care in
assigning an individual who is conversant with standard
investment company practices.
(n) Additional Services.
(i) PFPC shall, in addition to the services
herein itemized, if so requested by the Fund
and agreed to by PFPC, which shall bargain in
good faith regarding such requests and the
fees and charges to be paid therefor, for
such additional fees and charges as the Fund
and PFPC may from time to time agree, perform
and do all other acts and services as
required by the Fund's prospectus or the law
or that are customarily performed and done by
transfer agents, dividend disbursing agents,
and shareholder servicing agents of open-end
mutual funds such as the Fund.
(ii) PFPC shall, in addition to the services
herein itemized, provide such additional
services to the Fund and in such manner as
are normally provided by PFPC to its mutual
fund transfer agency customers in the normal
course of business, subject to additional
mutually-agreed upon pricing, if any.
(o) Procedures. In order to facilitate the carrying
out of the services set forth in this Agreement, PFPC shall
follow the procedures attached hereto as Exhibit _______ and PFPC
and the Fund may from time to time mutually agree to changes
thereto.
17. Duration and Termination. This Agreement shall
continue until terminated by the Fund on sixty (60) days' prior
written notice or by PFPC on one-hundred-twenty (120) days' prior
written notice to the other party, provided, however, that
without the Fund's consent PFPC shall not for a period of three
years after the date of this Agreement terminate this Agreement
with the intent to enter into a new agreement with the Fund that
provides for higher fees.
18. Notices. All notices and other communications,
including Written Instructions, shall be in writing or by
confirming telegram, cable, telex or facsimile sending device.
Notices shall be addressed (a) if to PFPC, at 400 Bellevue
Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at 380
Madison Avenue, Suite 2300, New York, NY 10017, Attn: President
or (c) if to neither of the foregoing, at such other address as
shall have been given by like notice to the sender of any such
notice or other communication by the other party. If notice is
sent by confirming telegram, cable, telex or facsimile sending
device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have
been given three days after it has been mailed. If notice is
sent by messenger, it shall be deemed to have been given on the
day it is delivered.
19. Amendments. This Agreement, or any term thereof, may
be changed or waived only by a written amendment, signed by the
party against whom enforcement of such change or waiver is
sought.
20. Delegation; Assignment. PFPC may assign its rights and
delegate its duties hereunder only to any wholly-owned direct or
indirect subsidiary of PNC Bank, National Association or PNC Bank
Corp., provided that (i) PFPC gives the Fund thirty (30) days'
prior written notice; (ii) the delegate (or assignee) agrees with
PFPC and the Fund to comply with all relevant provisions of the
1940 Act; and (iii) PFPC and such delegate (or assignee) promptly
provide such information as the Fund may request, and respond to
such questions as the Fund may ask, relative to the delegation
(or assignment), including (without limitation) the capabilities
of the delegate (or assignee).
21. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
22. Further Actions. Each party agrees to perform such
further acts and execute such further documents as are necessary
to effectuate the purposes hereof.
23. Miscellaneous.
(a) Entire Agreement. This Agreement embodies the
entire agreement and understanding between the parties and
supersedes all prior agreements and understandings relating to
the subject matter hereof, provided that the parties may embody
in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are
included for convenience of reference only and in no way define
or delimit any of the provisions hereof or otherwise affect their
construction or effect.
(c) Governing Law. This Agreement shall be deemed to
be a contract made in Delaware and governed by Delaware law,
without regard to principles of conflicts of law.
(d) Partial Invalidity. If any provision of this
Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby.
(e) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of
any party to this Agreement shall constitute the valid and
binding execution hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above
written.
PFPC INC.
By:________________________________
Title:_____________________________
The Cascades Trust
By:________________________________
Title:_____________________________
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of November 7, 1997, is Exhibit A
to that certain Transfer Agency Services Agreement dated as of
November 7, 1997 between PFPC Inc. and The Cascades Trust.
PORTFOLIOS
[List all Portfolios here]
Tax-Free Trust of Oregon
<PAGE>
AUTHORIZED PERSONS APPENDIX
On the date of the Agreement and thereafter until further
notice, the following persons shall be Authorized Persons as
defined therein:
Name (Type) Signature
Lacy B. Herrmann /s/Lacy B. Herrmann
William C. Wallace /s/William C. Wallace
Diana P. Herrmann /s/Diana P. Herrmann
Charles E. Childs, III /s/Charles E. Childs, III
John M. Herndon /s/John M. Herndon
Rose F. Marotta /s/Rose F. Marotta
Richard F. West /s/Richard F. West
Patricia A. Craven /s/Patricia A. Craven
Stephen J. Caridi /s/Stephen J. Caridi
William Killeen /s/William Killeen
<PAGE>
[Report List for Aquila Group of Funds
12b-1 Report
5 Percent or More Shareholder Listing
5 Percent or More Shareholder Listing - sorted by ssn
Account Analysis by Type
Asset Report by Dealer for Management Company
Asset Report by Fund and Dealer
Blue Sky Sales Report
Capital Stock Reporting
Daily Transaction Journal
Dealer Commission Check Register/Dealer Commission Statement
DTS Activity Summary
DTS Liquidation Placements
DTS Outstanding Trades by Fund
DTS Posted Transactions
DTS Purchase Placement
Matrix Summary by Fund With Dealer Name
Matrix Summary by Management Company With Dealer Name
Month to Sales (Demographics by Account Group)
Monthly Statistical Report
Monthly Wire Order (Purchases/Redemptions)
New Account Journal
Next Day NSCC Settlement Detail
NSAR Based on trade date
Transactions at a Glance]
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
551 Fifth Avenue
New York, NY 10176
Tel: (212) 818-1110
FAX: (212) 818-0494
e-mail: [email protected]
December 1, 1997
The Cascades Trust
380 Madison Avenue, Suite 2300
New York, New York 10017
Ladies and Gentlemen:
You have requested that we render an opinion to The Cascades
Trust (the "Trust") for its portfolio Tax-Free Trust of Oregon
(the "TFTO") with respect to Post-Effective Amendment No. 20 (the
"Amendment") to the Registration Statement of the Trust under the
Securities Act of 1933 (the "1933 Act") and No. 21 under the
Investment Company Act of 1940 (the "1940 Act") which you propose
to file with the Securities and Exchange Commission (the
"Commission"). The purpose of the Amendment is to add a new class
of shares, Financial Intermediary Class Shares ("Class I
Shares"), as well as other changes. The Trust already has
outstanding Class A Shares, Class C Shares and Class Y Shares.
We have examined originals or copies, identified to our
satisfaction as being true copies, of those corporate records of
the Trust, certificates of public officials, and other documents
and matters as we have deemed necessary for the purpose of this
opinion. We have assumed without independent verification the
authenticity of the documents submitted to us as originals and
the conformity to the original documents of all documents
submitted to us as copies.
Upon the basis of the foregoing and in reliance upon such
other matters as we deem relevant under the circumstances, it is
our opinion that the Class A Shares, Class C Shares, Class Y
Shares and Class I Shares of the Trust as described in the
Amendment, when issued and paid for in accordance with the terms
set forth in the prospectuses and statement of additional
information of TFTO forming a part of the Trust's then effective
Registration Statement as heretofore, herewith and hereafter
amended, will be duly issued, fully-paid and non-assessable to
the extent set forth therein.
This letter is furnished to you pursuant to your request and
to the requirements imposed upon you under the 1933 Act and 1940
Act and is intended solely for your use for the purpose of
completing the filing of the Amendment with the Commission. This
letter may not be used for any other purpose or furnished to or
relied upon by any other persons, or included in any filing made
with any other regulatory authority, without our prior written
consent.
We hereby consent to the filing of this opinion with the
Amendment.
Very truly yours,
HOLLYER BRADY SMITH TROXELL
BARRETT ROCKETT HINES & MONE LLP
/s/ W.L.D. Barrett
By:_________________________________
W. L. D. Barrett
Dated: April 5, 1996
Tax-Free Trust of Oregon
DISTRIBUTION PLAN
1. The Plan. This amended and restated Plan (the "Plan") is
the written plan, contemplated by Rule 12b-1 (the "Rule") under
the Investment Company Act of 1940 (the "1940 Act"), of Tax-Free
Trust of Oregon (the "Trust"), a portfolio of The Cascades Trust,
a Massachusetts business trust (referred to herein as the
"Business Trust"). Part I of the Plan applies solely to the
Front-Payment Class ("Class A") of shares of the Trust, Part II
solely to the Level-Payment Class ("Class C") and Part III to all
classes.
2. Disinterested Trustees. While any Part of this Plan is in
effect, the selection and nomination of those Trustees of the
Business Trust who are not "interested persons" of the Business
Trust shall be committed to the discretion of such disinterested
Trustees. Nothing herein shall prevent the involvement of others
in such selection and nomination if the final decision on any
such selection and nomination is approved by a majority of such
disinterested Trustees.
Part I
Payments Involving Trust Assets Allocated to Front-Payment Shares
3. Applicability. This Part I of the Plan applies only to the
Front-Payment Class ("Class A") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
4. Definitions for Part I. As used in this Part I of the Plan,
"Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into
written agreements in connection with this Part I ("Class A Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's Front-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Front-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
5. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Business Trust, the Trust
may make payments ("Class A Permitted Payments") to Qualified
Recipients, which Class A Permitted Payments may be made
directly, or through the Distributor or shareholder servicing
agent as disbursing agent, which may not exceed, for any fiscal
year of the Trust (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or
for any fiscal year which is not a full fiscal year) 0.05 of 1%
of the average annual net assets of the Trust represented by the
Front-Payment Class of shares up to $250 million and 0.15 of 1%
of such net assets above $250 million. Such payments shall be
made only out of the Trust assets allocable to the Front-Payment
Shares. The Distributor shall have sole authority (i) as to the
selection of any Qualified Recipient or Recipients; (ii) not to
select any Qualified Recipient; and (iii) the amount of Class A
Permitted Payments, if any, to each Qualified Recipient provided
that the total Class A Permitted Payments to all Qualified
Recipients do not exceed the amount set forth above. The
Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient; (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front-Payment Shares,
including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; furnishing (either alone or
together with other reports sent to a shareholder by such person)
monthly and year end statements and confirmations of purchases
and redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
6. Reports. While this Part I is in effect, the Trust's
Distributor shall report at least quarterly to the Business
Trust's Trustees in writing for their review on the following
matters: (i) all Class A Permitted Payments made under Section 5
of the Plan, the identity of the Qualified Recipient of each
payment, and the purposes for which the amounts were expended;
and (ii) all fees of the Trust to the Distributor paid or accrued
during such quarter. In addition, if any such Qualified
Recipient is an affiliated person, as that term is defined in the
Act, of the Trust, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Business Trust an accounting, in form and detail satisfactory to
the Board of Trustees, to enable the Board of Trustees to make
the determinations of the fairness of the compensation paid to
such affiliated person, not less often than annually.
7. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part I of the Plan has
been approved (i) by a vote of the Trustees, including those
Trustees (the "Independent Trustees") who, at the time of such
vote, were not "interested persons" (as defined in the 1940 Act)
of the Business Trust and had no direct or indirect financial
interest in the operation of this Plan or in any agreements
related to this Plan, with votes cast in person at a meeting
called for the purpose of voting on Part I of the Plan; and (ii)
by a vote of holders of at least a "majority" (as defined in the
1940 Act) of the outstanding voting securities of the Front-
Payment Class (or of any predecessor class or category of shares,
whether or not designated as a class) and a vote of holders of at
least a "majority" (as so defined) of the outstanding voting
securities of the Level-Payment Class and/or of any other class
whose shares are convertible into Front-Payment Shares. This
Part I is effective as of the date first above written and will,
unless terminated as hereinafter provided, continue in effect
until June 30 of each year only so long as such continuance is
specifically approved at least annually by the Business Trust's
Trustees and its Independent Trustees with votes cast in person
at a meeting called for the purpose of voting on such
continuance. This Part I may be terminated at any time by the
vote of a majority of the Independent Trustees or by shareholder
approval of the class or classes of shares affected by this Part
I as set forth in (ii) above. This Part I may not be amended to
increase materially the amount of payments to be made without
shareholder approval of the class or classes of shares affected
by this Part I as set forth in (ii) above, and all amendments
must be approved in the manner set forth in (i) above.
8. Class A Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Trust, the
Class A Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be
approved in accordance with, and contain the provisions required
by, the Rule. In the case of Qualified Recipients which are not
principal underwriters of the Trust, the Class A Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part I, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Trust in effect prior to the effective date of this Part I
and not terminated at or prior to such effective date are deemed
to be "Class A Plan Agreements" for purposes of this Part I and
that, as and to the extent necessary to give effect to this
proviso, defined terms used in such agreements shall be deemed to
have the meanings assigned to their appropriate counterparts in
this Part I and the provisions of such agreements, which shall
otherwise remain in full force and effect, are deemed to be
appropriately modified.
Part II
Payments Involving Trust Assets Allocated to Level-Payment Shares
9. Applicability. This Part II of the Plan applies only to the
Level-Payment Class ("Class C") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
10. Definitions for Part II. As used in this Part II of the
Plan, "Qualified Recipients" shall mean broker-dealers or others
selected by Aquila Distributors, Inc. (the "Distributor"),
including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into
written agreements in connection with this Part II ("Class C Plan
Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's Level-Payment Shares or servicing of shareholder
accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Level-Payment Shares
beneficially owned by such Qualified Recipient, or beneficially
owned by its brokerage customers, other customers, other
contacts, investment advisory clients, or other clients, if the
Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services
in relation thereto. "Administrator" shall mean Aquila
Management Corporation or any successor serving as sub-adviser or
administrator of the Fund.
11. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Business Trust, the Trust
may make payments ("Class C Permitted Payments") to Qualified
Recipients, which Class C Permitted Payments may be made
directly, or through the Distributor or shareholder servicing
agent as disbursing agent, which may not exceed, for any fiscal
year of the Trust (as adjusted for any part or parts of a fiscal
year during which payments under the Plan are not accruable or
for any fiscal year which is not a full fiscal year) 0.75 of 1%
of the average annual net assets of the Trust represented by the
Level-Payment Class of shares. Such payments shall be made only
out of the Trust assets allocable to the Level-Payment Shares.
The Distributor shall have sole authority (i) as to the selection
of any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) the amount of Class C Permitted
Payments, if any, to each Qualified Recipient provided that the
total Class C Permitted Payments to all Qualified Recipients do
not exceed the amount set forth above. The Distributor is
authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a)
the amount of the Qualified Holdings of the Qualified Recipient;
(b) the extent to which the Qualified Recipient has, at its
expense, taken steps in the shareholder servicing area with
respect to holders of Level-Payment Shares, including without
limitation, any or all of the following activities: answering
customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust
may be effected; assisting shareholders in designating and
changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for
the wiring of funds; transmitting and receiving funds in
connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection
with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with
other reports sent to a shareholder by such person) monthly and
year end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy
statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving
tabulating and transmitting to the Trust proxies executed by
shareholders with respect to meetings of shareholders of the
Trust; and providing such other related services as the
Distributor or a shareholder may request from time to time; and
(c) the possibility that the Qualified Holdings of the Qualified
Recipient would be redeemed in the absence of its selection or
continuance as a Qualified Recipient. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees
(as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a
Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all
Qualified Recipients, the difference will not be carried over to
subsequent years.
12. Reports. While this Part II is in effect, the Trust's
Distributor shall report at least quarterly to the Business
Trust's Trustees in writing for their review on the following
matters: (i) all Class C Permitted Payments made under Section
11 of the Plan, the identity of the Qualified Recipient of each
payment, and the purposes for which the amounts were expended;
and (ii) all fees of the Trust to the Distributor paid or accrued
during such quarter. In addition, if any such Qualified
Recipient is an affiliated person, as that term is defined in the
Act, of the Trust, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Business Trust an accounting, in form and detail satisfactory to
the Board of Trustees, to enable the Board of Trustees to make
the determinations of the fairness of the compensation paid to
such affiliated person, not less often than annually.
13. Effectiveness, Continuation, Termination and Amendment.
This Part II has been approved (i) by a vote of the Trustees,
including the Independent Trustees, with votes cast in person at
a meeting called for the purpose of voting on Part II of the
Plan; and (ii) by a vote of holders of at least a "majority" (as
defined in the 1940 Act) of the outstanding voting securities of
the Level-Payment Class. This Part II is effective as of the
date first above written and will, unless terminated as
hereinafter provided, continue in effect until June 30 of each
year only so long as such continuance is specifically approved at
least annually by the Business Trust's Trustees and its
Independent Trustees with votes cast in person at a meeting
called for the purpose of voting on such continuance. This Part
II may be terminated at any time by the vote of a majority of the
Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of the Level-Payment Class. This Part II may not be
amended to increase materially the amount of payments to be made
without shareholder approval of the class or classes of shares
affected by this Part II as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
14. Class C Plan Agreements. In the case of a Qualified
Recipient which is a principal underwriter of the Trust, the
Class C Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be
approved in accordance with, and contain the provisions required
by, the Rule. In the case of Qualified Recipients which are not
principal underwriters of the Trust, the Class C Plan Agreements
with them shall be their agreements with the Distributor with
respect to payments under this Part II, provided, however, that
"Related Agreements" entered into under the distribution plan of
the Trust in effect prior to the effective date of this Part II
and not terminated at or prior to such effective date are deemed
to be "Class C Plan Agreements" for purposes of this Part II and
that, as and to the extent necessary to give effect to this
proviso, defined terms used in such agreements shall be deemed to
have the meanings assigned to their appropriate counterparts in
this Part II and the provisions of such agreements, which shall
otherwise remain in full force and effect, are deemed to be
appropriately modified.
Part III
Defensive Provisions
15. Certain Payments Permitted. Whenever the Administrator of
the Trust (i) makes any payment directly or through the Trust's
Distributor for additional compensation to dealers in connection
with sales of shares of the Trust, which additional compensation
may include payment or partial payment for advertising of the
Trust's shares, payment of travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered
representatives and members of their families to locations within
or outside of the United States, other prizes or financial
assistance to securities dealers in offering their own seminars
or conferences, or other items described in the Trust's
prospectus, in amounts that will not exceed the amount of the
sales charges in respect of sales of shares of the Trust effected
through such participating dealers whether retained by the
Distributor or reallowed to participating dealers, or (ii) bears
the costs, not borne by the Distributor, of printing and
distributing all copies of the Trust's prospectuses, statements
of additional information and reports to shareholders which are
not sent to the Trust's shareholders, or the costs of
supplemental sales literature and advertising, such payments are
authorized.
It is recognized that, in view of the bearing by the
Administrator of certain distribution expenses, the profits, if
any, of the Administrator are dependent primarily on the
administration fees paid by the Trust to the Administrator and
that its profits, if any, would be less, or losses, if any, would
be increased due to the bearing by it of such expenses. If and to
the extent that any such administration fees paid by the Trust
might, in view of the foregoing, be considered as indirectly
financing any activity which is primarily intended to result in
the sale of shares issued by the Trust, the payment of such fees
is authorized by the Plan.
16. Certain Trust Payments Authorized. If and to the extent
that any of the payments listed below are considered to be
"primarily intended to result in the sale of" shares issued by
the Trust within the meaning of the Rule, such payments are
authorized under this Plan: (i) the costs of the preparation of
all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders,
irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares
of the Trust or other funds or other investments; (ii) the costs
of the preparation and setting in type of all prospectuses and
statements of additional information, and the costs of printing
and mailing of all prospectuses and statements of additional
information to existing shareholders; (iii) the costs of the
preparation, printing and mailing of all proxy statements and
proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of
the Trust's shares; (iv) all legal and accounting fees relating
to the preparation of any such reports, prospectuses, statements
of additional information, proxies and proxy statements; (v) all
fees and expenses relating to the registration or qualification
of the Trust and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act
of 1933 and the 1940 Act, including fees in connection with any
application for exemption relating to or directed toward the sale
of the Trust's shares; (vii) all fees and assessments of the
Investment Company Institute or any successor organization,
irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and
mailing of confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs
of responding to telephone or mail inquiries of investors.
17. Reports. While Part III of this Plan is in effect, the
Trust's sub-adviser, Administrator or Distributor shall report at
least quarterly to the Business Trust's Trustees in writing for
their review on the following matters: (i) all payments made
under Section 15 of this Plan; (ii) all costs of each item
specified in Section 16 of this Plan (making estimates of such
costs where necessary or desirable) during the preceding calendar
or fiscal quarter; and (iii) all fees of the Trust to the
Distributor, sub-adviser or Administrator paid or accrued during
such quarter.
18. Effectiveness, Continuation, Termination and Amendment. To
the extent required by the 1940 Act, this Part III of the Plan
has, with respect to each class of shares outstanding, been
approved (i) by a vote of the Trustees of the Business Trust and
of the Independent Trustees, with votes cast in person at a
meeting called for the purpose of voting on this Plan; and (ii)
by a vote of holders of at least a "majority" (as defined in the
1940 Act) of the outstanding voting securities of such class and
a vote of holders of at least a "majority" (as so defined) of the
outstanding voting securities of any class whose shares are
convertible into shares of such class. This Part III is
effective as of the date first above written and will, unless
terminated as hereinafter provided, continue in effect with
respect to each class of shares to which it applies until June 30
of each year only so long as such continuance is specifically
approved with respect to that class at least annually by the
Business Trust's Trustees and its Independent Trustees with votes
cast in person at a meeting called for the purpose of voting on
such continuance. This Part III of the Plan may be terminated at
any time with respect to a given class by the vote of a majority
of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the 1940 Act) of the outstanding voting
securities of that class. This Part III may not be amended to
increase materially the amount of payments to be made without
shareholder approval as set forth in (ii) above, and all
amendments must be approved in the manner set forth in (i) above.
--------------------------
19. Additional Terms and Conditions. This Plan and each Part of
it shall also be subject to all applicable terms and conditions
of Rule 18f-3 under the Act as now in force or hereafter amended.
Specifically, but without limitation, the provisions of Part III
shall be deemed to be severable, within the meaning of and to the
extent required by Rule 18f-3, with respect to each outstanding
class of shares of the Trust.
Dated: April 5, 1996
TAX-FREE TRUST OF OREGON
SHAREHOLDER SERVICES PLAN
1. The Plan. This Shareholder Services Plan (the "Plan") is the
written plan of TAX-FREE TRUST OF OREGON (the "Trust") adopted to
provide for the payment by the Level-Payment Class of shares of
the Trust of ""service fees" within the meaning of Article III,
Section 26(b)(9) of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. This Plan applies only
to the Level-Payment Class ("Class C") of shares of the Trust
(regardless of whether such class is so designated or is
redesignated by some other name).
2. Definitions. As used in this Plan, "Qualified Recipients"
shall mean broker-dealers or others selected by Aquila
Distributors, Inc. (the "Distributor"), including but not limited
to the Distributor and any other principal underwriter of the
Trust, who have, pursuant to written agreements with the Trust or
the Distributor, agreed to provide personal services to Level-
Payment shareholders and/or maintenance of Level-Payment
shareholder accounts. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Level-Payment Shares beneficially owned
by such Qualified Recipient's customers, clients or other
contacts. "Administrator" shall mean Aquila Management
Corporation or any successor serving as sub-adviser or
administrator of the Trust.
3. Certain Payments Permitted. Subject to the direction and
control of the Board of Trustees of the Trust, the Trust may make
payments ("Service Fees") to Qualified Recipients, which Service
Fees (i) may be paid directly or through the Distributor or
shareholder servicing agent as disbursing agent and (ii) may not
exceed, for any fiscal year of the Trust (as adjusted for any
part or parts of a fiscal year during which payments under the
Plan are not accruable or for any fiscal year which is not a full
fiscal year) 0.25 of 1% of the average annual net assets of the
Trust represented by the Level-Payment Class of shares. Such
payments shall be made only out of the Trust assets allocable to
the Level-Payment Shares. The Distributor shall have sole
authority with respect to the selection of any Qualified
Recipient or Recipients and the amount of Service Fees, if any,
paid to each Qualified Recipient, provided that the total Service
Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified
Recipient may receive more than 0.25 of 1% of the average annual
net asset value of shares sold by such Recipient. The
Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it,
the following: (a) the amount of the Qualified Holdings of the
Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Level-Payment Shares,
including without limitation, any or all of the following
activities: answering customer inquiries regarding account status
and history, and the manner in which purchases and redemptions of
shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to
establish and maintain shareholder accounts and records;
assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase or redeem
shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder designated accounts; and providing such other related
services as the Distributor or a shareholder may request from
time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the
above limits accrued to a Qualified Recipient but not paid during
a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference
will not be carried over to subsequent years.
4. Reports. While this Plan is in effect, the Trust's
Distributor shall report at least quarterly to the Trust's
Trustees in writing for their review on the following matters:
(i) all Service Fees paid under the Plan, the identity of the
Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the
Distributor paid or accrued during such quarter. In addition, if
any Qualified Recipient is an "affiliated person," as that term
is defined in the Investment Company Act of 1940, as amended (the
"1940 Act"), of the Trust, the Adviser, the Administrator or the
Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the
Trust an accounting, in form and detail satisfactory to the Board
of Trustees, to enable the Board of Trustees to make the
determinations of the fairness of the compensation paid to such
affiliated person, not less often than annually.
5. Effectiveness, Continuation, Termination and Amendment. This
Plan has been approved by a vote of the Trustees, including those
Trustees who, at the time of such vote, were not "interested
persons" (as defined in the 1940 Act) of the Trust and had no
direct or indirect financial interest in the operation of this
Plan or in any agreements related to this Plan (the "Independent
Trustees"), with votes cast in person at a meeting called for the
purpose of voting on this Plan. It is effective as of the date
first above written and will continue in effect for a period of
more than one year from such date only so long as such
continuance is specifically approved at least annually as set
forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the
Independent Trustees.
6. Additional Terms and Conditions. (a) This Plan shall also be
subject to all applicable terms and conditions of Rule 18f-3
under the Act as now in force or hereafter amended.
(b) While this Plan is in effect, the selection and nomination
of those Trustees of the Trust who are not "interested persons"
of the Trust, as that term is defined in the 1940 Act, shall be
committed to the discretion of such disinterested Trustees.
Nothing herein shall prevent the involvement of others in such
selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such
disinterested Trustees.
<TABLE>
<CAPTION>
1 - Y E A R T O T A L R E T U R N B A S E D O N P O P
Tax-Free Trust of Oregon (Class A Shares)
AVG. ANNUAL TOTAL RETURN AS OF 9/30/97 2.90%
CUMULATIVE TOTAL RETURN AS OF 9/30/97 2.90%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.49 As of 9/30/96
Public Offering Price Per Share (POP) $10.93 As of 9/30/96
Number of Shares Purchased 91.491 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
OCTOBER 1996 1,000.00 91.491 0.04114843 * 3.76 10.49
NOVEMBER 1996 963.51 91.850 0.04401132 4.04 10.62
DECEMBER 1996 979.49 92.231 0.05402495 4.98 10.57
JANUARY 1997 979.86 92.702 0.04593102 4.26 10.49
FEBRUARY 1997 976.70 93.108 0.04307765 4.01 10.61
MARCH 1997 991.89 93.486 0.04444061 4.15 10.44
APRIL 1997 980.15 93.884 0.04707153 4.42 10.40
MAY 1997 980.81 94.309 0.04411654 4.16 10.49
JUNE 1997 993.46 94.706 0.04396905 4.16 10.58
JULY 1997 1,006.15 95.099 0.04542724 4.32 10.71
AUGUST 1997 1,022.83 95.503 0.04395537 4.20 10.62
SEPTEMBER 26, 1977** 1,018.44 95.898 0.04404356 4.22 10.69
SEPTEMBER 30, 1997 1,029.37 96.293 0.00584584 0.56 10.68
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
OCTOBER 1996 0.359 963.51 -3.65%
NOVEMBER 1996 0.381 979.49 -2.05%
DECEMBER 1996 0.471 979.86 -2.01%
JANUARY 1997 0.406 976.70 -2.33%
FEBRUARY 1997 0.378 991.89 -0.81%
MARCH 1997 0.398 980.15 -1.98%
APRIL 1997 0.425 980.81 -1.92%
MAY 1997 0.397 993.46 -0.65%
JUNE 1997 0.394 1,006.15 0.62%
JULY 1997 0.403 1,022.83 2.28%
AUGUST 1997 0.395 1,018.44 1.84%
SEPTEMBER 26, 1977** 0.395 1,029.37 2.94%
SEPTEMBER 30, 1997 0.053 1,028.97 2.90%
<FN>
* For the period 10/1/96-10/28/96
</FN>
<FN>
** Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1 - Y E A R T O T A L R E T U R N B A S E D O N N A V
Tax-Free Trust of Oregon (Class C Shares)
AVG. ANNUAL TOTAL RETURN AS OF 9/30/97 5.26%
CUMULATIVE TOTAL RETURN AS OF 9/30/97 5.26%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.49 As of 9/30/96
Number of Shares Purchased 95.329 Based on NAV
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
OCTOBER 1996 1,000.00 95.329 0.03426820 * 3.27 10.48
NOVEMBER 1996 1,002.31 95.641 0.03597334 3.44 10.61
DECEMBER 1996 1,018.19 95.965 0.04659705 4.47 10.56
JANUARY 1997 1,017.86 96.388 0.03825777 3.69 10.48
FEBRUARY 1997 1,013.84 96.740 0.03588829 3.47 10.60
MARCH 1997 1,028.92 97.068 0.03719514 3.61 10.43
APRIL 1997 1,016.03 97.414 0.03930029 3.83 10.40
MAY 1997 1,016.93 97.782 0.03667504 3.59 10.48
JUNE 1997 1,028.34 98.124 0.03653160 3.58 10.57
JULY 1997 1,040.76 98.463 0.03772697 3.71 10.71
AUGUST 1997 1,058.26 98.810 0.03648307 3.60 10.62
SEPTEMBER 26, 1977** 1,052.97 99.150 0.03657300 3.63 10.68
SEPTEMBER 30, 1997 1,062.54 99.489 0.00484964 0.48 10.575
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
OCTOBER 1996 0.312 1,002.31 0.23%
NOVEMBER 1996 0.324 1,018.19 1.82%
DECEMBER 1996 0.423 1,017.86 1.79%
JANUARY 1997 0.352 1,013.84 1.38%
FEBRUARY 1997 0.328 1,028.92 2.89%
MARCH 1997 0.346 1,016.03 1.60%
APRIL 1997 0.368 1,016.93 1.69%
MAY 1997 0.342 1,028.34 2.83%
JUNE 1997 0.339 1,040.76 4.08%
JULY 1997 0.347 1,058.26 5.83%
AUGUST 1997 0.339 1,052.97 5.30%
SEPTEMBER 26, 1977** 0.340 1,062.54 6.25%
SEPTEMBER 30, 1997 0.046 1,052.59 5.26%
<FN>
* For the period 10/1/96-10/28/96
</FN>
<FN>
** Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1 - Y E A R T O T A L R E T U R N B A S E D O N N A V
Tax-Free Trust of Oregon (Class Y Shares)
AVG. ANNUAL TOTAL RETURN AS OF 9/30/97 7.37%
CUMULATIVE TOTAL RETURN AS OF 9/30/97 7.37%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.49 As of 9/30/96
Number of Shares Purchased 95.329 Based on NAV
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
OCTOBER 1996 1,000.00 95.329 0.04625550 * 4.41 10.53
NOVEMBER 1996 1,008.22 95.748 0.04527739 4.34 10.63
DECEMBER 1996 1,022.13 96.155 0.05834429 5.61 10.55
JANUARY 1997 1,020.05 96.687 0.04729063 4.57 10.54
FEBRUARY 1997 1,023.66 97.121 0.04281343 4.16 10.57
MARCH 1997 1,030.73 97.514 0.04721020 4.60 10.43
APRIL 1997 1,021.68 97.956 0.04537729 4.44 10.45
MAY 1997 1,028.08 98.381 0.04682680 4.61 10.52
JUNE 1997 1,039.58 98.819 0.04516514 4.46 10.56
JULY 1997 1,047.99 99.242 0.04672726 4.64 10.73
AUGUST 1997 1,069.50 99.674 0.04676284 4.66 10.63
SEPTEMBER 30, 1997* 1,064.19 100.112 0.04533833 4.54 10.68
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
OCTOBER 1996 0.419 1,008.22 0.82%
NOVEMBER 1996 0.408 1,022.13 2.21%
DECEMBER 1996 0.532 1,020.05 2.01%
JANUARY 1997 0.434 1,023.66 2.37%
FEBRUARY 1997 0.393 1,030.73 3.07%
MARCH 1997 0.441 1,021.68 2.17%
APRIL 1997 0.425 1,028.08 2.81%
MAY 1997 0.438 1,039.58 3.96%
JUNE 1997 0.423 1,047.99 4.80%
JULY 1997 0.432 1,069.50 6.95%
AUGUST 1997 0.438 1,064.19 6.42%
SEPTEMBER 30, 1997* 0.425 1,073.74 7.37%
<FN>
* Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
5 - Y E A R T O T A L R E T U R N B A S E D O N P O P
Tax-Free Trust of Oregon (Class A Shares)
AVG. ANNUAL TOTAL RETURN AS OF 9/30/97 5.11%
CUMULATIVE TOTAL RETURN AS OF 9/30/97 28.28%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.48 As of 9/30/92
Public Offering Price Per Share (POP) $10.92 As of 9/30/92
Number of Shares Purchased 91.575 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
OCTOBER 1992 1,000.00 91.575 0.04264600 * 3.91 10.29
NOVEMBER 1992 946.21 91.955 0.04945300 4.55 10.43
DECEMBER 1992 963.63 92.391 0.08171800 7.55 10.45
JANUARY 1993 973.03 93.113 0.04874000 4.54 10.53
FEBRUARY 1993 985.02 93.544 0.04808900 4.50 10.81
MARCH 1993 1,015.71 93.960 0.04973700 4.67 10.69
APRIL 1993 1,009.11 94.397 0.04745500 4.48 10.71
MAY 1993 1,015.48 94.816 0.04733900 4.49 10.72
JUNE 1993 1,020.91 95.234 0.04912500 4.68 10.79
JULY 1993 1,032.26 95.668 0.04742200 4.54 10.76
AUGUST 1993 1,033.92 96.090 0.04701600 4.52 10.90
SEPTEMBER 1993 1,051.89 96.504 0.04841800 4.67 10.96
OCTOBER 1993 1,062.36 96.930 0.04641800 4.50 10.90
NOVEMBER 1993 1,061.04 97.343 0.04685900 4.56 10.80
DECEMBER 1993 1,055.87 97.766 0.04793200 4.69 10.92
JANUARY 1994 1,072.29 98.195 0.04456700 4.38 10.93
FEBRUARY 1994 1,077.64 98.595 0.04578800 4.51 10.73
MARCH 1994 1,062.44 99.016 0.04471400 4.43 10.52
APRIL 1994 1,046.07 99.437 0.04780900 4.75 10.39
MAY 1994 1,037.90 99.894 0.04640500 4.64 10.37
JUNE 1994 1,040.54 100.341 0.04620100 4.64 10.34
JULY 1994 1,042.16 100.790 0.04709300 4.75 10.34
AUGUST 1994 1,046.91 101.249 0.04687400 4.75 10.34
SEPTEMBER 1994 1,051.66 101.708 0.04896100 4.98 10.22
OCTOBER 1994 1,044.43 102.195 0.04433600 4.53 10.04
NOVEMBER 1994 1,030.57 102.646 0.04777400 4.90 9.75
DECEMBER 1994 1,005.70 103.149 0.08461600 8.73 9.93
JANUARY 1995 1,033.00 104.028 0.04616500 4.80 10.03
FEBRUARY 1995 1,048.20 104.507 0.04439300 4.64 10.29
MARCH 1995 1,080.01 104.958 0.04719000 4.95 10.39
APRIL 1995 1,095.46 105.434 0.04564100 4.81 10.40
MAY 1995 1,101.33 105.897 0.04574400 4.84 10.52
JUNE 1995 1,118.88 106.358 0.04647400 4.94 10.53
JULY 1995 1,124.89 106.827 0.04606600 4.92 10.47
AUGUST 1995 1,123.40 107.297 0.04709600 5.05 10.48
SEPTEMBER 1995 1,129.53 107.779 0.04376600 4.72 10.48
OCTOBER 1995 1,134.24 108.229 0.04367800 4.73 10.60
NOVEMBER 1995 1,151.96 108.675 0.04572200 4.97 10.66
DECEMBER 1995 1,163.45 109.141 0.05415700 5.91 10.71
JANUARY 1996 1,174.81 109.693 0.04456800 4.89 10.71
FEBRUARY 1996 1,179.70 110.150 0.04595400 5.06 10.68
MARCH 1996 1,181.46 110.624 0.04450400 4.92 10.51
APRIL 1996 1,167.58 111.092 0.04471100 4.97 10.45
MAY 1996 1,165.88 111.567 0.04767200 5.32 10.46
JUNE 1996 1,172.31 112.076 0.04302700 4.82 10.38
JULY 1996 1,168.17 112.540 0.04436351 4.99 10.45
AUGUST 1996 1,181.04 113.018 0.04519532 5.11 10.48
SEPTEMBER 1996 1,189.54 113.506 0.04529285 5.14 10.49
OCTOBER 1996 1,195.82 113.996 0.04700094 5.36 10.49
NOVEMBER 1996 1,201.17 114.506 0.04401132 5.04 10.62
DECEMBER 1996 1,221.10 114.981 0.05402495 6.21 10.57
JANUARY 1997 1,221.56 115.569 0.04593102 5.31 10.49
FEBRUARY 1997 1,217.62 116.075 0.04307765 5.00 10.61
MARCH 1997 1,236.55 116.546 0.04444061 5.18 10.44
APRIL 1997 1,221.92 117.042 0.04707153 5.51 10.40
MAY 1997 1,222.75 117.572 0.04411654 5.19 10.49
JUNE 1997 1,238.52 118.066 0.04396905 5.19 10.58
JULY 1997 1,254.33 118.557 0.04542724 5.39 10.71
AUGUST 1997 1,275.13 119.060 0.04395537 5.23 10.62
SEPTEMBER 26, 1997** 1,269.65 119.553 0.04404356 5.27 10.69
SEPTEMBER 30, 1997 1,283.28 120.045 0.00584584 0.70 10.68
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
OCTOBER 1992 0.380 946.21 -5.38%
NOVEMBER 1992 0.436 963.63 -3.64%
DECEMBER 1992 0.722 973.03 -2.70%
JANUARY 1993 0.431 985.02 -1.50%
FEBRUARY 1993 0.416 1,015.71 1.57%
MARCH 1993 0.437 1,009.11 0.91%
APRIL 1993 0.418 1,015.48 1.55%
MAY 1993 0.419 1,020.91 2.09%
JUNE 1993 0.434 1,032.26 3.23%
JULY 1993 0.422 1,033.92 3.39%
AUGUST 1993 0.414 1,051.89 5.19%
SEPTEMBER 1993 0.426 1,062.36 6.24%
OCTOBER 1993 0.413 1,061.04 6.10%
NOVEMBER 1993 0.422 1,055.87 5.59%
DECEMBER 1993 0.429 1,072.29 7.23%
JANUARY 1994 0.400 1,077.64 7.76%
FEBRUARY 1994 0.421 1,062.44 6.24%
MARCH 1994 0.421 1,046.07 4.61%
APRIL 1994 0.458 1,037.90 3.79%
MAY 1994 0.447 1,040.54 4.05%
JUNE 1994 0.448 1,042.16 4.22%
JULY 1994 0.459 1,046.91 4.69%
AUGUST 1994 0.459 1,051.66 5.17%
SEPTEMBER 1994 0.487 1,044.43 4.44%
OCTOBER 1994 0.451 1,030.57 3.06%
NOVEMBER 1994 0.503 1,005.70 0.57%
DECEMBER 1994 0.879 1,033.00 3.30%
JANUARY 1995 0.479 1,048.20 4.82%
FEBRUARY 1995 0.451 1,080.01 8.00%
MARCH 1995 0.477 1,095.46 9.55%
APRIL 1995 0.463 1,101.33 10.13%
MAY 1995 0.460 1,118.88 11.89%
JUNE 1995 0.469 1,124.89 12.49%
JULY 1995 0.470 1,123.40 12.34%
AUGUST 1995 0.482 1,129.53 12.95%
SEPTEMBER 1995 0.450 1,134.24 13.42%
OCTOBER 1995 0.446 1,151.96 15.20%
NOVEMBER 1995 0.466 1,163.45 16.34%
DECEMBER 1995 0.552 1,174.81 17.48%
JANUARY 1996 0.456 1,179.70 17.97%
FEBRUARY 1996 0.474 1,181.46 18.15%
MARCH 1996 0.468 1,167.58 16.76%
APRIL 1996 0.475 1,165.88 16.59%
MAY 1996 0.508 1,172.31 17.23%
JUNE 1996 0.465 1,168.17 16.82%
JULY 1996 0.478 1,181.04 18.10%
AUGUST 1996 0.487 1,189.54 18.95%
SEPTEMBER 1996 0.490 1,195.82 19.58%
OCTOBER 1996 0.511 1,201.17 20.12%
NOVEMBER 1996 0.475 1,221.10 22.11%
DECEMBER 1996 0.588 1,221.56 22.16%
JANUARY 1997 0.506 1,217.62 21.76%
FEBRUARY 1997 0.471 1,236.55 23.66%
MARCH 1997 0.496 1,221.92 22.19%
APRIL 1997 0.530 1,222.75 22.27%
MAY 1997 0.494 1,238.52 23.85%
JUNE 1997 0.491 1,254.33 25.43%
JULY 1997 0.503 1,275.13 27.51%
AUGUST 1997 0.493 1,269.65 26.96%
SEPTEMBER 26, 1997** 0.493 1,283.28 28.33%
SEPTEMBER 30, 1997 0.066 1,282.78 28.28%
<FN>
* For the period 10/1/92-10/26/92
</FN>
<FN>
** Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1 0 - Y E A R T O T A L R E T U R N B A S E D O N P O P
Tax-Free Trust of Oregon (Class A Shares)
AVG. ANNUAL TOTAL RETURN AS OF 9/30/97 7.38%
CUMULATIVE TOTAL RETURN AS OF 9/30/97 103.73%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.11 As of 9/30/87
Public Offering Price Per Share (POP) $9.49 As of 9/30/87
Number of Shares Purchased 105.374 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
OCTOBER 1987 1,000.00 105.374 0.05361400 5.65 9.07
NOVEMBER 1987 961.39 105.997 0.05557600 5.89 9.33
DECEMBER 1987 994.84 106.628 0.05572300 5.94 9.48
JANUARY 1988 1,016.78 107.255 0.05207600 5.59 9.74
FEBRUARY 1988 1,050.25 107.829 0.05506100 5.94 9.78
MARCH 1988 1,060.50 108.436 0.05510700 5.98 9.56
APRIL 1988 1,042.62 109.061 0.05098900 5.56 9.54
MAY 1988 1,046.00 109.644 0.05724100 6.28 9.51
JUNE 1988 1,048.99 110.304 0.05391900 5.95 9.58
JULY 1988 1,062.66 110.924 0.05169200 5.73 9.57
AUGUST 1988 1,067.28 111.524 0.05925900 6.61 9.56
SEPTEMBER 1988 1,072.77 112.215 0.05345300 6.00 9.67
OCTOBER 1988 1,091.12 112.835 0.05542500 6.25 9.75
NOVEMBER 1988 1,106.40 113.477 0.05372700 6.10 9.71
DECEMBER 1988 1,107.95 114.104 0.05372800 6.13 9.64
JANUARY 1989 1,106.10 114.740 0.05700700 6.54 9.81
FEBRUARY 1989 1,132.14 115.407 0.04988500 5.76 9.73
MARCH 1989 1,128.67 115.999 0.05566800 6.46 9.61
APRIL 1989 1,121.21 116.671 0.05012300 5.85 9.80
MAY 1989 1,149.22 117.267 0.05939000 6.96 9.94
JUNE 1989 1,172.60 117.968 0.05193600 6.13 9.95
JULY 1989 1,179.91 118.584 0.04985100 5.91 9.98
AUGUST 1989 1,189.38 119.176 0.05633400 6.71 9.89
SEPTEMBER 1989 1,185.37 119.855 0.05145100 6.17 9.77
OCTOBER 1989 1,177.15 120.486 0.05147300 6.20 9.85
NOVEMBER 1989 1,192.99 121.116 0.05844600 7.08 9.89
DECEMBER 1989 1,204.91 121.832 0.05112200 6.23 9.93
JANUARY 1990 1,216.02 122.459 0.05325500 6.52 9.78
FEBRUARY 1990 1,204.17 123.126 0.05642300 6.95 9.79
MARCH 1990 1,212.35 123.835 0.04894300 6.06 9.77
APRIL 1990 1,215.93 124.456 0.05323100 6.62 9.69
MAY 1990 1,212.60 125.139 0.05314000 6.65 9.77
JUNE 1990 1,229.26 125.820 0.05431300 6.83 9.79
JULY 1990 1,238.61 126.518 0.05286300 6.69 9.85
AUGUST 1990 1,252.89 127.197 0.05270400 6.70 9.66
SEPTEMBER 1990 1,235.43 127.891 0.05438500 6.96 9.66
OCTOBER 1990 1,242.38 128.611 0.05464800 7.03 9.73
NOVEMBER 1990 1,258.41 129.333 0.05637700 7.29 9.88
DECEMBER 1990 1,285.10 130.071 0.05287300 6.88 9.88
JANUARY 1991 1,291.98 130.767 0.05244600 6.86 9.93
FEBUARY 1991 1,305.38 131.458 0.05380500 7.07 10.01
MARCH 1991 1,322.97 132.165 0.04998900 6.61 9.92
APRIL 1991 1,317.68 132.831 0.05205600 6.91 9.95
MAY 1991 1,328.58 133.526 0.04885200 6.52 10.00
JUNE 1991 1,341.78 134.178 0.05336000 7.16 9.92
JULY 1991 1,338.20 134.900 0.05189100 7.00 10.00
AUGUST 1991 1,356.00 135.600 0.05310300 7.20 10.06
SEPTEMBER 1991 1,371.33 136.315 0.05140000 7.01 10.15
OCTOBER 1991 1,390.61 137.006 0.05095900 6.98 10.15
NOVEMBER 1991 1,397.59 137.694 0.05241100 7.22 10.17
DECEMBER 1991 1,407.56 138.403 0.05221200 7.23 10.28
JANUARY 1992 1,430.01 139.106 0.05399100 7.51 10.35
FEBRUARY 1992 1,447.26 139.832 0.04972200 6.95 10.25
MARCH 1992 1,440.23 140.510 0.04931500 6.93 10.19
APRIL 1992 1,438.73 141.190 0.05169400 7.30 10.23
MAY 1992 1,451.67 141.904 0.05028800 7.14 10.32
JUNE 1992 1,471.58 142.595 0.04959100 7.07 10.40
JULY 1992 1,490.06 143.275 0.05115400 7.33 10.61
AUGUST 1992 1,527.48 143.966 0.04919900 7.08 10.46
SEPTEMBER 1992 1,512.96 144.643 0.04914500 7.11 10.47
OCTOBER 1992 1,521.52 145.322 0.05086900 7.39 10.29
NOVEMBER 1992 1,502.75 146.040 0.04945300 7.22 10.43
DECEMBER 1992 1,530.42 146.733 0.08171800 11.99 10.45
JANUARY 1993 1,545.35 147.880 0.04874000 7.21 10.53
FEBRUARY 1993 1,564.39 148.565 0.04808900 7.14 10.81
MARCH 1993 1,613.13 149.226 0.04973700 7.42 10.69
APRIL 1993 1,602.64 149.920 0.04745500 7.11 10.71
MAY 1993 1,612.76 150.584 0.04733900 7.13 10.72
JUNE 1993 1,621.39 151.249 0.04912500 7.43 10.79
JULY 1993 1,639.41 151.938 0.04742200 7.21 10.76
AUGUST 1993 1,642.05 152.607 0.04701600 7.17 10.90
SEPTEMBER 1993 1,670.59 153.266 0.04841800 7.42 10.96
OCTOBER 1993 1,687.21 153.943 0.04641800 7.15 10.90
NOVEMBER 1993 1,685.12 154.598 0.04685900 7.24 10.80
DECEMBER 1993 1,676.90 155.269 0.04793200 7.44 10.92
JANUARY 1994 1,702.98 155.951 0.04456700 6.95 10.93
FEBRUARY 1994 1,711.49 156.586 0.04578800 7.17 10.73
MARCH 1994 1,687.34 157.255 0.04471400 7.03 10.52
APRIL 1994 1,661.35 157.923 0.04780900 7.55 10.39
MAY 1994 1,648.37 158.650 0.04640500 7.36 10.37
JUNE 1994 1,652.56 159.360 0.04620100 7.36 10.34
JULY 1994 1,655.14 160.072 0.04709300 7.54 10.34
AUGUST 1994 1,662.68 160.801 0.04687400 7.54 10.34
SEPTEMBER 1994 1,670.22 161.530 0.04896100 7.91 10.22
OCTOBER 1994 1,658.74 162.303 0.04433600 7.20 10.04
NOVEMBER 1994 1,636.72 163.020 0.04777400 7.79 9.75
DECEMBER 1994 1,597.24 163.819 0.08461600 13.86 9.93
JANUARY 1995 1,640.58 165.215 0.04616500 7.63 10.03
FEBRUARY 1995 1,664.73 165.975 0.04439300 7.37 10.29
MARCH 1995 1,715.25 166.691 0.04719000 7.87 10.39
APRIL 1995 1,739.79 167.449 0.04564100 7.64 10.40
MAY 1995 1,749.11 168.183 0.04574400 7.69 10.52
JUNE 1995 1,776.98 168.915 0.04647400 7.85 10.53
JULY 1995 1,786.52 169.660 0.04606600 7.82 10.47
AUGUST 1995 1,784.16 170.407 0.04709600 8.03 10.48
SEPTEMBER 1995 1,793.89 171.172 0.04376600 7.49 10.48
OCTOBER 1995 1,801.38 171.887 0.04367800 7.51 10.60
NOVEMBER 1995 1,829.51 172.596 0.04572200 7.89 10.66
DECEMBER 1995 1,847.76 173.336 0.05415700 9.39 10.71
JANUARY 1996 1,865.81 174.212 0.04456800 7.76 10.71
FEBRUARY 1996 1,873.58 174.937 0.04595400 8.04 10.68
MARCH 1996 1,876.37 175.690 0.04450400 7.82 10.51
APRIL 1996 1,854.32 176.434 0.04471100 7.89 10.45
MAY 1996 1,851.62 177.189 0.04767200 8.45 10.46
JUNE 1996 1,861.84 177.996 0.04302700 7.66 10.38
JULY 1996 1,855.26 178.734 0.04436351 7.93 10.45
AUGUST 1996 1,875.70 179.493 0.04519532 8.11 10.48
SEPTEMBER 1996 1,889.20 180.267 0.04529285 8.16 10.49
OCTOBER 1996 1,899.17 181.045 0.04700094 8.51 10.49
NOVEMBER 1996 1,907.68 181.857 0.04401132 8.00 10.62
DECEMBER 1996 1,939.32 182.610 0.05402495 9.87 10.57
JANUARY 1997 1,940.06 183.544 0.04593102 8.43 10.49
FEBRUARY 1997 1,933.80 184.347 0.04307765 7.94 10.61
MARCH 1997 1,963.87 185.096 0.04444061 8.23 10.44
APRIL 1997 1,940.63 185.884 0.04707153 8.75 10.40
MAY 1997 1,941.94 186.725 0.04411654 8.24 10.49
JUNE 1997 1,966.98 187.510 0.04396905 8.24 10.58
JULY 1997 1,992.10 188.290 0.04542724 8.55 10.71
AUGUST 1997 2,025.13 189.088 0.04395537 8.31 10.62
SEPTEMBER 26, 1997* 2,016.43 189.871 0.04404356 8.36 10.69
SEPTEMBER 30, 1997 2,038.08 190.653 0.00584584 1.11 10.68
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
OCTOBER 1987 0.623 961.39 -3.86%
NOVEMBER 1987 0.631 994.84 -0.52%
DECEMBER 1987 0.627 1,016.78 1.68%
JANUARY 1988 0.573 1,050.25 5.03%
FEBRUARY 1988 0.607 1,060.50 6.05%
MARCH 1988 0.625 1,042.62 4.26%
APRIL 1988 0.583 1,046.00 4.60%
MAY 1988 0.660 1,048.99 4.90%
JUNE 1988 0.621 1,062.66 6.27%
JULY 1988 0.599 1,067.28 6.73%
AUGUST 1988 0.691 1,072.77 7.28%
SEPTEMBER 1988 0.620 1,091.12 9.11%
OCTOBER 1988 0.641 1,106.40 10.64%
NOVEMBER 1988 0.628 1,107.95 10.80%
DECEMBER 1988 0.636 1,106.10 10.61%
JANUARY 1989 0.667 1,132.14 13.21%
FEBRUARY 1989 0.592 1,128.67 12.87%
MARCH 1989 0.672 1,121.21 12.12%
APRIL 1989 0.597 1,149.22 14.92%
MAY 1989 0.701 1,172.60 17.26%
JUNE 1989 0.616 1,179.91 17.99%
JULY 1989 0.592 1,189.38 18.94%
AUGUST 1989 0.679 1,185.37 18.54%
SEPTEMBER 1989 0.631 1,177.15 17.72%
OCTOBER 1989 0.630 1,192.99 19.30%
NOVEMBER 1989 0.716 1,204.91 20.49%
DECEMBER 1989 0.627 1,216.02 21.60%
JANUARY 1990 0.667 1,204.17 20.42%
FEBRUARY 1990 0.710 1,212.35 21.23%
MARCH 1990 0.620 1,215.93 21.59%
APRIL 1990 0.684 1,212.60 21.26%
MAY 1990 0.681 1,229.26 22.93%
JUNE 1990 0.698 1,238.61 23.86%
JULY 1990 0.679 1,252.89 25.29%
AUGUST 1990 0.694 1,235.43 23.54%
SEPTEMBER 1990 0.720 1,242.38 24.24%
OCTOBER 1990 0.722 1,258.41 25.84%
NOVEMBER 1990 0.738 1,285.10 28.51%
DECEMBER 1990 0.696 1,291.98 29.20%
JANUARY 1991 0.691 1,305.38 30.54%
FEBUARY 1991 0.707 1,322.97 32.30%
MARCH 1991 0.666 1,317.68 31.77%
APRIL 1991 0.695 1,328.58 32.86%
MAY 1991 0.652 1,341.78 34.18%
JUNE 1991 0.722 1,338.20 33.82%
JULY 1991 0.700 1,356.00 35.60%
AUGUST 1991 0.716 1,371.33 37.13%
SEPTEMBER 1991 0.690 1,390.61 39.06%
OCTOBER 1991 0.688 1,397.59 39.76%
NOVEMBER 1991 0.710 1,407.56 40.76%
DECEMBER 1991 0.703 1,430.01 43.00%
JANUARY 1992 0.726 1,447.26 44.73%
FEBRUARY 1992 0.678 1,440.23 44.02%
MARCH 1992 0.680 1,438.73 43.87%
APRIL 1992 0.713 1,451.67 45.17%
MAY 1992 0.691 1,471.58 47.16%
JUNE 1992 0.680 1,490.06 49.01%
JULY 1992 0.691 1,527.48 52.75%
AUGUST 1992 0.677 1,512.96 51.30%
SEPTEMBER 1992 0.679 1,521.52 52.15%
OCTOBER 1992 0.718 1,502.75 50.28%
NOVEMBER 1992 0.692 1,530.42 53.04%
DECEMBER 1992 1.147 1,545.35 54.53%
JANUARY 1993 0.684 1,564.39 56.44%
FEBRUARY 1993 0.661 1,613.13 61.31%
MARCH 1993 0.694 1,602.64 60.26%
APRIL 1993 0.664 1,612.76 61.28%
MAY 1993 0.665 1,621.39 62.14%
JUNE 1993 0.689 1,639.41 63.94%
JULY 1993 0.670 1,642.05 64.21%
AUGUST 1993 0.658 1,670.59 67.06%
SEPTEMBER 1993 0.677 1,687.21 68.72%
OCTOBER 1993 0.656 1,685.12 68.51%
NOVEMBER 1993 0.671 1,676.90 67.69%
DECEMBER 1993 0.682 1,702.98 70.30%
JANUARY 1994 0.636 1,711.49 71.15%
FEBRUARY 1994 0.668 1,687.34 68.73%
MARCH 1994 0.668 1,661.35 66.13%
APRIL 1994 0.727 1,648.37 64.84%
MAY 1994 0.710 1,652.56 65.26%
JUNE 1994 0.712 1,655.14 65.51%
JULY 1994 0.729 1,662.68 66.27%
AUGUST 1994 0.729 1,670.22 67.02%
SEPTEMBER 1994 0.774 1,658.74 65.87%
OCTOBER 1994 0.717 1,636.72 63.67%
NOVEMBER 1994 0.799 1,597.24 59.72%
DECEMBER 1994 1.396 1,640.58 64.06%
JANUARY 1995 0.760 1,664.73 66.47%
FEBRUARY 1995 0.716 1,715.25 71.53%
MARCH 1995 0.757 1,739.79 73.98%
APRIL 1995 0.735 1,749.11 74.91%
MAY 1995 0.731 1,776.98 77.70%
JUNE 1995 0.746 1,786.52 78.65%
JULY 1995 0.746 1,784.16 78.42%
AUGUST 1995 0.766 1,793.89 79.39%
SEPTEMBER 1995 0.715 1,801.38 80.14%
OCTOBER 1995 0.708 1,829.51 82.95%
NOVEMBER 1995 0.740 1,847.76 84.78%
DECEMBER 1995 0.877 1,865.81 86.58%
JANUARY 1996 0.725 1,873.58 87.36%
FEBRUARY 1996 0.753 1,876.37 87.64%
MARCH 1996 0.744 1,854.32 85.43%
APRIL 1996 0.755 1,851.62 85.16%
MAY 1996 0.808 1,861.84 86.18%
JUNE 1996 0.738 1,855.26 85.53%
JULY 1996 0.759 1,875.70 87.57%
AUGUST 1996 0.774 1,889.20 88.92%
SEPTEMBER 1996 0.778 1,899.17 89.92%
OCTOBER 1996 0.811 1,907.68 90.77%
NOVEMBER 1996 0.754 1,939.32 93.93%
DECEMBER 1996 0.933 1,940.06 94.01%
JANUARY 1997 0.804 1,933.80 93.38%
FEBRUARY 1997 0.748 1,963.87 96.39%
MARCH 1997 0.788 1,940.63 94.06%
APRIL 1997 0.841 1,941.94 94.19%
MAY 1997 0.785 1,966.98 96.70%
JUNE 1997 0.779 1,992.10 99.21%
JULY 1997 0.799 2,025.13 102.51%
AUGUST 1997 0.783 2,016.43 101.64%
SEPTEMBER 26, 1997* 0.782 2,038.08 103.81%
SEPTEMBER 30, 1997 0.104 2,037.29 103.73%
<FN>
* Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S I N C E I N C E P T I O N T O T A L R E T U R N
B A S E D O N P O P
Tax-Free Trust of Oregon (Class A Shares)
AVG ANN'L TOTAL RETURN AS OF 9/30/97 6.82%
CUMULATIVE TOTAL RETURN AS OF 9/30/97 110.76%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $9.60 As of 6/16/86
Public Offering Price Per Share (POP) $10.00 As of 6/16/86
Number of Shares Purchased 100.000 Based on POP
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
JUNE 1986 1,000.00 100.000 0.00457100 0.46 9.58
JULY 1986 958.46 100.048 0.04794600 4.80 9.48
AUGUST 1986 953.25 100.554 0.05435600 5.47 9.89
SEPTEMBER 1986 999.94 101.106 0.06056000 6.12 9.82
OCTOBER 1986 998.99 101.730 0.06084100 6.19 10.05
NOVEMBER 1986 1,028.57 102.346 0.05264100 5.39 10.12
DECEMBER 1986 1,041.13 102.878 0.06247500 6.43 10.07
JANUARY 1987 1,042.41 103.516 0.05729500 5.93 10.19
FEBRUARY 1987 1,060.76 104.098 0.05251800 5.47 10.26
MARCH 1987 1,073.52 104.631 0.05928100 6.20 10.12
APRIL 1987 1,065.07 105.244 0.05555000 5.85 9.48
MAY 1987 1,003.56 105.861 0.05286700 5.60 9.21
JUNE 1987 980.58 106.469 0.05812700 6.19 9.39
JULY 1987 1,005.93 107.128 0.05531300 5.93 9.50
AUGUST 1987 1,023.64 107.751 0.05571300 6.00 9.53
SEPTEMBER 1987 1,032.87 108.381 0.05272900 5.71 9.11
OCTOBER 1987 993.07 109.009 0.05361400 5.84 9.07
NOVEMBER 1987 994.55 109.653 0.05557600 6.09 9.33
DECEMBER 1987 1,029.16 110.306 0.05572300 6.15 9.48
JANUARY 1988 1,051.85 110.954 0.05207600 5.78 9.74
FEBRUARY 1988 1,086.47 111.548 0.05506100 6.14 9.78
MARCH 1988 1,097.08 112.176 0.05510700 6.18 9.56
APRIL 1988 1,078.58 112.822 0.05098900 5.75 9.54
MAY 1988 1,082.08 113.425 0.05724100 6.49 9.51
JUNE 1988 1,085.17 114.108 0.05391900 6.15 9.58
JULY 1988 1,099.31 114.750 0.05169200 5.93 9.57
AUGUST 1988 1,104.09 115.370 0.05925900 6.84 9.56
SEPTEMBER 1988 1,109.78 116.085 0.05345300 6.21 9.67
OCTOBER 1988 1,128.75 116.727 0.05542500 6.47 9.75
NOVEMBER 1988 1,144.56 117.390 0.05372700 6.31 9.71
DECEMBER 1988 1,146.17 118.040 0.05372800 6.34 9.64
JANUARY 1989 1,144.25 118.698 0.05700700 6.77 9.81
FEBRUARY 1989 1,171.19 119.388 0.04988500 5.96 9.73
MARCH 1989 1,167.60 120.000 0.05566800 6.68 9.61
APRIL 1989 1,159.88 120.695 0.05012300 6.05 9.80
MAY 1989 1,188.86 121.312 0.05939000 7.20 9.94
JUNE 1989 1,213.05 122.037 0.05193600 6.34 9.95
JULY 1989 1,220.61 122.674 0.04985100 6.12 9.98
AUGUST 1989 1,230.40 123.287 0.05633400 6.95 9.89
SEPTEMBER 1989 1,226.25 123.989 0.05145100 6.38 9.77
OCTOBER 1989 1,217.75 124.642 0.05147300 6.42 9.85
NOVEMBER 1989 1,234.14 125.293 0.05844600 7.32 9.89
DECEMBER 1989 1,246.47 126.034 0.05112200 6.44 9.93
JANUARY 1990 1,257.96 126.683 0.05325500 6.75 9.78
FEBRUARY 1990 1,245.70 127.372 0.05642300 7.19 9.79
MARCH 1990 1,254.16 128.107 0.04894300 6.27 9.77
APRIL 1990 1,257.87 128.748 0.05323100 6.85 9.69
MAY 1990 1,254.42 129.456 0.05314000 6.88 9.77
JUNE 1990 1,271.66 130.160 0.05431300 7.07 9.79
JULY 1990 1,281.33 130.882 0.05286300 6.92 9.85
AUGUST 1990 1,296.10 131.584 0.05270400 6.94 9.66
SEPTEMBER 1990 1,278.04 132.302 0.05438500 7.20 9.66
OCTOBER 1990 1,285.23 133.047 0.05464800 7.27 9.73
NOVEMBER 1990 1,301.82 133.794 0.05637700 7.54 9.88
DECEMBER 1990 1,329.43 134.558 0.05287300 7.11 9.88
JANUARY 1991 1,336.54 135.278 0.05244600 7.09 9.93
FEBRUARY 1991 1,350.40 135.992 0.05380500 7.32 10.01
MARCH 1991 1,368.60 136.723 0.04998900 6.83 9.92
APRIL 1991 1,363.13 137.412 0.05205600 7.15 9.95
MAY 1991 1,374.40 138.131 0.04885200 6.75 10.00
JUNE 1991 1,388.06 138.806 0.05336000 7.41 9.92
JULY 1991 1,384.36 139.553 0.05189100 7.24 10.00
AUGUST 1991 1,402.77 140.277 0.05310300 7.45 10.06
SEPTEMBER 1991 1,418.63 141.017 0.05140000 7.25 10.15
OCTOBER 1991 1,438.57 141.731 0.05095900 7.22 10.15
NOVEMBER 1991 1,445.79 142.443 0.05241100 7.47 10.17
DECEMBER 1991 1,456.11 143.177 0.05221200 7.48 10.28
JANUARY 1992 1,479.33 143.904 0.05399100 7.77 10.35
FEBRUARY 1992 1,497.18 144.655 0.04972200 7.19 10.25
MARCH 1992 1,489.90 145.357 0.04931500 7.17 10.19
APRIL 1992 1,488.35 146.060 0.05169400 7.55 10.23
MAY 1992 1,501.74 146.798 0.05028800 7.38 10.32
JUNE 1992 1,522.34 147.513 0.04959100 7.32 10.40
JULY 1992 1,541.45 148.217 0.05115400 7.58 10.61
AUGUST 1992 1,580.16 148.931 0.04919900 7.33 10.46
SEPTEMBER 1992 1,565.15 149.632 0.04914500 7.35 10.47
OCTOBER 1992 1,574.00 150.334 0.05086900 7.65 10.29
NOVEMBER 1992 1,554.59 151.077 0.04945300 7.47 10.43
DECEMBER 1992 1,583.21 151.794 0.08171800 12.40 10.45
JANUARY 1993 1,598.65 152.981 0.04874000 7.46 10.53
FEBRUARY 1993 1,618.34 153.689 0.04808900 7.39 10.81
MARCH 1993 1,668.77 154.373 0.04973700 7.68 10.69
APRIL 1993 1,657.92 155.091 0.04745500 7.36 10.71
MAY 1993 1,668.38 155.778 0.04733900 7.37 10.72
JUNE 1993 1,677.31 156.466 0.04912500 7.69 10.79
JULY 1993 1,695.95 157.178 0.04742200 7.45 10.76
AUGUST 1993 1,698.69 157.871 0.04701600 7.42 10.90
SEPTEMBER 1993 1,728.22 158.552 0.04841800 7.68 10.96
OCTOBER 1993 1,745.41 159.252 0.04641800 7.39 10.90
NOVEMBER 1993 1,743.24 159.931 0.04685900 7.49 10.80
DECEMBER 1993 1,734.74 160.624 0.04793200 7.70 10.92
JANUARY 1994 1,761.72 161.329 0.04456700 7.19 10.93
FEBRUARY 1994 1,770.52 161.987 0.04578800 7.42 10.73
MARCH 1994 1,745.54 162.679 0.04471400 7.27 10.52
APRIL 1994 1,718.65 163.370 0.04780900 7.81 10.39
MAY 1994 1,705.22 164.122 0.04640500 7.62 10.37
JUNE 1994 1,709.56 164.856 0.04620100 7.62 10.34
JULY 1994 1,712.23 165.593 0.04709300 7.80 10.34
AUGUST 1994 1,720.03 166.347 0.04687400 7.80 10.34
SEPTEMBER 1994 1,727.82 167.101 0.04896100 8.18 10.22
OCTOBER 1994 1,715.95 167.902 0.04433600 7.44 10.04
NOVEMBER 1994 1,693.18 168.643 0.04777400 8.06 9.75
DECEMBER 1994 1,652.33 169.469 0.08461600 14.34 9.93
JANUARY 1995 1,697.17 170.913 0.04616500 7.89 10.03
FEBRUARY 1995 1,722.15 171.700 0.04439300 7.62 10.29
MARCH 1995 1,774.42 172.441 0.04719000 8.14 10.39
APRIL 1995 1,799.80 173.224 0.04564100 7.91 10.40
MAY 1995 1,809.44 173.984 0.04574400 7.96 10.52
JUNE 1995 1,838.27 174.741 0.04647400 8.12 10.53
JULY 1995 1,848.14 175.512 0.04606600 8.09 10.47
AUGUST 1995 1,845.70 176.284 0.04709600 8.30 10.48
SEPTEMBER 1995 1,855.76 177.076 0.04376600 7.75 10.48
OCTOBER 1995 1,863.51 177.816 0.04367800 7.77 10.60
NOVEMBER 1995 1,892.62 178.549 0.04572200 8.16 10.66
DECEMBER 1995 1,911.49 179.314 0.05415700 9.71 10.71
JANUARY 1996 1,930.17 180.221 0.04456800 8.03 10.71
FEBRUARY 1996 1,938.20 180.971 0.04595400 8.32 10.68
MARCH 1996 1,941.09 181.750 0.04450400 8.09 10.51
APRIL 1996 1,918.28 182.519 0.04471100 8.16 10.45
MAY 1996 1,915.49 183.300 0.04767200 8.74 10.46
JUNE 1996 1,926.06 184.136 0.04302700 7.92 10.38
JULY 1996 1,919.25 184.899 0.04436351 8.20 10.45
AUGUST 1996 1,940.40 185.684 0.04519532 8.39 10.48
SEPTEMBER 1996 1,954.36 186.485 0.04529285 8.45 10.49
OCTOBER 1996 1,964.67 187.290 0.04700094 8.80 10.49
NOVEMBER 1996 1,973.47 188.129 0.04401132 8.28 10.62
DECEMBER 1996 2,006.21 188.909 0.05402495 10.21 10.57
JANUARY 1997 2,006.97 189.874 0.04593102 8.72 10.49
FEBRUARY 1997 2,000.50 190.706 0.04307765 8.22 10.61
MARCH 1997 2,031.60 191.480 0.04444061 8.51 10.44
APRIL 1997 2,007.56 192.295 0.04707153 9.05 10.40
MAY 1997 2,008.92 193.165 0.04411654 8.52 10.49
JUNE 1997 2,034.83 193.978 0.04396905 8.53 10.58
JULY 1997 2,060.81 194.784 0.04542724 8.85 10.71
AUGUST 1997 2,094.98 195.610 0.04395537 8.60 10.62
SEPTEMBER 26, 1997* 2,085.98 196.420 0.04404356 8.65 10.69
SEPTEMBER 30, 1997 2,108.38 197.229 0.00584584 1.15 10.68
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
JUNE 1986 0.048 958.46 -4.15%
JULY 1986 0.506 953.25 -4.68%
AUGUST 1986 0.553 999.94 -0.01%
SEPTEMBER 1986 0.624 998.99 -0.10%
OCTOBER 1986 0.616 1,028.57 2.86%
NOVEMBER 1986 0.532 1,041.13 4.11%
DECEMBER 1986 0.638 1,042.41 4.24%
JANUARY 1987 0.582 1,060.76 6.08%
FEBRUARY 1987 0.533 1,073.52 7.35%
MARCH 1987 0.613 1,065.07 6.51%
APRIL 1987 0.617 1,003.56 0.36%
MAY 1987 0.608 980.58 -1.94%
JUNE 1987 0.659 1,005.93 0.59%
JULY 1987 0.624 1,023.64 2.36%
AUGUST 1987 0.630 1,032.87 3.29%
SEPTEMBER 1987 0.627 993.07 -0.69%
OCTOBER 1987 0.644 994.55 -0.54%
NOVEMBER 1987 0.653 1,029.16 2.92%
DECEMBER 1987 0.648 1,051.85 5.18%
JANUARY 1988 0.593 1,086.47 8.65%
FEBRUARY 1988 0.628 1,097.08 9.71%
MARCH 1988 0.647 1,078.58 7.86%
APRIL 1988 0.603 1,082.08 8.21%
MAY 1988 0.683 1,085.17 8.52%
JUNE 1988 0.642 1,099.31 9.93%
JULY 1988 0.620 1,104.09 10.41%
AUGUST 1988 0.715 1,109.78 10.98%
SEPTEMBER 1988 0.642 1,128.75 12.87%
OCTOBER 1988 0.664 1,144.56 14.46%
NOVEMBER 1988 0.650 1,146.17 14.62%
DECEMBER 1988 0.658 1,144.25 14.42%
JANUARY 1989 0.690 1,171.19 17.12%
FEBRUARY 1989 0.612 1,167.60 16.76%
MARCH 1989 0.695 1,159.88 15.99%
APRIL 1989 0.617 1,188.86 18.89%
MAY 1989 0.725 1,213.05 21.30%
JUNE 1989 0.637 1,220.61 22.06%
JULY 1989 0.613 1,230.40 23.04%
AUGUST 1989 0.702 1,226.25 22.63%
SEPTEMBER 1989 0.653 1,217.75 21.78%
OCTOBER 1989 0.651 1,234.14 23.41%
NOVEMBER 1989 0.740 1,246.47 24.65%
DECEMBER 1989 0.649 1,257.96 25.80%
JANUARY 1990 0.690 1,245.70 24.57%
FEBRUARY 1990 0.734 1,254.16 25.42%
MARCH 1990 0.642 1,257.87 25.79%
APRIL 1990 0.707 1,254.42 25.44%
MAY 1990 0.704 1,271.66 27.17%
JUNE 1990 0.722 1,281.33 28.13%
JULY 1990 0.702 1,296.10 29.61%
AUGUST 1990 0.718 1,278.04 27.80%
SEPTEMBER 1990 0.745 1,285.23 28.52%
OCTOBER 1990 0.747 1,301.82 30.18%
NOVEMBER 1990 0.763 1,329.43 32.94%
DECEMBER 1990 0.720 1,336.54 33.65%
JANUARY 1991 0.714 1,350.40 35.04%
FEBRUARY 1991 0.731 1,368.60 36.86%
MARCH 1991 0.689 1,363.13 36.31%
APRIL 1991 0.719 1,374.40 37.44%
MAY 1991 0.675 1,388.06 38.81%
JUNE 1991 0.747 1,384.36 38.44%
JULY 1991 0.724 1,402.77 40.28%
AUGUST 1991 0.740 1,418.63 41.86%
SEPTEMBER 1991 0.714 1,438.57 43.86%
OCTOBER 1991 0.712 1,445.79 44.58%
NOVEMBER 1991 0.734 1,456.11 45.61%
DECEMBER 1991 0.727 1,479.33 47.93%
JANUARY 1992 0.751 1,497.18 49.72%
FEBRUARY 1992 0.702 1,489.90 48.99%
MARCH 1992 0.703 1,488.35 48.84%
APRIL 1992 0.738 1,501.74 50.17%
MAY 1992 0.715 1,522.34 52.23%
JUNE 1992 0.703 1,541.45 54.15%
JULY 1992 0.715 1,580.16 58.02%
AUGUST 1992 0.701 1,565.15 56.51%
SEPTEMBER 1992 0.702 1,574.00 57.40%
OCTOBER 1992 0.743 1,554.59 55.46%
NOVEMBER 1992 0.716 1,583.21 58.32%
DECEMBER 1992 1.187 1,598.65 59.86%
JANUARY 1993 0.708 1,618.34 61.83%
FEBRUARY 1993 0.684 1,668.77 66.88%
MARCH 1993 0.718 1,657.92 65.79%
APRIL 1993 0.687 1,668.38 66.84%
MAY 1993 0.688 1,677.31 67.73%
JUNE 1993 0.712 1,695.95 69.60%
JULY 1993 0.693 1,698.69 69.87%
AUGUST 1993 0.681 1,728.22 72.82%
SEPTEMBER 1993 0.700 1,745.41 74.54%
OCTOBER 1993 0.678 1,743.24 74.32%
NOVEMBER 1993 0.694 1,734.74 73.47%
DECEMBER 1993 0.705 1,761.72 76.17%
JANUARY 1994 0.658 1,770.52 77.05%
FEBRUARY 1994 0.691 1,745.54 74.55%
MARCH 1994 0.691 1,718.65 71.87%
APRIL 1994 0.752 1,705.22 70.52%
MAY 1994 0.734 1,709.56 70.96%
JUNE 1994 0.737 1,712.23 71.22%
JULY 1994 0.754 1,720.03 72.00%
AUGUST 1994 0.754 1,727.82 72.78%
SEPTEMBER 1994 0.801 1,715.95 71.60%
OCTOBER 1994 0.741 1,693.18 69.32%
NOVEMBER 1994 0.826 1,652.33 65.23%
DECEMBER 1994 1.444 1,697.17 69.72%
JANUARY 1995 0.787 1,722.15 72.22%
FEBRUARY 1995 0.741 1,774.42 77.44%
MARCH 1995 0.783 1,799.80 79.98%
APRIL 1995 0.760 1,809.44 80.94%
MAY 1995 0.757 1,838.27 83.83%
JUNE 1995 0.771 1,848.14 84.81%
JULY 1995 0.772 1,845.70 84.57%
AUGUST 1995 0.792 1,855.76 85.58%
SEPTEMBER 1995 0.739 1,863.51 86.35%
OCTOBER 1995 0.733 1,892.62 89.26%
NOVEMBER 1995 0.766 1,911.49 91.15%
DECEMBER 1995 0.907 1,930.17 93.02%
JANUARY 1996 0.750 1,938.20 93.82%
FEBRUARY 1996 0.779 1,941.09 94.11%
MARCH 1996 0.770 1,918.28 91.83%
APRIL 1996 0.781 1,915.49 91.55%
MAY 1996 0.835 1,926.06 92.61%
JUNE 1996 0.763 1,919.25 91.93%
JULY 1996 0.785 1,940.40 94.04%
AUGUST 1996 0.801 1,954.36 95.44%
SEPTEMBER 1996 0.805 1,964.67 96.47%
OCTOBER 1996 0.839 1,973.47 97.35%
NOVEMBER 1996 0.780 2,006.21 100.62%
DECEMBER 1996 0.966 2,006.97 100.70%
JANUARY 1997 0.831 2,000.50 100.05%
FEBRUARY 1997 0.774 2,031.60 103.16%
MARCH 1997 0.815 2,007.56 100.76%
APRIL 1997 0.870 2,008.92 100.89%
MAY 1997 0.812 2,034.83 103.48%
JUNE 1997 0.806 2,060.81 106.08%
JULY 1997 0.826 2,094.98 109.50%
AUGUST 1997 0.810 2,085.98 108.60%
SEPTEMBER 26, 1997* 0.809 2,108.38 110.84%
SEPTEMBER 30, 1997 0.108 2,107.56 110.76%
<FN>
* Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S I N C E I N C E P T I O N T O T A L R E T U R N
B A S E D O N N A V
Tax-Free Trust of Oregon (Class C Shares)
AVG ANN'L TOTAL RETURN AS OF 9/30/97 6.64%
CUMULATIVE TOTAL RETURN AS OF 9/30/97 10.04%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.34 As of 4/5/96 (Commencement
of the Class)
Number of Shares Purchased 96.712 Based on NAV
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
APRIL 1996 1,000.00 96.712 0.03172598 3.07 10.45
MAY 1996 1,013.71 97.005 0.04003100 3.88 10.46
JUNE 1996 1,018.56 97.377 0.03607300 3.51 10.38
JULY 1996 1,014.28 97.715 0.03192761 3.12 10.45
AUGUST 1996 1,024.24 98.014 0.03758896 3.68 10.48
SEPTEMBER 1996 1,030.87 98.365 0.03837737 3.77 10.49
OCTOBER 1996 1,035.63 98.725 0.03914522 3.86 10.48
NOVEMBER 1996 1,038.50 99.094 0.03597334 3.56 10.61
DECEMBER 1996 1,054.95 99.430 0.04659705 4.63 10.56
JANUARY 1997 1,054.61 99.869 0.03825777 3.82 10.48
FEBRUARY 1997 1,050.44 100.233 0.03588829 3.60 10.60
MARCH 1997 1,066.07 100.572 0.03719514 3.74 10.43
APRIL 1997 1,052.71 100.931 0.03930029 3.97 10.40
MAY 1997 1,053.65 101.313 0.03667504 3.72 10.48
JUNE 1997 1,065.47 101.667 0.03653160 3.71 10.57
JULY 1997 1,078.33 102.018 0.03772697 3.85 10.71
AUGUST 1997 1,096.47 102.378 0.03648307 3.74 10.62
SEPTEMBER 26, 1997** 1,090.99 102.730 0.03657300 3.76 10.68
SEPTEMBER 30, 1997 1,100.91 103.081 0.00484964 0.50 10.67
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
APRIL 1996 0.294 1,013.71 1.37%
MAY 1996 0.371 1,018.56 1.86%
JUNE 1996 0.338 1,014.28 1.43%
JULY 1996 0.299 1,024.24 2.42%
AUGUST 1996 0.352 1,030.87 3.09%
SEPTEMBER 1996 0.360 1,035.63 3.56%
OCTOBER 1996 0.369 1,038.50 3.85%
NOVEMBER 1996 0.336 1,054.95 5.49%
DECEMBER 1996 0.439 1,054.61 5.46%
JANUARY 1997 0.365 1,050.44 5.04%
FEBRUARY 1997 0.339 1,066.07 6.61%
MARCH 1997 0.359 1,052.71 5.27%
APRIL 1997 0.381 1,053.65 5.37%
MAY 1997 0.355 1,065.47 6.55%
JUNE 1997 0.351 1,078.33 7.83%
JULY 1997 0.359 1,096.47 9.65%
AUGUST 1997 0.352 1,090.99 9.10%
SEPTEMBER 26, 1997** 0.352 1,100.91 10.09%
SEPTEMBER 30, 1997 0.047 1,100.38 10.04%
<FN>
** Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S I N C E I N C E P T I O N T O T A L R E T U R N
B A S E D O N N A V
Tax-Free Trust of Oregon (Class Y Shares)
AVG ANN'L TOTAL RETURN AS OF 9/30/97 7.80%
CUMULATIVE TOTAL RETURN AS OF 9/30/97 11.82%
Initial Investment $1,000
Net Asset Value Per Share (NAV) $10.34 As of 4/5/96 (Commencement
of the Class)
Number of Shares Purchased 96.712 Based on NAV
ENDING
INVESTMENT NUMBER PERIOD PERIOD NET ASSET
@ BEGINNING OF DIVIDEND $ VALUE PER
OF PERIOD SHARES FACTOR DIVIDEND SHARE
<S> <C> <C> <C> <C> <C>
APRIL 1996 1,000.00 96.712 0.03535600 3.42 10.45
MAY 1996 1,014.06 97.039 0.04902200 4.76 10.46
JUNE 1996 1,019.79 97.494 0.04424500 4.31 10.38
JULY 1996 1,016.30 97.909 0.04564278 4.47 10.45
AUGUST 1996 1,027.62 98.337 0.05250479 5.16 10.42
SEPTEMBER 1996 1,029.83 98.833 0.04664520 4.61 10.49
OCTOBER 1996 1,041.36 99.272 0.04625550 4.59 10.53
NOVEMBER 1996 1,049.93 99.708 0.04527739 4.51 10.63
DECEMBER 1996 1,064.41 100.133 0.05834429 5.84 10.55
JANUARY 1997 1,062.24 100.687 0.04729063 4.76 10.54
FEBRUARY 1997 1,066.00 101.138 0.04281343 4.33 10.57
MARCH 1997 1,073.36 101.548 0.04721020 4.79 10.43
APRIL 1997 1,063.94 102.008 0.04537729 4.63 10.45
MAY 1997 1,070.61 102.451 0.04682680 4.80 10.52
JUNE 1997 1,082.58 102.907 0.04516514 4.65 10.56
JULY 1997 1,091.34 103.347 0.04672726 4.83 10.73
AUGUST 1997 1,113.74 103.797 0.04676284 4.85 10.63
SEPTEMBER 30, 1997** 1,108.21 104.253 0.04533833 4.73 10.68
<CAPTION>
INVESTMENT CUMULATIVE
DIVIDEND @ END TOTAL
SHARES OF PERIOD RETURN
<S> <C> <C> <C>
APRIL 1996 0.327 1,014.06 1.41%
MAY 1996 0.455 1,019.79 1.98%
JUNE 1996 0.416 1,016.30 1.63%
JULY 1996 0.428 1,027.62 2.76%
AUGUST 1996 0.496 1,029.83 2.98%
SEPTEMBER 1996 0.439 1,041.36 4.14%
OCTOBER 1996 0.436 1,049.93 4.99%
NOVEMBER 1996 0.425 1,064.41 6.44%
DECEMBER 1996 0.554 1,062.24 6.22%
JANUARY 1997 0.452 1,066.00 6.60%
FEBRUARY 1997 0.410 1,073.36 7.34%
MARCH 1997 0.460 1,063.94 6.39%
APRIL 1997 0.443 1,070.61 7.06%
MAY 1997 0.456 1,082.58 8.26%
JUNE 1997 0.440 1,091.34 9.13%
JULY 1997 0.450 1,113.74 11.37%
AUGUST 1997 0.457 1,108.21 10.82%
SEPTEMBER 30, 1997** 0.443 1,118.15 11.82%
<FN>
** Record Date
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Trust of Oregon
Class A
SEC Yield
9/30/97
<S> <C>
Dividend and Interest Income 1,264,816.03
Expenses Accrued for Period 181,414.56
Avg. Daily Shares Outstanding 29,164,474.483
Maximum Offering Price 11.13
Yield 4.04
---------------------------------------------------
<CAPTION>
Tax-Free Trust of Oregon
Class C
SEC Yield
9/30/97
<S> <C>
Dividend and Interest Income 3,238.34
Expenses Accrued for Period 1,020.93
Avg. Daily Shares Outstanding 74,720.812
Maximum Offering Price 10.67
Yield 3.36
---------------------------------------------------
<CAPTION>
Tax-Free Trust of Oregon
Class Y
SEC Yield
9/30/97
<S> <C>
Dividend and Interest Income 15,546.92
Expenses Accrued for Period 1,760.01
Avg. Daily Shares Outstanding 358,672.842
Maximum Offering Price 10.68
Yield 4.36
</TABLE>
---------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Tax-Free Trust of Oregon
Class A 9/30/97
---------
<S> <C>
y Yield (Pre-tax) 0.0404
Fe Percent Exempt From Federal Tax 0.9911
F Federal Tax Rate 0.396
S State Tax Rate 0.09
Y Taxable Equivalent Yield 0.0732
Formula Y = ((y*Fe)/(1-(F+S*(1-F))))+(y*(1-Fe))
----------------------------------------------
<CAPTION>
Taxable Equivalent Yield
Tax-Free Trust of Oregon
Class C 9/30/97
---------
<S> <C>
y Yield (Pre-tax) 0.0336
Fe Percent Exempt From Federal Tax 0.9911
F Federal Tax Rate 0.396
S State Tax Rate 0.09
Y Taxable Equivalent Yield 0.0609
Formula Y = ((y*Fe)/(1-(F+S*(1-F))))+(y*(1-Fe))
----------------------------------------------
<CAPTION>
Taxable Equivalent Yield
Tax-Free Trust of Oregon
Class Y 9/30/97
---------
<S> <C>
y Yield (Pre-tax) 0.0436
Fe Percent Exempt From Federal Tax 0.9911
F Federal Tax Rate 0.396
S State Tax Rate 0.09
Y Taxable Equivalent Yield 0.0790
Formula Y = ((y*Fe)/(1-(F+S*(1-F))))+(y*(1-Fe))
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT DATED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000791049
<NAME> TAX-FREE TRUST OF OREGON - CLASS A SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 294,602,756
<INVESTMENTS-AT-VALUE> 311,421,564
<RECEIVABLES> 6,357,061
<ASSETS-OTHER> 11,552
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 317,790,177
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 954,163
<TOTAL-LIABILITIES> 954,163
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 300,017,206
<SHARES-COMMON-STOCK> 29,209,762
<SHARES-COMMON-PRIOR> 29,081,652
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,818,808
<NET-ASSETS> 312,004,521
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,732,812
<OTHER-INCOME> 0
<EXPENSES-NET> 2,238,721
<NET-INVESTMENT-INCOME> 15,494,091
<REALIZED-GAINS-CURRENT> 394,005
<APPREC-INCREASE-CURRENT> 5,718,838
<NET-CHANGE-FROM-OPS> 21,606,934
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15,480,977
<DISTRIBUTIONS-OF-GAINS> 387,996
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,755,147
<NUMBER-OF-SHARES-REDEEMED> 3,530,285
<SHARES-REINVESTED> 903,248
<NET-CHANGE-IN-ASSETS> 11,161,280
<ACCUMULATED-NII-PRIOR> 1,641,361
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 617,654
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,268,250
<AVERAGE-NET-ASSETS> 306,496,741
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> .21
<PER-SHARE-DIVIDEND> .54
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.68
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT DATED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000791049
<NAME> TAX-FREE TRUST OF OREGON - CLASS C SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 294,602,756
<INVESTMENTS-AT-VALUE> 311,421,564
<RECEIVABLES> 6,357,061
<ASSETS-OTHER> 11,552
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 317,790,177
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 954,163
<TOTAL-LIABILITIES> 954,163
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 300,017,206
<SHARES-COMMON-STOCK> 74,991
<SHARES-COMMON-PRIOR> 32,075
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,818,808
<NET-ASSETS> 800,499
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,732,812
<OTHER-INCOME> 0
<EXPENSES-NET> 2,238,721
<NET-INVESTMENT-INCOME> 15,494,091
<REALIZED-GAINS-CURRENT> 394,005
<APPREC-INCREASE-CURRENT> 5,718,838
<NET-CHANGE-FROM-OPS> 21,606,934
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 27,150
<DISTRIBUTIONS-OF-GAINS> 997
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 42,838
<NUMBER-OF-SHARES-REDEEMED> 459
<SHARES-REINVESTED> 538
<NET-CHANGE-IN-ASSETS> 11,161,280
<ACCUMULATED-NII-PRIOR> 1,641,361
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 617,654
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,268,250
<AVERAGE-NET-ASSETS> 654,677
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .21
<PER-SHARE-DIVIDEND> .45
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.67
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE
REGISTRANT'S ANNUAL REPORT DATED SEPTEMBER 30, 1997 AND IS QUALIFEID
IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000791049
<NAME> TAX-FREE TRUST OF OREGON - CLASS Y SHARES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 294,602,756
<INVESTMENTS-AT-VALUE> 311,421,564
<RECEIVABLES> 6,357,061
<ASSETS-OTHER> 11,552
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 317,790,177
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 954,163
<TOTAL-LIABILITIES> 954,163
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 300,017,206
<SHARES-COMMON-STOCK> 377,530
<SHARES-COMMON-PRIOR> 23,053
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,818,808
<NET-ASSETS> 4,030,994
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,732,812
<OTHER-INCOME> 0
<EXPENSES-NET> 2,238,721
<NET-INVESTMENT-INCOME> 15,494,091
<REALIZED-GAINS-CURRENT> 394,005
<APPREC-INCREASE-CURRENT> 5,718,838
<NET-CHANGE-FROM-OPS> 21,606,934
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 87,359
<DISTRIBUTIONS-OF-GAINS> 5,012
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 359,104
<NUMBER-OF-SHARES-REDEEMED> 9,464
<SHARES-REINVESTED> 4,836
<NET-CHANGE-IN-ASSETS> 11,161,280
<ACCUMULATED-NII-PRIOR> 1,641,361
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 617,654
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,268,250
<AVERAGE-NET-ASSETS> 1,740,265
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> .21
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.68
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
TAX-FREE TRUST OF OREGON
Rule 18f-3
Multiple Class Plan
TAX-FREE TRUST OF OREGON (the "Trust") has elected to
rely on Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), in offering multiple classes of shares
with differing distribution arrangements, voting rights and
expense allocations.
Pursuant to Rule 18f-3, the Board of Trustees of the
Trust has approved and adopted this written plan (the "Plan")
specifying all of the differences among the classes of shares to
be offered by the Trust. Prior to such offering, the Plan will
be filed as an exhibit to the Trust's registration statement.
The Plan sets forth the differences among the classes, including
shareholder services, distribution arrangements, expense
allocations, and conversion or exchange options.
I. Attributes of Share Classes
This section discusses the attributes of the various classes
of shares. Each share of the Trust represents an equal pro rata
interest in the Trust and has identical voting rights, powers,
qualifications, terms and conditions, and in proportion to each
share's net asset value, liquidation rights and preferences.
Each class differs in that: (a) each class has a different class
designation; (b) only the Front-Payment Shares are subject to a
front-end sales charge ("FESC"); (c) only the Level-Payment
Shares are subject to a contingent deferred sales charge
("CDSC"); (d) only the Front-Payment Shares and Level-Payment
Shares (as described below) are subject to distribution fees
under a plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), the distribution fee for the Level-Payment
Class being higher than that for the Front-Payment Class; (e)
only the Level-Payment Shares are subject to a shareholder
servicing fee under a non-Rule 12b-1 shareholder services plan (a
"Shareholder Services Plan"); (f) to the extent that one class
alone is affected by a matter submitted to a vote of the
shareholders, then only that class has voting power on the
matter, provided, however, that any class whose shares convert
automatically to shares of another class also votes separately
with respect to class-specific Rule 12b-1 matters applying to the
latter class; (g) the expenses attributable to a specific class
("Class Expenses")* are borne only by shares of that class on a
pro-rata basis; and (h) exchange privileges may vary among the
classes.
* Class Expenses are limited to (i) transfer agency fees; (ii)
preparation and mailing expenses for shareholder communications
required by law, sent to current shareholders of a class; (iii)
state Blue Sky registration fees; (iv) Securities and Exchange
Commission ("SEC") registration fees; (v) trustees' fees; (vi)
expenses incurred for periodic meetings of trustees or
shareholders; and (vii) legal and accounting fees, other than
fees for income tax return preparation or income tax advice.
A. Front-Payment Shares
Front-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Front-Payment
Shares under the exchange privileges of the Trust. Shares
of the Trust outstanding on the date that the three classes
of shares are first made available will be redesignated
Front-Payment Shares. Front-Payment Shares will also be
issued upon automatic conversion of Level-Payment Shares, as
described below.
1. Sales Loads. Front-Payment Shares are sold
subject to the current maximum FESC (with scheduled
variations or eliminations of the sales charge, as
permitted by the 1940 Act).
2. Distribution and Service Fees. Front-Payment
Shares are subject to a distribution fee pursuant to
Part I of the Trust's Rule 12b-1 Plan. They are not
subject to charges applicable to a Shareholder Services
Plan.
3. Class Expenses. Class Expenses that are
attributable to the Front-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Front-Payment Shares are exchangeable for Front-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
Front-Payment Shares have no conversion features.
B. Level-Payment Shares
Level-Payment Shares are sold to (1) retail customers
and (2) persons entitled to exchange into Level-Payment
Shares under the exchange privileges of the Trust.
1. Sales Loads. Level-Payment Shares are sold
without the imposition of any FESC, but are subject to
a CDSC (with scheduled variations or eliminations of
the sales charge, as permitted by the 1940 Act).
2. Distribution and Service Fees. Level-Payment
Shares are subject to a distribution fee pursuant to
Part II of the Trust's Rule 12b-1 Plan and to a
shareholder servicing fee under a Shareholder Services
Plan not to exceed .25% of the average daily net assets
of the Level-Payment Class.
3. Class Expenses. Class Expenses that are
attributable to the Level-Payment Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Level-Payment Shares are exchangeable for Level-Payment
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
After a period of no greater than six years, Level-
Payment Shares automatically convert to Front-Payment
Shares on the basis of the relative net asset values of
the two classes without the imposition of any sales
charge, fee, or other charge, provided, however, that
the expenses, including distribution fees, for Front-
Payment Shares are not higher than the expenses,
including distribution fees, for Level-Payment Shares.
If the amount of expenses, including distribution fees,
for the Front-Payment Class is increased materially
without approval of the shareholders of the Level-
Payment Class, a new class will be established -- on
the same terms as apply to the Front-Payment Class
prior to such increase -- as the class into which
Level-Payment Shares automatically convert.
C. Institutional Shares
Institutional Shares are not offered to retail
customers but are sold only to (1) institutional investors
investing funds held in a fiduciary, advisory, agency,
custodial or other similar capacity and (2) persons entitled
to exchange into Institutional Shares under the exchange
privileges of the Trust.
1. Sales Loads. Institutional Shares are sold
without the imposition of any FESC, CDSC or any other
sales charge.
2. Distribution and Service Fees. Institutional
Shares are not subject to any distribution fee or
shareholder servicing fee.
3. Class Expenses. Class Expenses that are
attributable to the Institutional Class are allocated
to that particular class.
4. Exchange Privileges and Conversion Features.
Institutional Shares are exchangeable for Institutional
Shares issued by other funds sponsored by Aquila
Management Corporation and as may additionally be set
forth in the then current prospectus of the Trust.
Institutional Shares have no conversion features.
D. Additional Classes
In the future, the Trust may offer additional classes
of shares which differ from the classes discussed above.
However, any additional classes of shares must be approved
by the Board, and the Plan must be amended to describe those
classes.
II. Approval of Multiple Class Plan
The Board of the Trust, including a majority of the
independent Trustees, must approve the Plan initially. In
addition, the Board must approve any material changes to the
classes and the Plan prior to their implementation. The Board
must find that the Plan is in the best interests of each class
individually and the Trust as a whole. In making its findings,
the Board should focus on, among other things, the relationships
among the classes and examine potential conflicts of interest
among classes regarding the allocation of fees, services, waivers
and reimbursements of expenses, and voting rights. Most
significantly, the Board should evaluate the level of services
provided to each class and the cost of those services to ensure
that the services are appropriate and that the allocation of
expenses is reasonable. In accordance with the foregoing
provisions of this Section II, the Board of the Trust has
approved and adopted this Plan as of the date written below.
III. Dividends and Distributions
Because of the differences in fees paid under a Rule
12b-1 Plan and Shareholder Services Plan and the special
allocation of Class Expenses among the classes of shares of the
Trust, the dividends payable to shareholders of a class will
differ from the dividends payable to shareholders of the other
classes. Dividends paid to each class of shares in the Trust
will, however, be declared and paid at the same time and, except
for the differences in expenses listed above, will be determined
in the same manner and paid in the same amounts per outstanding
shares.
IV. Expense Allocations
The methodology and procedures for calculating the net
asset value and dividends and distributions of the various
classes of shares and the proper allocation of income and
expenses among the various classes of shares are set forth in the
Memorandum (together with exhibits) of Richard F. West,
Treasurer, dated November 24, 1995 and entitled "Methodologies
Used In Accounting For Multiple Class Shares."
Dated: April 5, 1996
