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. Because of the effect of the asset based
12b-1 fee and Service fee on Class C Shares, long term Class C
shareholders could pay the economic equivalent of an amount greater then
the maximum front-end sales charge allowed under applicable regulations.
</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.
Class A Class C
Initial Sales Maximum of 4% of the None
Charge Public Offering Price
Contingent Deferred None (except for Maximum CDSC of 1% if
Sales Charge certain purchases shares redeemed before 12
over $1 Million) months; 0% after 12 months
Distribution and 0.15 of 1% Distribution fee of 0.75 of
Service Fees 1% and a service fee of 0.25
of 1% for a total of 1%,
payable for six years
Other Information Initial Sales Charge Shares convert to Class A
waived or reduced in Shares after six years
some cases
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 receipt in proper form 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.,
400 Bellevue Parkway, Wilmington, DE 19809
Tel.# 1-800-872-6735
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.______________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for __________________________________________________________
Minor's First Name Middle Initial Last Name
Under the _____________UGTMA** _________________________________________
Name of State 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, PFPC Inc. (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, PFPC Inc. 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
Dave Frohnmayer
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
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 I Shares January 31, 1998
Class Y Shares
The Trust is a mutual fund whose objective is to seek to
provide as high a level of current income exempt from Oregon and
regular Federal income taxes as is consistent with preservation
of capital by investing in municipal obligations which pay
interest exempt from Oregon State and Federal income taxes. These
municipal obligations must, at the time of purchase, either be
rated within the four highest credit ratings (considered as
investment grade) assigned by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, or, if unrated, be determined to
be of comparable quality by the Trust's 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. (See the Additional Statement for more
infomation.)
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 receipt in proper form 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 into Shares of the Bond and
Equity Funds 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.,
400 Bellevue Parkway, Wilmington, DE 19809
Tel.# 1-800-872-6735
STEP 1
A. ACCOUNT REGISTRATION
___Individual Use line 1
___Joint Account* Use lines 1&2
___For a Minor Use line 3
___For Trust, Corporation, Partnership or other Entity Use line 4
* Joint Accounts will be Joint Tenants with rights of survivorship
unless otherwise specified.
** Uniformed Gifts/Transfers to Minors Act.
Please type or print name exactly as account is to be registered
1.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
2.______________________________________________________________________
First Name Middle Initial Last Name Social Security Number
3.______________________________________________________________________
Custodian's First Name Middle Initial Last Name
Custodian for __________________________________________________________
Minor's First Name Middle Initial Last Name
Under the ___________UGTMA** ___________________________________________
Name of State 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 $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, PFPC Inc. (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, PFPC Inc., 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
Dave Frohnmayer
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
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.
Additional Information about the State of Oregon and Oregon
Obligations
In addition to the material in the Prospectus the following
is a brief summary of the complex factors affecting the financial
situation in Oregon. This information is derived from sources
that are generally available to investors and is based in part on
information obtained from various state and local agencies in
Oregon. It should be noted that the creditworthiness of
obligations issued by local Oregon issuers may be unrelated to
the creditworthiness of obligations issued by the State of
Oregon, and that there is no obligation on the part of Oregon to
make payment on such local obligations in the event of default.
General Economic Conditions. Similar to the nation as a
whole, economic growth in Oregon is likely to be restricted to
its long-term trend rate by near capacity labor markets and
rising costs. Oregon's jobless rate is unlikely to fall below its
current 5.0% for any sustained period. The labor force is
expected to increase sufficiently to keep Oregon's employment
growth well above the national average but not enough to match
the job growth rates of the 1994 to 1996 period. Overall
manufacturing employment is forecast to increase 3.3% in 1997
after averaging 3.0% growth for the 1994-1996 period.
Construction employment, which increased 13.9% from 1995 to 1996,
is expected to slow to growth of 3.6% in 1997, though it is
likely to remain at a high level of activity. The state's
service-producing sectors are expected to continue growing but
they too are likely to be constrained by labor availability. The
state's tight labor markets and expanding high technology
industries should continue to push Oregon's wages and per capita
income up toward the national average.
The rest of the state will benefit from a generally healthy
agriculture section (with the exception of the cattle industry),
a stabilizing timber harvest and increasing cost advantages
relative to the Willamette Valley and Portland metropolitan area.
The statewide timber harvest is expected to be 4.3 billion board
feet in 1997, a slight increase from 4.2 billion board feet in
1996. In the agricultural industry, cash commodities include farm
forest products, cattle and calves, nursery crops, dairy, wheat,
potatoes, alfalfa hay, and perennial rye grass seed.
Non-farm employment is expected to grow 3.5% in 1997, a
decrease from the 4.0% pace recorded in 1996, yet higher than the
1997 national rate of 2.2% job growth. Job growth is expected to
slow further to 2.3% in 1998 as the high technology manufacturing
sector winds down and a shortage of available labor limits net
job creation. Oregon's unemployment rate as of September 1997 was
5.4% while the U.S. unemployment rate was 4.9%.
Budgetary Process. The Oregon budget is approved on a
biennial basis by separate appropriation measures. A biennium
begins July 1 and ends June 30 of odd-numbered years. Measures
are passed for the approaching biennium during each regular
Legislative session, held beginning in January of odd-numbered
years.
Because the Oregon Legislative Assembly meets in regular
session for approximately six months of each biennium, provision
is made for interim funding through the Legislative Emergency
Board. The Emergency Board is authorized to make allocations of
General Fund monies to State agencies from the State Emergency
Fund. The Emergency Board may also authorize increases in
expenditure limitations from Other or Federal Funds (dedicated or
continuously appropriated funds), and may take other actions to
meet emergency needs when the Legislative Assembly is not in
session. The most significant feature of the budgeting process in
Oregon is the constitutional requirement that the budget be in
balance at the end of each biennium. Because of this provision,
Oregon may not budget a deficit and is required to alleviate any
revenue shortfalls within each biennium.
Revenue and Expenditures. The Oregon Biennial budget is a
two-year fiscal plan balancing proposed spending against expected
revenues. The total budget consists of three segments
distinguished by source of revenues: program supported by General
Fund revenues; programs supported by Other Funds (dedicated fund)
revenues, including lottery funds; and, Federal Funds. In its
1995 Regular Session, the Oregon Legislative Assembly approved
General Fund appropriations totaling $7,372.6 million for the
1995-1997 biennium. This was a 15.2% increase compared to
estimated 1993-1995 expenditures.
General Fund revenue totaled $6,536.1 million for the
1993-1995 biennium. Revenue exceeded the May estimate by $16.7
million in the 1993 Close of Session (COS) estimate by $330.6
million or 5.3%. Expenditures were $6,410.1 million for the
biennium.
The May 1997 forecast for the 1995-97 General Fund revenue
is $7,543.9 million, a 15.4% increase from the 1993-95 biennium.
The 1995-97 estimate is also an increase of $82.9 million from
the March 1997 estimate and $582.4 million or 8.4% from the 1995
Close of Legislative Session (COS) forecast. The beginning
balance is estimated to be $496.3 million, leaving total General
Fund resources available for the 1995-97 biennium of $8,040.3
million. The General Fund resources estimate is $595.5 million
higher than the COS estimate.
General Fund revenue is projected to be $8,184.6 million for
the 1997-99 biennium. The beginning balance is estimated to be
$681.6 million for a total General Fund resource estimate of
$8,866.2 million. The May 1997-99 General Fund revenue estimate
is $17.5 million higher than the March 1997 forecast. The overall
General Fund resource projection is $98.9 million more than the
March forecast.
The State is involved in certain legal proceedings that, if
decided against the State, may require the State to make
significant future expenditures or may impair future revenue
sources. Because of the prospective nature of these legal
proceedings, no provision for these potential liabilities has
been recorded in the publicly disclosed financial statements.
Additionally, 1,229 notices of tort claims have been filed
against the State. Of those claims, 544 also have been filed as
court actions, and are pending against the State. These cases are
pending in State courts and are subject to the liability
limitations stated in the Tort Claims Act of $500,000 per
occurrence, $200,000 per individual for physical injuries, and
$50,000 per occurrence for property damage. The likelihood of an
unfavorable outcome in these cases ranges from probable to
remote, but it is certain that these cases do not involve real
exposure of $25 million in the aggregate.
In the November 1994 general election, Oregonians approved a
ballot measure, introduced through the initiative process, that
will have, or may have, a material financial impact on the State.
"Measure 11" amends Oregon statutes to require mandated minimum
sentences for certain felonies, effective April 1, 1995. "Measure
11" creates a need for an estimated 6,085 new prison beds by the
year 2001 and calls for State correction facility construction
costs of approximately $462 million in the next five years. The
State also estimates increases in State expenditures for
correctional operations, beginning with an increase of $3.2
million in fiscal year 1996, with accelerating costs that should
peak at an annual increase of up to $101.6 million by fiscal year
2001. Because these demands will be made by on the State General
Fund, they will reduce amounts that otherwise would be available
in the future for the Oregon Legislative Assembly to appropriate
for other purposes.
In November of 1996, voters approved Ballot Measure 47, the
property tax cut and cap. It will reduce revenues to schools,
cities and counties by as much as $1 billion and put pressure on
the General Fund to make up some or all of the difference.
Ballot Measure 50, passed by Oregon voters in May of 1997,
limits the taxes a property owner must pay. It limits taxes on
each property by rolling back the 1997-98 assessed value of each
property to 90 percent of its 1995-96 value. The measure also
limits future growth on taxable value to 3 percent a year, with
exceptions for items such as new construction, remodeling,
subdivisions, and rezoning. It establishes permanent tax rates
for Oregon's local taxing districts, yet allows voters to approve
new, short-term option levies outside the permanent rate limit if
approved by a majority of a 50% voter turnout.
Debt Administration and Limitation. Oregon statutes give
the State Treasurer authority to review and approve the terms and
conditions of sale for State agency bonds. The Governor, by
statute, seeks the advice of the State Treasurer when
recommending the total biennial bonding level for State programs.
Agencies may not request that the Treasurer issue bonds or
certificates of requirements for state agencies on proposed and
outstanding debt. Statutes contain management and reporting
requirements for state agencies on proposed and outstanding debt.
A variety of general obligation and revenue bond programs
have been approved in Oregon to finance public purpose programs
and projects. General obligation bond authority requires voter
approval or a constitutional amendment, while revenue bonds may
be issued under statutory authority. However, under the Oregon
Constitution the state may issue up to $50,000 of general
obligation debt without specific voter approval. The State
Legislative Assembly has the right to place limits on general
obligation bond programs which are more restrictive than those
approved by the voters. General obligation authorizations are
normally expressed as a percentage of statewide True Cash Value
(TCV) of taxable property. Revenue bonds usually are limited by
the Legislative Assembly to a specific dollar amount.
The State's constitution authorizes the issuance of general
obligation bonds for financing community colleges, highway
construction, and pollution control facilities. Higher education
institutions and activities and community colleges are financed
through an appropriation from the General Fund. Facilities
acquired under the pollution control program are required to
conservatively appear to be at least 70% self-supporting and
self-liquidating from revenues, gifts, federal government grants,
user charges, assessments, and other fees.
Additionally, the State's constitution authorizes the
issuance of general obligation bonds to make farm and home loans
to veterans, provide loans for state residents to construct water
development projects, provide credit for multi-family housing for
elderly and disabled persons, and for small scale local energy
projects. These bonds are self-supporting and are accounted for
as enterprise funds. Certain provisions of the Water Resources
general obligation bond indenture conflict with State statutes.
Upon the advice of the Attorney General, the method of handling
investment interest is in compliance with the statutes rather
than the bond indenture. Currently there is litigation pending
against the State concerning this treatment of the investment
interest.
The State's constitution further authorizes the issuance of
general obligation bonds for financing higher education building
projects, facilities, institutions, and activities. For the year
ending September 1, 1997, the total balance of general obligation
bonds was $3.26 billion. The debt service requirements for
general obligation bonds, including interest of approximately
$2.39 billion, as of September 1, 1997, was $5.66 billion.
In addition to general obligation and direct revenue bonds,
the State of Oregon issues industrial development revenue bonds
("IDBs"), Oregon Mass Transportation Financing Authority revenue
bonds and Health, Housing, Educational and Cultural Facilities
Authority ("HHECFA") revenue bonds. The IDBs are issued to
finance the expansion, enhancement or relocation of private
industry in the State. Before such bonds are issued, the project
application must be reviewed and approved by both the Oregon
State Treasury and the Oregon Economic Development Commission.
Strict guidelines for eligibility have been developed to ensure
that the program meets a clearly defined development objective.
IDBs issued by the State are secured solely by payments from the
private company and there is no obligation, either actual or
implied, to provide state funds to secure the bonds. The Oregon
Mass Transportation Financing Authority ("OMTFA") reviews
financing requests from local mass transit districts and may
authorize issuance of revenue bonds to finance eligible projects.
The State has no financial obligation for these bonds, which are
secured solely by payments from local transit districts.
The State is statutorily authorized to enter into financing
agreements through the issuance of certificates of participation.
Certificates of participation have been used for the acquisition
of computer systems by the Department of Transportation,
Department of Administrative Services, and the Department of
Higher Education. Also, certificates of participation have been
used for the acquisition or construction of buildings by the
Department of Administrative Services, Department of Fish and
Wildlife, Department of Corrections, State Police, and Department
of Higher Education. Further, certificates of participation were
used in the acquisition of telecommunication systems by the
Department of Administrative Services and the Adult & Family
Services Division. For the year ending September 1, 1997, the
certificates of participation debt totaled $634.9 million. The
debt service requirements for certificates of participation for
1995-1997 is estimated at $70.1 million.
HHECFA is a public corporation created in 1989, and modified
in 1991, to assist with the assembling and financing of lands for
health care, housing, educational and cultural uses and for the
construction and financing of facilities for such uses. The
Authority reviews proposed projects and makes recommendations to
the State Treasurer as to the issuance of bonds to finance
proposed projects. The State has no financial obligation for
these bonds, which are secured solely by payments from the
entities for which the projects were financed.
The Treasurer on behalf of the State may also issue
federally taxable bonds in those situations where securing a
federal tax exemption is unlikely or undesirable; regulate
"current" as well as "advance" refunding bonds; enter into
financing agreements, including lease purchase agreements,
installment sales agreements and loan agreements to finance real
or personal property and approve certificates of participation
with respect to the financing agreements. Amounts payable by the
State under a financing agreement are limited to funds
appropriated or otherwise made available by the Legislative
Assembly for such payment. The principal amount of such financing
agreements are treated as bonds subject to maximum annual bonding
levels established by the Legislative Assembly under Oregon
statutes.
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.
<TABLE>
<CAPTION>
Total Return
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.
Dave Frohnmayer, Trustee, 1226 University of Oregon, Eugene, OR
97403-1226
President, University of Oregon since 1994; Dean of the
University of Oregon Law School, 1992-1994; Attorney General of
the State of Oregon, 1981-1991; Trustee of Aquila Cascadia Equity
Fund since 1997.
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
Dave Frohnmayer
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
A tax-free
income investment
STATEMENT OF
ADDITIONAL
INFORMATION
[LOGO]
One of The
Aquilasm Group of Funds
