<PAGE>
Tax-Free Trust of Oregon
380 Madison Avenue, Suite 2300
New York, New York 10017
800-USA-OREG (800-872-6734)
212-697-6666
Prospectus
Class A Shares February 1, 1999
Class C Shares
Tax-Free Trust of Oregon is a mutual fund that seeks to provide
you as high a level of current income exempt from Oregon state
and Federal income taxes as is consistent with preservation of
capital. The Trust invests primarily in municipal obligations
which pay interest exempt from Oregon state and Federal income
taxes that are 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,
are determined to be of comparable quality by the Trust's Sub-
Adviser, U.S. Bank National Association, a subsidiary of U.S.
Bancorp.
For Purchase, Redemption or Account inquiries contact the Trust's
Shareholder Servicing Agent:
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809
Call 800 872-6735 toll free
For General Inquiries & Yield Information
Call 800-872-6734 toll free or 212-697-6666
The Securities and Exchange Commission Has Not Approved or
Disapproved the Trust's Securities or Passed Upon the Adequacy of
This Prospectus. Any Representation To The Contrary Is A Criminal
Offense.
<PAGE>
THE TRUST'S OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS
"What is the Trust's objective?"
The Trust's objective is to provide you as high a level of
current income exempt from Oregon state and Federal income taxes
as is consistent with preservation of capital.
"What is the Trust's Investment Strategy?"
The Trust invests in tax-free municipal obligations which
pay interest exempt from Oregon state and Federal income taxes.
In general, all or almost all of these obligations are issued by
the State of Oregon, its counties and various other local
authorities; at least 65% of the portfolio will always consist of
obligations of these issuers. These obligations can be of any
maturity but maturity of the Trust's portfolio has traditionally
been between 12 and 18 years. At the time of purchase, an
obligation must be considered "investment grade." This means
that it must either
* be rated within the four highest credit ratings 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.
"What are the main risks of investing in the Trust?"
Among the risks of investing in shares of the Trust and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Trust.
There are two types of risk associated with any fixed income debt
securities such as Oregon Obligations: interest rate risk and
credit risk.
* Interest rate risk relates to fluctuations in market value
arising from changes in interest rates. If interest rates
rise, the value of debt securities, including Oregon
Obligations, will normally decline. All fixed-rate debt
securities, even the most highly rated Oregon Obligations,
are subject to interest rate risk. Oregon Obligations with
longer maturities generally have a more pronounced reaction
to interest rate changes than shorter-term securities.
* Credit risk relates to the ability of the particular issuers
of the Oregon Obligations the Trust owns to make periodic
interest payments as scheduled and ultimately repay
principal at maturity. The Trust's assets, being primarily
or entirely Oregon issues, are subject to economic and other
conditions affecting Oregon.
Market Fluctuations The market prices of the Trust's
portfolio securities fluctuate in relation to changes in
prevailing interest rates, and may be subject to other market,
credit and economic factors as well. Accordingly, the proceeds of
redemptions may be more or less than your original cost.
No Bank Credit Support Investment in the Trust is not a
deposit in U.S. Bank National Association or its bank or non bank
affiliates or any other bank, and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government
agency.
<PAGE>
TAX-FREE TRUST OF OREGON
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Tax-Free Trust of Oregon+ by showing
changes in the Trust's performance from year to year over a 10-
year period and by showing how the Trust's average annual returns
for one, five and ten years compare to a broad measure of market
performance. How the Trust has performed in the past is not
necessarily an indication of how the Trust will perform in the
future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1989-1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15% 13.96
11.00 10.11 XXXX
10% 9.79 XXXX 7.71 XXXX XXXX 7.44
XXXX 6.57 XXXX XXXX XXXX XXXX XXXX
5% XXXX XXXX XXXX XXXX XXXX XXXX XXXX 5.40
XXXX XXXX XXXX XXXX XXXX XXXX 3.70 XXXX XXXX
0% XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
- -5% XXXX XXXX XXXX XXXX XXXX -3.77 XXXX XXXX XXXX XXXX
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Calendar Years
+ Refers to Class A Shares unless otherwise indicated.
During the 10-year period shown in the bar chart, the highest
return for a quarter was 5.95% (quarter ended March 31, 1995) and
the lowest return for a quarter was -3.99% (quarter ended March
31, 1994).
Note: The Trust's Class A Shares are sold subject to a maximum 4%
sales load which is not reflected in the bar chart. If the sales
load were reflected, returns would be less than those shown
above. However, the average annual total returns shown below for
Class A shares do reflect the maximum 4% sales load.
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the Period Ended 1-Year 5-Year 10-Years inception of
December 31, 1998 the Trust
<S> <C> <C> <C> <C>
Tax-Free Trust of Oregon
Class A Shares 1.17% 4.32% 6.65% 6.75%*
Tax-Free Trust of Oregon
Class C Shares 3.47% N/A N/A 5.98%**
Lehman Brothers
Municipal Bond Index***
Class A Shares 6.48% 6.23% 8.22% 8.16%*
Class C Shares 6.48% N/A N/A 7.79%**
<FN>
*From commencement of operations on June 16, 1986.
</FN>
<FN>
**From commencement of new class of shares on April 5, 1996.
</FN>
<FN>
***The Lehman Brothers municipal Bond Index is nationally
oriented and consists of an unmanaged mix of investment-grade
long-term municipal securities of issuers throughout the United
States. At December 31, 1998, there were approximately 46,000
securities in the Index.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF OREGON
FEES AND EXPENSES OF THE TRUST
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Trust.
Shareholder Fees
(fees paid directly from your investment)
Class A Class C
Shares Shares
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases.....
(as a percentage of offering price) 4.00% None
Maximum Deferred Sales Charge (Load).....None(1) 1.00%(2)
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends
(as a percentage of offering price).....None None
Redemption Fees..........................None None
Exchange Fees............................None None
Annual Trust Operating Expenses (expenses that are
deducted from the Trust's assets)
Management Fees ..........................0.40% 0.40%
12b-1 Fee ................................0.15% 0.75%
All Other Expenses:
Service Fee........................None 0.25%
Other Expenses (3).................0.16% 0.16%
Total All Other Expenses (3)..............0.16% 0.41%
Total Annual Trust
Operating Expenses (3)....................0.71% 1.56%
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Trust with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Trust for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, you reinvest all dividends
and distributions, and that the Trust's operating expenses remain
the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares............$470 $618 $779 $1,247
Class C Shares............$259 $493 $850 $1,417(4)
You would pay the following expenses if you did not redeem your shares:
Class A Shares............$470 $618 $779 $1,247
Class C Shares............$159 $493 $850 $1,417(4)
<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 two years after purchase and 0.50 of 1% of the proceeds of
redemption upon redemption during the third and fourth years
after purchase. See "Sales Charges for Purchases 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) Does not reflect a 0.02% offset in Trust expenses received
for uninvested cash balances. Reflecting this offset, other
expenses, all other expenses and total annual Trust operating
expenses were 0.14%, 0.14% and 0.69%, respectively, for Class A
Shares; for Class C Shares, these expenses were 0.14%, 0.39% and
1.54%, respectively.
</FN>
<FN>
(4) 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,
over time long-term Class C Shareholders could pay the economic
equivalent of an amount that is more than the maximum front-end
sales charge allowed under applicable regulations.
</FN>
</TABLE>
INVESTMENT OF THE TRUST'S ASSETS
"Is the Trust right for me?"
The shares of the Trust are designed to be a suitable
investment for individuals, corporations, institutions and
fiduciaries who seek income exempt from Oregon state and regular
Federal income taxes.
Oregon Obligations
The Trust invests in Oregon Obligations which are a type of
municipal obligation. They pay interest which bond counsel or
other appropriate counsel deems to be exempt from regular Federal
and State of Oregon income taxes. They include obligations of
Oregon issuers and certain non-Oregon issuers, of any maturity.
The interest paid on certain types of Oregon Obligations may be
subject to the Federal alternative minimum tax ("AMT"). At least
80% of the Trust's net assets must be invested in Oregon
Obligations whose interest is not subject to AMT.
Interest on non-Oregon bonds or other obligations issued by
or under the authority of Guam, the Northern Mariana Islands,
Puerto Rico and the Virgin Islands is currently exempt from
regular Federal and Oregon income taxes.
Municipal Obligations
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 public purposes.
There are two principal classifications of municipal
obligations: "notes" and "bonds." Notes generally have
maturities of one year or less, while bonds are paid back over
longer periods.
The various public purposes for which municipal obligations
are issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public institutions
and facilities, and
* funding the construction of highways, bridges, schools,
hospitals, housing, mass transportation, streets and
water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S. government
guarantee,
* municipal lease/purchase agreements, which are similar
to installment purchase contracts for property or
equipment, and
* floating and variable rate demand notes.
"What factors may affect the value of the Trust's investments and
their yields?"
The value of Oregon Obligations will fluctuate with changes
in interest rates. Their value will normally decrease if
interest rates increase, and will normally increase if interest
rates decrease.
Changes in value and yield based on current interest rates
may have different effects on short-term and long-term Oregon
Obligations. Long-term obligations (which usually have higher
yields) may fluctuate in value more than short-term ones. Thus,
the Trust may shorten the average maturity of its portfolio when
it believes this desirable. While this strategy may promote one
part of the Trust's objective, preservation of capital, it may
also result in a lower level of income.
Market, credit, and other economic factors may also effect
the value of Oregon Obligations.
<PAGE>
Max Light Rail
[PICTURE]
Clackamas County School District
[PICTURE]
State of Oregon
[PICTURE]
City of Portland
[PICTURE]
Portland International Airport
[PICTURE]
Tax-Free Trust of Oregon
[LOGO]
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. The municipal obligations which
financed these particular projects were included in the Trust's
portfolio as of December 31, 1999 and together represented 27% 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>
"What are the main 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 Oregon Obligations that the Trust owns.
The Trust has derived this information from sources that are
generally available to investors and believes it to be accurate,
but it has not been independently verified and it 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.
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.
Obligations of non-Oregon issuers are subject to general
economic and other factors affecting those issuers.
In addition to considerations specifically affecting Oregon,
other risk factors include the following.
Medium Quality Securities Rating agencies consider municipal
obligations rated in the fourth highest credit rating to be of
medium quality. Thus, they may present investment risks which do
not exist with more highly rated obligations. Such obligations
possess less attractive investment characteristics and may in
fact have speculative characteristics as well. Therefore,
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.
Year 2000 Like other financial and business organizations,
the Trust could be adversely affected if computer systems the
Trust relies on do not properly process date-related information
and data involving the year 2000 and after. The Manager is taking
steps that it believes are reasonable to address this problem in
its own computer systems and to obtain assurances that steps are
being taken by the other major service providers to the Trust to
achieve comparable results. Certain vendors have advised the
Manager that they are currently compliant. The three mission
critical vendors -- the shareholder servicing agent, the
custodian and the fund accounting agent -- as well as other
support organizations, advised the Manager in 1998 that they were
actively working on necessary changes. These three vendors,
having anticipated readiness by December 1998, so informed the
Manager; thereafter they advised the Manager that they expect to
be ready during the first half of 1999. The Manager has also
requested the Trust's portfolio manager to attempt to evaluate
the potential impact of this problem on the issuers of securities
in which the Trust invests. At this time there can be no
assurance that the target dates will be met or that these steps
will be sufficient to avoid any adverse impact on the Trust.
Less Diversification The Trust is classified as a
"non-diversified" investment company under the Investment Company
Act of 1940 (the "1940 Act"). Thus, compared with "diversified"
funds, it may invest a greater percentage of its assets in
obligations of a particular issuer and may therefore not have as
much diversification among securities, and thus diversification
of risk. 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.
TRUST MANAGEMENT
"How is the Trust managed?"
Aquila Management Corporation, 380 Madison Avenue, Suite
2300, New York, NY 10017, the Manager, is the Trust's investment
adviser under an Advisory and Administration Agreement. It has
delegated its investment advisory duties, including portfolio
management to U.S. Bank National Association, the Sub-Adviser,
under a sub-advisory agreement described below. The Manager is
also responsible for administrative services, including providing
for the maintenance of the headquarters of the Trust, overseeing
relationships between the Trust and the service providers to the
Trust, either keeping the accounting records of the Trust, or, at
its expense and responsibility, delegating such duties in whole
or in part to a company satisfactory to the Trust, maintaining
the Trust's books and records and providing other administrative
services.
The Sub-Adviser provides the Trust with local advisory
services.
Under the Sub-Advisory Agreement, the Sub-Adviser provides
for investment supervision including supervising continuously the
investment program of the Trust and the composition of its
portfolio; determining what securities will be purchased or sold
by the Trust arranging for the purchase and the sale of
securities held in the portfolio of the Trust; and, at the
Sub-Adviser's expense, for pricing of the Trust's portfolio
daily.
Under the Advisory and Administration Agreement, the Trust
pays the Manager a 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 management fee is payable at
the annual rate of 0.40 of 1% of such net asset value.
Information about the Sub-Adviser and the Manager
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 September 30,
1998, on a pro forma combined basis, USB and its consolidated
subsidiaries had consolidated assets of approximately $74
billion, consolidated deposits of $48.5 billion and shareholder
equity of $5.9 billion.
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 and Manager and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money market funds and equity
funds. As of December 31, 1998, these funds had aggregate assets
of approximately $3.2 billion, of which approximately $2.0
billion consisted of assets of the 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.
NET ASSET VALUE PER SHARE
The net asset value of the shares of each of the Trust's
classes of shares 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 (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Trust's shares is
based on market value, except that Oregon Obligations maturing in
60 days or less are generally valued at amortized cost. The New
York Stock 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, the Exchange may close on days not included in that
announcement.
PURCHASES
"Are there alternate purchase plans?"
The Trust provides individuals with alternate ways to
purchase shares through two separate classes of shares (Class A
and Class C). Although the classes have different sales charge
structures and ongoing expenses, they both represent interests in
the same portfolio of Oregon Obligations. You should choose the
class that best suits your own circumstances and needs.
"Can I purchase shares of the Trust?"
You can purchase shares of the Trust if you reside in Oregon
or in one of the other states listed below. You should not
purchase shares of the Trust if you do not reside in one of the
following states. Otherwise the Trust can redeem the shares you
purchased. This may cause you to suffer a loss and may have tax
consequences.
Also, if you do not reside in Oregon, dividends from the
Trust may be subject to state income taxes of the state in which
you do reside. Therefore, you should consult your tax adviser
before buying shares of the Trust.
On the date of this Prospectus, Class A and C Shares are
available only in:
* Oregon * Arizona * California * Colorado * District of Columbia
*Florida * Hawaii * Idaho * Illinois Minnesota * Missouri *
Nevada * New Jersey * New York * Pennsylvania
* Texas * Washington
"How much money do I need to invest?"
Option I
* Initially, $1,000.
* Subsequent any amount (for investments in shares of the same
class)
Option II
* $50 or more if an Automatic Investment Program is
established.*
* Subsequent investments in the amount you specify ($50 or
more).
* (See "Automatic Investment Program" in the Application.)
You are not permitted to maintain both an Automatic
Investment Program and an Automatic Withdrawal program
simultaneously. (See "Automatic Withdrawal Plan.")
Your investment must be drawn in United States dollars on a
United States commercial bank or savings bank, credit union or a
United States branch of a foreign commercial bank (each of which
is a "Financial Institution").
"How do I purchase shares?"
You may purchase the Trust's shares:
* through an investment broker or dealer or bank or financial
intermediary which has a sales agreement with the
Distributor, Aquila Distributors, Inc., in which case that
institution will take action on your behalf, and you will
not personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Trust's Agent, PFPC Inc.
* the price you will pay is net asset value plus a sales
charge for Class A Shares and net asset value for Class C
shares. ( See "What Price Will I Pay for the Trust's
Shares?")
In either instance, all purchases of Class A Shares are subject
to the applicable sales charge.
Opening an Account Adding to An Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to payable to
"Tax-Free Trust of "Tax-Free Trust
Oregon" of Oregon"
* Complete the Application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Trust's
you wish to authorize. confirmations
Or, supply the name(s)
of account owner(s),
the account number, and
the name of the Trust
* Send your check and * Send your check and
completed application completed application
to your dealer or to your dealer or
to the Trust's to the Trust's
Agent, PFPC Inc. Agent, PFPC Inc.
Unless you indicate otherwise, your investment will be made
in Class A Shares.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a pre-determined
amount to be regularly transferred from your account.
* Telephone Investment: You can make single investments of up
to $50,000 to be made by telephone instructions to the
Agent.
Before you can transfer funds electronically, the Trust's
Agent must have your completed Application authorizing these
features. If you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Trust may modify or terminate
these investment methods or charge a service fee, upon 30 day's
written notice to shareholders.
REDEEMING YOUR INVESTMENT
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been accepted.
There is no minimum period for investment in the Trust,
except for shares recently purchased by check, Automatic or
Telephone Investment as discussed below.
If you own both Class A and C Shares and do not specify
which Class you wish to redeem, we will redeem your Class A
Shares.
Certain shares are subject to a conditional deferred sales
charge, or CDSC. These are:
- Class C Shares held for less than 12 months (from the
date of purchase). (See "Alternate Purchase Plans.")
- CDSC Class A Shares. (See "Purchases of $1 Million or
More").
Upon redemption, enough additional shares will be redeemed
to pay for any applicable CDSC.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-872-6735
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Trust offers expedited
redemption.
Expedited Redemption Methods
(Non-Certificate Shares Only)
You may request expedited redemption for any shares not
issued in certificate form in two ways:
1 By Telephone. The Agent will accept instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified or
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past
30 days) as the account from which you are redeeming. You
may only redeem by check via telephone request once in any
7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Trust, the Agent, and the Distributor are
not responsible for losses resulting from unauthorized
telephone transactions if the Agent follows reasonable
procedures designed to verify a caller's identity. The
Agent may record calls.
2 By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at 302-791-3055
or by mail to 400 Bellevue Parkway, Wilmington, DE 19809. The
letter, signed by the registered shareholder(s) (no signature
guarantee is required), must indicate:
account name(s),
account number,
amount to be redeemed,
any payment directions.
To have redemption proceeds sent directly to a Financial
Institution Account, you must complete the Expedited
Redemption section of the Application or a Ready Access
Features Form. You will be required to provide (1) details
about your Financial Institution account, (2) signature
guarantees and (3) possible additional documentation.
The name(s) of the shareholder(s) on the Financial
Institution account must be identical to those on the
Trust's records of your account.
You may change your designated Financial Institution account
at any time by completing and returning a revised Ready
Access Features Form.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
Certificate Shares. Mail to the Trust's Agent: (1) blank
(unsigned) certificates for Class A Shares to be redeemed, (2)
redemption instructions, and (3) a stock assignment form.
To be in "proper form," items (2) and (3) above must be
signed by the registered shareholder(s) exactly as the
account is registered. For a joint account, both shareholder
signatures are necessary.
For your protection, mail certificates separately from
signed redemption instructions. We recommend that
certificates be sent by registered mail, return receipt
requested.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other
than the shareholder of record. The Agent may require
signature guarantees if insufficient documentation is on
file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the
address of record, except as noted above. In all other
cases, signatures must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
participant in the Securities Transfer Association Medallion
Program ("STAMP") 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.
Non-Certificate Shares. You must use the Regular Redemption
Method if you have not chosen Expedited Redemption to a
predesignated Financial Institution account. To redeem by this
method, send a letter of instruction to the Trust's Agent, which
includes: 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 (we normally mail redemption proceeds
to your address as registered with the Trust)
Signature(s) of the registered shareholder(s) and
Signature guarantee(s), if required, as indicated above.
"When will I receive the proceeds of my redemption?"
Redemption proceeds are normally sent on the next business
day following acceptance of your redemption request. Except as
described below, payments will normally be sent to your address
of record within 7 days after acceptance of your redemption
request.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested on your
Application or Ready
Access Features Form,
wired or transferred
through the Automated
Clearing House to your
Financial Institution
Account.
Through a broker
/dealer Check or wire, to your None
broker/dealer. However, your
broker/dealer may
charge a fee
Although the Trust does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. 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.
The Trust may delay redemption of shares recently purchased by
check (including certified, cashier's or official bank check) or
by Automatic Investment or Telephone Investment up to 15 days
after purchase; however, redemption will not be delayed after (i)
the check or transfer of funds has been honored, or (ii) the
Agent receives satisfactory assurance that your Financial
Institution will honor the check or transfer of funds. You can
eliminate possible delays by paying for purchased shares with
wired funds or Federal Reserve drafts.
The Trust has the right to postpone payment or suspend
redemption rights during certain periods. These periods may
occur (i) when the Exchange is closed for other than weekends and
holidays, (ii) when the Securities and Exchange Commission (the
"SEC") restricts trading on the Exchange, (iii) when the SEC
determines an emergency exists which causes disposal of, or
determination of, the portfolio securities to be unreasonable or
impracticable, and (iv) during such other periods as the SEC may
permit.
The Trust can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Trust's portfolio securities in conformity
with SEC rules. This method would only be used if Trustees
determine that partial or whole cash payments would be
detrimental to the best interests of the remaining shareholders.
"Are there any reinvestment privileges?"
If you reinvest proceeds of redemption within 120 days of a
redemption you will not have to pay any additional sales charge
on the reinvestment. You must reinvest in the same class as the
shares redeemed. You may exercise this privilege only once a
year, unless otherwise approved by the Distributor.
The Distributor will refund to you any CDSC deducted at the
time of redemption by adding it to the amount of your
reinvestment. The Class C or CDSC Class A Shares purchased upon
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.
Reinvestment will not alter the tax consequences of your
original redemption.
"Is there an Automatic Withdrawal Plan?"
Yes, but it is only available for Class A Shares.
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. Under the Plan:
* You will receive a monthly or quarterly check in a stated
amount of not less than $50.
* All dividends and distributions must be reinvested in your
account.
* Redemptions of shares to make payments will give rise to a
gain or loss for tax purposes. See the Automatic Withdrawal
Plan provisions on the Application included with this
Prospectus and "Dividends and Distributions" below.
Restrictions
You may not maintain an Automatic Withdrawal Plan while
simultaneously making regular purchases. Purchases of additional
shares concurrent with withdrawals are disadvantageous due to the
payment of sales charges when purchases are made. While an
occasional lump sum investment may be made, such investment
should normally equal at least the lesser of three times the
annual withdrawal or $5,000.
ALTERNATE PURCHASE PLANS
"How do the different arrangements for Class A Shares and Class C
Shares affect the cost of buying, holding and redeeming Shares,
and what else should I know about the two classes?"
In this Prospectus the Trust provides you with two
alternative ways to invest in the Trust 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.
Class A Shares Class C Shares
"Front-Payment Shares" "Level-Payment Shares"
Initial Sales Class A Shares are None. Class C
Charge offered at net asset Shares are offered
value plus a maximum at net asset value
sales charge of 4%, with no sales charge
paid at the time of payable at the time
purchase. Thus, of purchase.
your investment is
reduced by the
applicable sales
charge.
Contingent None (except for A maximum CDSC* of
Deferred Sales certain purchase of 1% is imposed upon
Charge ("CDSC") $1 Million or more) the redemption of
Class C Shares held
for less than 12
months. No CDSC
applies to Class C
shares acquired
through the
reinvestment of
dividends
Distributions and An asset retention Level charge for
Service Fees service fee of 0.15 distribution and
of 1% is imposed on service fees for 6
the average annual years after the date
net assets of purchase at the
represented by the aggregate annual
Class A Shares. rate of 1% of the
average net assets
represented by the
Class C Shares
Other Information The initial sale Class C Shares
charge is waived or together with a pro-
reduced in some rata portion of all
cases. Larger Class C Shares
purchases qualify acquired through
for lower sales dividends and other
charges. distributions paid
in additional Class
C Shares,
automatically
convert to Class A
Shares after 6
years.
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 are automatically converted
to Class A Shares. (See "Exchange Privilege" in the Additional
Statement.) 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.
* This CDSC paid to the Distributor is calculated based on the
lesser of the net asset value at the time of purchase or
redemption. To determine whether a CDSC is payable on a
redemption, we assume that the redemption is made on 1) any
shares acquired as dividends or distributions, 2) any Class
C Shares you have held for more than 12 months from the date
of purchase and 3) the oldest Class C Shares on which a CDSC
is payable. You will pay the lowest possible CDSC using
this methodology.
Systematic Payroll Investments
You can make systematic investments into either Class A or C
Shares each pay period if your employer has established a
Systematic Payroll Investment Plan with the Trust. To
participate in the Payroll Plan, you must make your own
arrangements with your employer's payroll department, which may
include completing special forms. Additionally, the Trust
requires that you complete the Application included in this
Prospectus. Once your application is received by the Trust and a
new account is opened, under the Payroll Plan your employer will
deduct a preauthorized amount from each payroll check. This
amount will then be sent directly to the Trust for purchase of
shares at the then current offering price, which includes
applicable sales charge. You will receive a confirmation from
the Trust for each transaction. Should you wish to change the
dollar amount or end future systematic payroll investments, you
must notify your employer directly. Changes may take up to ten
days.
Factors to Consider in Choosing Classes of Shares
Class A Shares or Class C shares are intended to be suitable
for long-term investment. 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. The "Table of Expenses" shows the effect of Trust
expenses for both classes if a hypothetical investment is held
for 1, 3, 5, and 10 years. You should consider the total cost of
an investment in Class A Shares as compared with a similar
investment in Class C Shares if you expect to redeem your shares
within a reasonably short time after purchase.
"What Price Will I Pay For the Trust's Shares?"
Class A Shares Offering Price Class C Shares Offering Price
Net asset value per share Net asset value per share
plus the applicable sales charge
You will receive that day's offering price on purchase
orders, including Telephone Investments and investments by mail,
considered received prior to 4:00 p.m. New York time. Dealers
have the added flexibility of transmitting orders received prior
to 4:00 p.m. New York time to the Distributor [or Agent] before
its [the Distributor's] close of business that day (normally 5:00
p.m. New York time) and still receive that day's offering price.
Otherwise, orders will be filled at the next determined offering
price. Dealers are required to submit orders promptly. Purchase
orders received on a non-business day, including those for
Automatic Investment, will be executed on the next succeeding
business day. The sale of shares will be suspended (1) during
any period when net asset value determination is suspended, or,
(2) when the Distributor judges it is in the Trust's best
interest to do so.
"What are the sales charges for purchases of Class A Shares?"
The following table shows the amount of sales charge incurred by
a "single purchaser" of Class A Shares. A "single purchaser is:
* an individual;
* an individual, together with her or her spouse, and/or
any children under 21 years of age purchasing shares
for their account;
* a trustee or other fiduciary purchasing shares for a
single trust estate or fiduciary account; or
* a tax-exempt organization as detailed in Section
501(c)(3) or (13) of the Internal Revenue Code.
II III
Sales Charge as Sales Charge as
Percentage of Approximate
I Public Percentage of
Amount of Purchase Offering Price Amount Invested
Less than $25,000 4.00% 4.17%
$25,000 but less
than $50,000 3.75% 3.90%
$50,000 but less
than $100,000 3.50% 3.63%
$100,000 but less
than $250,000 3.25% 3.36%
$250,000 but less
than $500,000 3.00% 3.09%
$500,000 but less
than $1,000,000 2.50% 2.56%
For purchases of $1 Million or more see "Sales Charges for
Purchases of $1 Million or More."
For example:
If you pay $10,000 (Column I), your sales charge would be 4.00%
or $400 (Column II). ($10,000 x .04 = $400)
The value of your account, after deducting the sales charge from
your payment, would increase by $9,600. (This would be the
initial value of your account if you opened it with the $10,000
purchase). ($10,000 - $400 = $9,600)
The sales charge as a percentage of the increase in the value of
your account would be 4.17% (Column III). ($400 / $9,600 =
.0416666 or 4.17%)
Sales Charges for Purchases of $1 Million or More
You will not pay a sales charge at the time of purchase when
you purchase "CDSC Class A Shares." CDSC Class A Shares are Class
A Shares issued under the following circumstances:
(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 to a single purchaser in
a single purchase when the value of the purchase,
together with the value of the purchaser's other CDSC
Class A Shares and Class A Shares on which a sales
charge has been paid, equals or exceeds $1 million; and
See "Special Dealer Arrangements" for other circumstances
under which Class A Shares are considered CDSC Class A Shares.
CDSC Class A Shares do not include: (i)Class A Shares purchased
without a sales charge as described under "General" below and
(ii)Class A Shares purchased in transactions of less than $1
million when certain special dealer arrangements are not in
effect under "Certain Investment Companies" set forth under
"Reduced Sales Charges," below.
Broker/Dealer Compensation - Class A Shares
Upon notice to all selected dealers, the Distributor may
distribute up to the full amount of the applicable sales charge
to broker/dealers. Under the Securities Act of 1933,
broker/dealers may be deemed to be underwriters during periods
when they receive all, or substantially all, of the sales charge.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during
the four years after you purchase them, you must pay a special
contingent deferred sales charge upon redemption.
You will pay 1% of the Redemption Value if you redeem within
the first two years after purchase, and 0.50 of 1% of the
Redemption Value if you redeem within the third or fourth year.
This charge is based on the "Redemption Value" of your
shares which is the lesser of: (i)the net asset value when you
purchased the CDSC Class A Shares you are redeeming; or (ii) the
net asset value at the time of your redemption.
You will pay 1% of the Redemption Value if you redeem within
the first two years after purchase, and 0.50 of 1% of the
Redemption Value if you redeem within the third or fourth year.
This special charge also applies to CDSC Class A Shares
purchased without a sales charge pursuant to a Letter of Intent
(see "Reduced Sales Charges for Certain Purchases of Class A
Shares"). This special charge will not apply to shares acquired
through the reinvestment of dividends on CDSC Class A Shares or
to CDSC Class A Shares held for longer than four years. When
redeeming shares, the Agent will redeem the CDSC Class A Shares
held the longest, unless otherwise instructed. If you own both
CDSC and non-CDSC Class A Shares, the latter will be redeemed
first.
The Trust will treat all CDSC Class A Shares purchases made
during a calendar month as if they were made on the first
business day of that month at the average cost of all purchases
made during that month. Therefore, the four-year holding period
will end on the first business day of the 48th calendar month
after the date of those purchases. Accordingly, the holding
period may, in fact, be one month less than the full 48 depending
on when your actual purchase was made. If you exchange your CDSC
Class A Shares for shares of an Aquila money-market fund running
of the 48-month holding period for those exchanged shares will be
suspended. (See "Exchange Privilege" in the Additional
Statement.)
Broker/Dealer Compensation - CDSC Class A Shares
The Distributor currently intends to pay any dealer executing a
purchase of CDSC Class A Shares as follows:
Amount of Purchase Amount Distributed to
Broker/Dealer as a %
of Purchase Price
$1 millon but less than $2.5 million 1%
$2.5 million but less than $5 million 0.50 of 1%
$5 million or more 0.25 of 1%
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single Purchasers" may qualify for a reduced sales charge
in accordance with the above schedule when making subsequent
purchases of Class A Shares. A reduced sales charge applies if
the cumulative value (based on purchase cost or current net asset
value, whichever is higher) of Class A Shares previously
purchased with a sales charge, together with Class A Shares of
your subsequent purchase, also with a sales charge, amounts to
$25,000 or more.
Letters of Intent
"Single Purchasers" may also qualify for reduced sales
charges, in accordance with the above schedule, after a written
Letter of Intent (included in the Application) is received by the
Distributor. The Letter of Intent confirms that you intend to
purchase, within a thirteen month period, Class A Shares of the
Trust through a single selected dealer or the Distributor. Class
A Shares of the Trust which you previously purchased within 90
days prior to the Distributor's receipt of your Letter of Intent
and which you still own may also be included in determining the
applicable reduction. For more information, including escrow
provisions, see Letter of Intent provisions of the Application.
General
Class A Shares may be purchased without a sales charge by:
* the Trust's Trustees and officers,
* the directors, officers and certain employees, retired
employees and representatives of the Manager, Sub-
Adviser, Distributor, and their parents and/or
affiliates,
* selected dealers and brokers and their officers and
employees,
* certain persons connected with firms providing legal,
advertising or public relations assistance,
* certain family members of, and plans for the benefit
of, the foregoing,
* and plans for the benefit of trust or similar clients
of banking institutions over which these institutions
have full investment authority, if the Distributor has
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. Since
there may be tax consequences of these purchases, your tax
counsel should be consulted.
Class A Shares may also be issued without a sales charge 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.
A qualified group 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
(i) satisfies uniform criteria which enable the Distributor
to realize economies of scale in its costs of
distributing shares;
(ii) 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
(iii) complies with the conditions of purchase that make up
an agreement between the Trust and the group,
representative or broker or dealer.
At the time of purchase, the Distributor must receive
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 without sales
charge (except as stated below under "Special Dealer
Arrangements") from proceeds of a redemption, made within 120
days prior to such purchase, of shares of an investment company
(not a member of the Aquilasm Group of Funds) on which a sales
charge, including a contingent deferred sales charge, has been
paid. Additional information is available from the Distributor.
To qualify, follow these special procedures:
1. Send a completed Application (included with the
Prospectus) and payment for the shares to be purchased
directly to the Distributor, Aquila Distributors, Inc.,
380 Madison Avenue, Suite 2300, New York, NY 10017-
2513. Do not send this material to the address
indicated on the Application.
2. Your completed Application must be accompanied by
evidence satisfactory to the Distributor that you, as
the prospective shareholder, have 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. 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 from the proceeds of a
redemption of the shares of an investment company (not a member
of the Aquilasm Group of Funds) the lesser of (i) 1% of such
proceeds or (ii) the same amounts described under "Purchases of
$1 Million or More" above on the same terms and conditions.
Class A Shares of the Trust issued in such a transaction will be
CDSC Class A Shares, subject to a special contingent deferred
sales charge if redeemed during the four-year period after
purchase as described under "Purchases of $1 Million or More"
above. Whenever Special Dealer Arrangements are in effect the
Prospectus will be supplemented.
"What are the Purchase, Service and Distribution charges for
Class C Shares?"
* No sales charge at time of purchase.
* Annual fees for service and distribution at a combined
annual rate of 1% of average annual net assets of the Trust
represented by Class C shares.
* After six years, Class C Shares automatically convert to
Class A Shares, which bear lower service and distribution
fees.
Redemption of Class C Shares
* 1% charge if redeemed within the first 12 months after
purchase. This contingent deferred sales charge, or CDSC,
is calculated based on the lesser of the net asset value at
the time of purchase or at the time of redemption.
* No CDSC applies if Class C Shares are held for 12 months
after purchase.
* Shares acquired by reinvestment of dividends are not subject
to any CDSC.
Broker/Dealer Compensation - Class C Shares
The Distributor will pay any broker/dealer executing a Class
C share purchase 1% of the sales price.
Additional Compensation for Broker/Dealers
The Distributor may compensate broker/dealers, above the
normal sales commissions, in connection with sales of any class
of shares. However, broker/dealers may receive levels of
compensation which differ as between classes of share sold.
The Distributor, not the Trust, will pay these additional
expenses. Therefore, the price you pay for shares and the amount
that the Trust receives from your payment will not be affected.
Additional compensation may include full or partial payment
for:
* advertising of the Trust's shares;
* payment of travel expenses, including lodging, for
attendance at sales seminars by qualifying registered
representatives; and/or
* other prizes or financial assistance to broker/dealers
conducting their own seminars or conferences.
Such compensation may be limited to broker/dealers whose
representatives have sold or are expected to sell significant
amounts of the Trust's shares. However, broker/dealers may not
use sales of the Trust's shares to qualify for additional
compensation to the extent such may be prohibited by the laws of
any state or 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. 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.
"What about confirmations and share certificates?"
A statement will be mailed to you confirming each purchase
of shares in the Trust. Additionally, your account at the Agent
will be credited in full and fractional shares (rounded to the
nearest 1/1000th of a share).
You may obtain Share certificates for full Class A Shares
only if you make a written request to the Agent. All share
certificates previously issued by the Trust represent Class A
Shares. If you lose the certificates, you may incur delay and
expense when redeeming shares or having the certificates
reissued.
Share certificates will not be issued:
* for fractional Class A Shares;
* for full or fractional Class C Shares;
* if you have selected Automatic Investment or Telephone
Investment for Class A Shares (see "PURCHASES" above);
or
* if you have selected Expedited Redemption (see
"REDEEMING YOUR INVESTMENT" above). However, if you
specifically request, Class A Share certificates will
be issued with a concurrent automatic suspension of
Expedited Redemption on your account.
General
The Trust and the Distributor may 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.
"Is there a Distribution Plan or a Service Plan?"
The Trust has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Trust to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Manager, out of its own funds, to make
payment for distribution expenses; and
(iii) protect the Trust against any claim that some of the
expenses which it pays or may pay might be considered
to be sales-related and therefore come within the
purview of the Rule.
Pursuant to the Plan, the Trust makes payments with respect
to both Class A and C Shares to broker/dealers, or others
selected by the Distributor, including any principal underwriter
of the Trust, who have entered into written agreements with the
Distributor or the Trust and (i) rendered assistance (whether
direct, administrative, or both) in the distribution and/or
retention of the Trust's shares or (ii) assisted in the servicing
of shareholder accounts.
For any fiscal year, these payments, made through the
Distributor or Agent, may not exceed 0.15 of 1% for Class A
Shares and 0.75 of 1% for Class C Shares, of the average annual
net assets represented by each such class.
For any class, these payments are made only from the assets
allocable to that class. 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.
Shareholder Service Plan for Class C Shares
The Trust's Shareholder Services Plan authorizes it to pay a
service fee to Qualified Recipients with respect to Class C
Shares. For any fiscal year, such fees, paid through the
Distributor or Agent, may not exceed 0.25 of 1% of the average
annual net assets represented by Class C Shares. Additionally,
payment shall be made only out of the Trust's assets represented
by Class C Shares. "Qualified Recipients" means broker/dealers
or others selected by the Distributor, including any principal
underwriter of the Trust, who have entered into written
agreements with the Distributor and who have agreed to provide
personal services to Class C shareholders and/or maintain their
accounts.
Service Fees with respect to Class C Shares will be paid to
the Distributor during the first year after purchase and
thereafter to other Qualified Recipients.
DIVIDENDS AND DISTRIBUTIONS
"How are dividends and distributions paid?"
The Trust pays dividends and other distributions with
respect to each class of shares. The Trust calculates its
dividends and other distributions with respect to each class at
the same time and in the same manner. 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 this
income varies, so will the Trust's dividends. There is no fixed
dividend rate. It is expected that most of the Trust's dividends
will be comprised of interest income. The dividends of each class
can vary due to certain class-specific charges. The Trust will
declare all of its net income 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.
Redeemed shares continue to earn dividends through and
including the earlier of:
1. the day prior to the day when redemption
proceeds are mailed, wired or transferred by
the Automated Clearing House, the Agent or
paid by the Agent to a selected dealer; or
2. the third day the New York Stock Exchange
is open after the day the net asset value of
the redeemed shares was determined.
The Trust's present policy is to pay dividends so 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 choose 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.
"How will the information I give the Trust affect payments to
me?"
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Trust
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders, and from capital
gains distributions (if any) and any other distributions that do
not qualify as "exempt-interest 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 automatically
be reinvested in full and fractional shares of the Trust of the
same class at net asset value on the record date for the dividend
or distribution or other date fixed by the Board of Trustees.
Your election to receive cash will continue in effect until
the Agent receives written notification of a change.
All shareholders, whether their dividends are received in
cash or reinvested, will receive a monthly account summary
indicating the current status of their investment.
TAX INFORMATION
Net investment income includes income from Oregon
Obligations in the portfolio which the Trust allocates as
"exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. The Trust will allocate
"exempt-interest dividends" by applying one designated percentage
to all income dividends it declares during its tax year. It will
normally make this designation in the first month following its
fiscal year end for dividends paid in the prior year.
It is possible that, under certain circumstances, a small
portion of dividends paid by the Trust will be subject to income
taxes. During the Trust's fiscal year ended September 30, 1998,
99.98% of the Trust's dividends were exempt interest dividends.
For the calendar year 1998, 0.02% of total dividends paid were
taxable. The percentage of tax-exempt income from any particular
dividend may differ from the percentage of the Trust's tax-exempt
income during the dividend period.
Net capital gains of the Trust, if any, 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 intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
"Exempt-interest dividends" 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 Trust will treat as ordinary income in the year received
certain gains on Oregon Obligations it acquired after April 30,
1993 and sells for less than face or redemption value. Those
gains will be taxable to you as ordinary income, if distributed.
Capital gains dividends (net long-term gains over net short-
term losses which the Trust distributes and so designates) are
reportable by shareholders as gains from the sale or exchange of
a capital asset held for more than a year. This is the case
whether the shareholder reinvests the distribution in shares of
the Trust or receives it in cash, regardless of the length of
time the investment is held.
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 reduce future capital gains dividends and
amounts taxed to shareholders.
The Trust's gains or losses on sales of Oregon Obligations
will be deemed long- or short-term, depending upon the length of
time the Trust holds these obligations.
You will receive information on the tax status of the
Trust's dividends and distributions annually.
Special Tax Matters
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.
If you or your spouse are receiving Social Security or
railroad retirement benefits, a portion of these benefits may
become taxable, if you receive exempt-interest dividends from the
Trust.
If you, or someone related to you, is a "substantial user"
of facilities financed by industrial development or private
activity bonds, you should consult your own tax adviser before
purchasing shares of the Trust.
Interest from all Oregon Obligations is tax-exempt for
purposes of computing the shareholder's regular tax. However,
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. An adjustment
required by the Code will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax. They should consult their tax advisers.
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. For redemptions made after January
1, 1998, your gain or loss will be long-term if you held the
redeemed shares for over one year and short-term if for a year or
less. Long-term capital gains are currently taxed at a maximum
rate of 20% 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
When Class C Shares automatically convert to Class A Shares,
approximately six years after purchase, you will recognize no
gain or loss. Your adjusted tax basis in the Class A Shares you
receive upon conversion will equal your adjusted tax basis in the
Class C Shares you held immediately before conversion. Your
holding period for the Class A Shares you receive will include
the period you held the converted Class C Shares.
"What should I know about Oregon taxes?"
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.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table of Financial Highlights has been audited
by KPMG LLP, independent auditors, whose report thereon is
included with 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. 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 Year
Ended Ended
1998 1997 1996 9/30/98 9/30/97
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .............. $10.68 $10.49 $10.55 $10.67 $10.49
Income from Investment
Operations:
Net investment income .. 0.53 0.53 0.54 0.43 0.44
Net gain (loss) on
securities (both
realized and
unrealized) .......... 0.19 0.21 (0.05) 0.21 0.20
Total from Investment
Operations ........... 0.72 0.74 0.49 0.63 0.64
Less Distributions:
Dividends from net
investment income .... (0.53) (0.54) (0.54) (0.44) (0.45)
Distributions from
capital gains ........ (0.01) (0.01) (0.01) (0.01) (0.01)
Total Distributions .... (0.54) (0.55) (0.55) (0.45) (0.46)
Net Asset Value, End of
Period ................. $10.86 $10.68 $10.49 $10.85 $10.67
Total Return (not reflecting
sales charge)(%) ....... 6.90 7.21 4.76 6.00 6.20
Ratios/Supplemental Data
Net Assets, End of Period
(in thousands $) ..... 322,475 312,005 305,096 1,160 800
Ratio of Expenses to
Average Net
Assets (%) .......... 0.71 0.73 0.73 1.56 1.58
Ratio of Net Investment
Income to Average Net
Assets (%) ........... 4.83 5.01 5.15 3.98 4.14
Portfolio Turnover
Rate (%) ............... 7 5 10 7 5
In addition, the Trust earns credits from its custodian for uninvested
cash balances which are used to reduce certain expenses incurred. If the
credits are taken into consideration, the expense ratios were as follows:
Actual Expense Ratio
after Considering
Custodian Credits 0.69 0.72 0.72 1.54 1.57
<CAPTION>
Class A(1) Class C(3)
Year Ended September 30, Period Ended 9/30/96
1995 1994
<C> <C> <C>
$10.20 $10.95 $10.34
0.55 0.56 0.22
(0.39) (0.75) 0.15
(0.94) (0.19) 0.37
(0.55) (0.56) (0.22)
(0.04) - -
(0.59) (0.56) (0.22)
$10.55 $10.20 $10.49
9.52 (1.77) 3.61+
310,554 316,317 336
0.73 0.70 1.56*
5.37 5.26 4.17*
13 11 10+
0.71 0.68 1.56*
<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>
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 organization. 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 1B.
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
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 Trusts, 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>
Inside Back Cover
MANAGER AND FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
US Bank National Association
111 S.W. Fifth Avenue
U.S. Bancorp Tower
Portland, Oregon 97204
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
David B. Frohnmayer
James A. Gardner
Diana P. Herrmann
Raymond H. Lung
John W. Mitchell
Richard C. Ross
OFFICERS
Diana P. Herrmann, President
Sue McCarthy-Jones, Senior Vice President
Kerry A. Lemert, Vice President
Christine L. Neimeth, 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 Center, DE 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG 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
<PAGE>
Back Cover
This Prospectus concisely states information about the Trust that you
should know before investing. A Statement of Additional Information about
the Trust dated February 1, 1999, (the "Additional Statement") has been
filed with the Securities and Exchange Commission. 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 this
Prospectus and the Additional Statement are all material facts about the
Trust available to you.
You can get additional information about the Trust's investments in
the Trust's annual and semi-annual reports to shareholders. In the Trust's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Trust's performance
during its last fiscal year. You can get the Additional Statement and the
Trust's annual and semi-annual reports without charge, upon request.
In addition, you can review and copy information about the Trust
(including the Additional Statement) at the Public Reference Room of the
SEC in Washington, D.C. You can get information on the operation of the
SEC's public reference room by calling the SEC at 1-800-SEC-0330. You can
get other information about the Trust at the SEC's Internet site at
http://www.sec.gov. You can get copies of this information, upon payment of
a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
The file number under which the Trust is registered
with the SEC under the
Investment Company Act of 1940 is 811-4626.
TABLE OF CONTENTS
THE TRUST'S OBJECTIVE, INVESTMENT STRATEGIES
AND MAIN RISKS...................................
RISK/RETURN BAR CHART AND PERFORMANCE TABLE .....
FEES AND EXPENSES OF THE TRUST...................
INVESTMENT OF THE TRUST'S ASSETS.................
TRUST MANAGEMENT.................................
NET ASSET VALUE PER SHARE........................
PURCHASES .......................................
REDEEMING YOUR INVESTMENT........................
ALTERNATE PURCHASE PLANS.........................
DIVIDENDS AND DISTRIBUTIONS......................
TAX INFORMATION..................................
FINANCIAL HIGHLIGHTS.............................
APPLICATION AND LETTER OF INTENT
AQUILA
TAX-FREE TRUST
OF OREGON
[LOGO]
A tax-free
income investment
One of The
Aquilasm Group of Funds
A Series of The Cascades Trust
PROSPECTUS
To receive a free copy of the trust's Additional statement, annual or semi-
annual report, or other information about the trust, or to make shareholder
inquiries call:
the Trust's Shareholder Servicing Agent at
800-872-6735 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For General Inquiries and Yield Information, call 800-872-6734 or 212-697-
6666
This Prospectus Should Be Read and Retained For Future Reference
<PAGE>
Tax-Free Trust of Oregon
380 Madison Avenue, Suite 2300
New York, New York 10017
800-USA-OREG (800-872-6734)
212-697-6666
Prospectus
Class Y Shares February 1, 1999
Class I Shares
Tax-Free Trust of Oregon is a mutual fund that seeks to provide
you as high a level of current income exempt from Oregon state
and Federal income taxes as is consistent with preservation of
capital. The Trust invests primarily in municipal obligations
which pay interest exempt from Oregon state and Federal income
taxes that are 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,
are determined to be of comparable quality by the Trust's Sub-
Adviser, U.S. Bank National Association, a subsidiary of U.S.
Bancorp.
For Purchase, redemption or Account inquiries contact the Trust's
Shareholder Servicing Agent:
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809
Call 800 872-6735 toll free
For General Inquiries & Yield Information
Call 800-872-6734 toll free or 212-697-6666
The Securities and Exchange Commission Has Not Approved or
Disapproved the Trust's Securities or Passed Upon the Adequacy of
This Prospectus. Any Representation To The Contrary Is A Criminal
Offense.
<PAGE>
THE TRUST'S OBJECTIVE, INVESTMENT STRATEGIES AND MAIN RISKS
"What is the Trust's objective?"
The Trust's objective is to provide you as high a level of
current income exempt from Oregon state and Federal income taxes
as is consistent with preservation of capital.
"What is the Trust's Investment Strategy?"
The Trust invests in tax-free municipal obligations which
pay interest exempt from Oregon state and Federal income taxes.
In general, all or almost all of these obligations are issued by
the State of Oregon, its counties and various other local
authorities; at least 65% of the portfolio will always consist of
obligations of these issuers. These obligations can be of any
maturity but maturity of the Trust's portfolio has traditionally
been between 12 and 18 years. At the time of purchase, an
obligation must be considered "investment grade." This means
that it must either
* be rated within the four highest credit ratings 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.
Institutional Class Shares ("Class Y Shares") are offered only
to institutions acting for investors in a fiduciary, advisory,
agency, custodial or similar capacity. 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. The Trust
does not sell the shares of either class directly to retail
customers.
"What are the main risks of investing in the Trust?"
Among the risks of investing in shares of the Trust and its
portfolio of securities are the following:
Loss of money is a risk of investing in the Trust.
There are two types of risk associated with any fixed income
debt securities such as Oregon Obligations: interest rate risk
and credit risk.
* Interest rate risk relates to fluctuations in market value
arising from changes in interest rates. If interest rates
rise, the value of debt securities, including Oregon
Obligations, will normally decline. All fixed-rate debt
securities, even the most highly rated Oregon Obligations,
are subject to interest rate risk. Oregon Obligations with
longer maturities generally have a more pronounced reaction
to interest rate changes than shorter-term securities.
* Credit risk relates to the ability of the particular issuers
of the Oregon Obligations the Trust owns to make periodic
interest payments as scheduled and ultimately repay
principal at maturity. The Trust's assets, being primarily
or entirely Oregon issues, are subject to economic and other
conditions affecting Oregon.
Market Fluctuations The market prices of the Trust's
portfolio securities fluctuate in relation to changes in
prevailing interest rates, and may be subject to other market,
credit and economic factors as well. Accordingly, the proceeds of
redemptions may be more or less than your original cost.
No Bank Credit Support Investment in the Trust is not a
deposit in U.S. Bank National Association or its bank or non-bank
affiliates or any other bank, and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government
agency.
<PAGE>
TAX-FREE TRUST OF OREGON
RISK/RETURN BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the
risks of investing in Tax-Free Trust of Oregon+ by showing
changes in the Trust's performance from year to year since
inception and by showing how the Trust's average annual returns
for one, five and ten years compare to a broad measure of market
performance. How the Trust has performed in the past is not
necessarily an indication of how the Trust will perform in the
future.
<TABLE>
<CAPTION>
[Bar Chart]
Annual Total Returns
1996-1998
<S> <C> <C> <C>
8% 7.50
XXXX
6% 6.22% XXXX
XXXX XXXX 5.56%
4% XXXX XXXX XXXX
XXXX XXXX XXXX
2% XXXX XXXX XXXX
XXXX XXXX XXXX
0% XXXX XXXX XXXX
1996* 1997 1998
Calendar Years
+ Refers to Class Y Shares unless otherwise indicated.
* For the period April 5, 1996-december 31, 1996.
During the period shown in the bar chart, the highest return for
a quarter was 2.58% (quarter ended March 31, 1997) and the lowest
return for a quarter was 0.16% (quarter ended March 31, 1997).
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
For the Period Ended 1-Year inception*
December 31, 1998
<S> <C> <C>
Tax-Free Trust of Oregon
Class Y Shares 5.56% 7.05%
Tax-Free Trust of Oregon
Class I Shares ** N/A N/A
Lehman Brothers
Municipal Bond Index *** 6.48% 7.79%
<FN>
*From commencement of class on April 5, 1996.
</FN>
<FN>
**Commencement of Class I Shares was on January 31, 1998. To date
no Class I Shares have been sold.
</FN>
<FN>
***The Lehman Brothers municipal Bond Index is nationally
oriented and consists of an unmanaged mix of investment-grade
long-term municipal securities of issuers throughout the United
States. At December 31, 1998, there were approximately 46,000
securities in the Index.
</FN>
</TABLE>
<PAGE>
TAX-FREE TRUST OF OREGON
FEES AND EXPENSES OF THE TRUST
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Trust. No Class I Shares are
currently outstanding.
<TABLE>
<CAPTION>
Shareholder Fees
(fees paid directly from your investment)
Class I Class Y
Shares Shares
<S> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases.........................None None
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load).........None None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends
(as a percentage of offering price)........None None
Redemption Fees..............................None None
Exchange Fees................................None None
Annual Trust Operating Expenses (expenses that are
deducted from the Trust's assets)
Management Fees .............................0.40% 0.40%
12b-1 Fee ...................................0.10%(1) None
All Other Expenses (2).......................0.34% 0.16%
Total Annual Trust Operating Expenses (2)....0.84% 0.56%
</TABLE>
Example
This Example is intended to help you compare the cost of
investing in the Trust with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Trust for the
time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your
investment has a 5% return each year, you reinvest all dividends
and distributions, and that the Trust's operating expenses remain
the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class I Shares.......... $86 $268 $466 $1,037
Class Y Shares...........$57 $179 $313 $701
<FN>
(1) Current rate; up to 0.25% can be authorized. (See
"Distribution Plan").
</FN>
<FN>
(2) Does not reflect a 0.02% offset in Trust expenses received
for uninvested cash balances. Reflecting this offset, all other
expenses and total annual Trust operating expenses were 0.32% and
0.82%, respectively, for Class I Shares; for Class Y Shares,
these expenses were 0.14% and 0.54%, respectively. Other expenses
for the two classes differ because Class I Shares bear program
costs for financial intermediaries of 0.25%, which includes
transfer agent services, and charges common to both classes of
0.09%; Class Y Shares bear only the common charges of 0.09% and
an allocation for transfer agent services of 0.07%
</FN>
</TABLE>
<PAGE>
INVESTMENT OF THE TRUST'S ASSETS
"Is the Trust right for me?"
The shares of the Trust are designed to be a suitable
investment for individuals, corporations, institutions and
fiduciaries who seek income exempt from Oregon state and regular
Federal income taxes.
Oregon Obligations
The Trust invests in Oregon Obligations which are a type of
municipal obligation. They pay interest which bond counsel or
other appropriate counsel deems to be exempt from regular Federal
and State of Oregon income taxes. They include obligations of
Oregon issuers and certain non-Oregon issuers, of any maturity.
The interest paid on certain types of Oregon Obligations may be
subject to the Federal alternative minimum tax ("AMT"). At least
80% of the Trust's net assets must be invested in Oregon
Obligations whose interest is not subject to AMT.
Interest on non-Oregon bonds or other obligations issued by
or under the authority of Guam, the Northern Mariana Islands,
Puerto Rico and the Virgin Islands is currently exempt from
regular Federal and Oregon income taxes.
Municipal Obligations
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 public purposes.
There are two principal classifications of municipal
obligations: "notes" and "bonds." Notes generally have
maturities of one year or less, while bonds are paid back over
longer periods.
The various public purposes for which municipal obligations
are issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public institutions
and facilities, and
* funding the construction of highways, bridges, schools,
hospitals, housing, mass transportation, streets and
water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S. government
guarantee,
* municipal lease/purchase agreements, which are similar
to installment purchase contracts for property or
equipment, and
* floating and variable rate demand notes.
"What factors may affect the value of the Trust's investments and
their yields?"
The value of Oregon Obligations will fluctuate with changes
in interest rates. Their value will normally decrease if
interest rates increase, and will normally increase if interest
rates decrease.
Changes in value and yield based on current interest rates
may have different effects on short-term and long-term Oregon
Obligations. Long-term obligations (which usually have higher
yields) may fluctuate in value more than short-term ones. Thus,
the Trust may shorten the average maturity of its portfolio when
it believes this desirable. While this strategy may promote one
part of the Trust's objective, preservation of capital, it may
also result in a lower level of income.
Market, credit, and other economic factors may also effect
the value of Oregon Obligations.
"What are the main 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 Oregon Obligations that the Trust owns.
The Trust has derived this information from sources that are
generally available to investors and believes it to be accurate,
but it has not been independently verified and it 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.
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.
Obligations of non-Oregon issuers are subject to general
economic and other factors affecting those issuers.
In addition to considerations specifically affecting Oregon,
other risk factors include the following.
Medium Quality Securities Rating agencies consider municipal
obligations rated in the fourth highest credit rating to be of
medium quality. Thus, they may present investment risks which do
not exist with more highly rated obligations. Such obligations
possess less attractive investment characteristics and may in
fact have speculative characteristics as well. Therefore,
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.
Year 2000 Like other financial and business organizations,
the Trust could be adversely affected if computer systems the
Trust relies on do not properly process date-related information
and data involving the year 2000 and after. The Manager is taking
steps that it believes are reasonable to address this problem in
its own computer systems and to obtain assurances that steps are
being taken by the other major service providers to the Trust to
achieve comparable results. Certain vendors have advised the
Manager that they are currently compliant. The three mission
critical vendors -- the shareholder servicing agent, the
custodian and the fund accounting agent -- as well as other
support organizations, advised the Manager in 1998 that they were
actively working on necessary changes. These three vendors,
having anticipated readiness by December 1998, so informed the
Manager; thereafter they advised the Manager that they expect to
be ready during the first half of 1999. The Manager has also
requested the Trust's portfolio manager to attempt to evaluate
the potential impact of this problem on the issuers of securities
in which the Trust invests. At this time there can be no
assurance that the target dates will be met or that these steps
will be sufficient to avoid any adverse impact on the Trust.
Less Diversification The Trust is classified as a
"non-diversified" investment company under the Investment Company
Act of 1940 (the "1940 Act"). Thus, compared with "diversified"
funds, it may invest a greater percentage of its assets in
obligations of a particular issuer and may therefore not have as
much diversification among securities, and thus diversification
of risk. 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.
TRUST MANAGEMENT
"How is the Trust managed?"
Aquila Management Corporation, 380 Madison Avenue, Suite
2300, New York, NY 10017, the Manager, is the Trust's investment
adviser under an Advisory and Administration Agreement. It has
delegated its investment advisory duties, including portfolio
management to U.S. Bank National Association, the Sub-Adviser,
under a sub-advisory agreement described below. The Manager is
also responsible for administrative services, including providing
for the maintenance of the headquarters of the Trust, overseeing
relationships between the Trust and the service providers to the
Trust, either keeping the accounting records of the Trust, or, at
its expense and responsibility, delegating such duties in whole
or in part to a company satisfactory to the Trust, maintaining
the Trust's books and records and providing other administrative
services.
The Sub-Adviser provides the Trust with local advisory
services.
Under the Sub-Advisory Agreement, the Sub-Adviser provides
for investment supervision including supervising continuously the
investment program of the Trust and the composition of its
portfolio; determining what securities will be purchased or sold
by the Trust, arranging for the purchase and the sale of
securities held in the portfolio of the Trust; and, at the
Sub-Adviser's expense, for pricing of the Trust's portfolio
daily.
Under the Advisory and Administration Agreement, the Trust
pays the Manager a 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 management fee is payable at
the annual rate of 0.40 of 1% of such net asset value.
Information about the Sub-Adviser and the Manager
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 September 30,
1998, on a pro forma combined basis, USB and its consolidated
subsidiaries had consolidated assets of approximately $74
billion, consolidated deposits of $48.5 billion and shareholder
equity of $5.9 billion.
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 and Manager and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money market funds and equity
funds. As of December 31, 1998, these funds had aggregate assets
of approximately $3.2 billion, of which approximately $2.0
billion consisted of assets of the 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.
NET ASSET VALUE PER SHARE
The net asset value of the shares of each of the Trust's
classes of shares 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 (which
means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at
that time. In general, net asset value of the Trust's shares is
based on market value, except that Oregon Obligations maturing in
60 days or less are generally valued at amortized cost. The New
York Stock 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, the Exchange may close on days not included in that
announcement.
PURCHASES
"Are there alternate purchase plans?"
This Prospectus offers two separate classes of shares. All
classes represent interests in the same portfolio of Oregon
Obligations.
"Can I purchase shares of the Trust?"
You can purchase shares of the Trust if you reside in Oregon
or in one of the other states listed below. You should not
purchase shares of the Trust if you do not reside in one of the
following states. Otherwise the Trust can redeem the shares you
purchased. This may cause you to suffer a loss and may have tax
consequences.
Also, if you do not reside in Oregon, dividends from the
Trust may be subject to state income taxes of the state in which
you do reside. Therefore, you should consult your tax adviser
before buying shares of the Trust.
On the date of this Prospectus, Class Y Shares are available
only in:
*Oregon * California * Colorado * Connecticut * District of
Columbia *Florida * Hawaii * Idaho * Illinois * Missouri * Nevada
* New Jersey * New York * Pennsylvania
Class I Shares are available only in:
* Oregon * District of Columbia * Missouri * New Jersey * New
York
"How Much Money Do I Need to Invest?"
For Class Y Shares:
$1,000. Subsequent investments can be in any amount.
Class I Shares:
Financial intermediaries can set their own requirements for
initial and subsequent investments.
Your investment must be drawn in United States dollars on a
United States commercial bank or savings bank, credit union or a
United States branch of a foreign commercial bank (each of which
is a "Financial Institution").
"How do I purchase shares?"
You may purchase Class Y Shares:
* through an investment broker or dealer or bank or financial
intermediary which has a sales agreement with the
Distributor, Aquila Distributors, Inc., in which case that
institution will take action on your behalf, and you will
not personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the
Trust's Agent, PFPC Inc.
* the price you will pay is net asset value for both Class Y
Shares and Class I Shares. (See "What Price Will I Pay for
the Trust's Shares?")
You may purchase Class I Shares only through a financial
intermediary.
Opening a Class Y Shares Account Adding to a Class Y
Shares Account
* Make out a check for * Make out a check for
the investment amount the investment amount
payable to payable to
"Tax-Free Trust of "Tax-Free Trust
Oregon" of Oregon"
* Complete the Application * Fill out the pre-printed
included with the Prospectus, stub attached
indicating the features to the Trust's
you wish to authorize. confirmations
Or, supply the name(s)
of account owner(s),
the account number, and
the name of the Trust
* Send your check and * Send your check and
completed application completed application
to your dealer or to your dealer or
to the Trust's to the Trust's
Agent, PFPC Inc. Agent, PFPC Inc.
"Can I transfer funds electronically?"
You can have funds transferred electronically, in amounts of
$50 or more, from your Financial Institution if it is a member of
the Automated Clearing House. You may make investments through
two electronic transfer features, "Automatic Investment" and
"Telephone Investment."
* Automatic Investment: You can authorize a pre-determined
amount to be regularly transferred from your account.
* Telephone Investment: You can make single investments of
up to $50,000 to be made by telephone instructions to the
Agent.
Before you can transfer funds electronically, the Trust's
Agent must have your completed Application authorizing these
features. If you initially decide not to choose these
conveniences and then later wish to do so, you must complete a
Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your
broker or dealer makes these sorts of changes, request your
broker or dealer to make them. The Trust may modify or terminate
these investment methods or charge a service fee, upon 30 day's
written notice to shareholders.
REDEEMING YOUR INVESTMENT
Redeeming Class Y Shares
You may redeem some or all of your shares by a request to
the Agent. Shares will be redeemed at the next net asset value
determined after your request has been accepted.
There is no minimum period for investment in the Trust,
except for shares recently purchased by check, Automatic or
Telephone Investment as discussed below.
A redemption may result in a tax liability for you.
"How can I redeem my investment?"
By mail, send instructions to:
PFPC Inc.
Attn: Aquilasm Group of Funds
400 Bellevue Parkway
Wilmington, Delaware 19809
By telephone, call:
800-872-6735
By FAX, send
instructions to:
302-791-3055
For liquidity and convenience, the Trust offers expedited
redemption for Class Y Shares.
Expedited Redemption Methods
You may request expedited redemption in two ways:
1. By Telephone. The Agent will accept instructions from
anyone by telephone to redeem shares and make payments:
a) to a Financial Institution account you have previously
specified or
b) by check in the amount of $50,000 or less, mailed to the
same name and address (which has been unchanged for the past
30 days) as the account from which you are redeeming. You
may only redeem by check via telephone request once in any
7-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to
supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification
Note: Check the accuracy of your confirmation statements
immediately. The Trust, the Agent, and the Distributor are not
responsible for losses resulting from unauthorized telephone
transactions if the Agent follows reasonable procedures designed
to verify a caller's identity. The Agent may record calls.
2 By FAX or Mail. You may request redemption payments to a
predesignated Financial Institution account by a letter of
instruction sent to the Agent: PFPC Inc., by FAX at
302-791-3055 or by mail to 400 Bellevue Parkway, Wilmington,
DE 19809. The letter, signed by the registered
shareholder(s) (no signature guarantee is required), must
indicate:
account name(s),
account number,
amount to be redeemed,
any payment directions.
To have redemption proceeds sent directly to a Financial
Institution Account, you must complete the Expedited Redemption
section of the Application or a Ready Access Features Form. You
will be required to provide (1) details about your Financial
Institution account, (2) signature guarantees and (3) possible
additional documentation.
The name(s) of the shareholder(s) on the Financial Institution
account must be identical to those on the Trust's records of your
account.
You may change your designated Financial Institution account at
any time by completing and returning a revised Ready Access
Features Form.
Regular Redemption Method
To redeem by the regular redemption method, send a letter of
instruction to the Trust's Agent, which includes:
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 (we normally mail redemption proceeds
to your address as registered with the Trust)
Signature(s) of the registered shareholder(s) and
Signature guarantee(s), if required, as indicated below.To
be in "proper form," your letter must be signed by the
registered shareholder(s) exactly as the account is
registered. For a joint account, both shareholder signatures
are necessary.
We may require additional documentation for certain types of
shareholders such as corporations, partnerships, trustees or
executors, or if redemption is requested by someone other
than the shareholder of record. The Agent may require
signature guarantees if insufficient documentation is on
file.
We do not require a signature guarantee for redemptions up
to $50,000, payable to the record holder, and sent to the
address of record, except as noted above. In all other
cases, signatures must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
participant in the Securities Transfer Association Medallion
Program ("STAMP") 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 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.
"When will I receive the proceeds of my redemption?"
Redemption proceeds for Class Y Shares are normally sent on the
next business day following acceptance of your redemption
request. Except as described below, payments will normally be
sent to your address of record within 7 days after acceptance of
your redemption request.
Redemption Method of Payment Charges
Under $1,000 Check None
$1,000 or more Check or, if and None
as you requested
on your Application
or Ready Access Features
Form, wired or
transferred through
the Automated Clearing
House to your Financial
Institution Account.
Through a broker/
dealer Check or wire, to your broker None.However
/dealer. your
broker/dealer
may charge a
fee.
Although the Trust does not currently intend to, it can
charge up to $5.00 per wire redemption, after written notice to
shareholders who have elected this redemption procedure. 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.
Redemption payments for Class I Shares are made to financial
intermediaries.
The Trust may delay redemption of shares recently purchased
by check (including certified, cashier's or official bank check)
or by Automatic Investment or Telephone Investment up to 15 days
after purchase; however, redemption will not be delayed after (i)
the check or transfer of funds has been honored, or (ii) the
Agent receives satisfactory assurance that your Financial
Institution will honor the check or transfer of funds. You can
eliminate possible delays by paying for purchased shares with
wired funds or Federal Reserve drafts.
The Trust has the right to postpone payment or suspend
redemption rights during certain periods. These periods may
occur (i) when the Exchange is closed for other than weekends and
holidays, (ii) when the Securities and Exchange Commission (the
"SEC") restricts trading on the Exchange, (iii) when the SEC
determines an emergency exists which causes disposal of, or
determination of, the portfolio securities to be unreasonable or
impracticable, and (iv) during such other periods as the SEC may
permit.
The Trust can redeem your shares if their value totals less
than $500 as a result of redemptions or failure to meet and
maintain the minimum investment level under an Automatic
Investment program. Before such a redemption is made, we will
send you a notice giving you 60 days to make additional
investments to bring your account up to the minimum.
Redemption proceeds may be paid in whole or in part by
distribution of the Trust's portfolio securities in conformity
with SEC rules. This method would only be used if Trustees
determine that partial or whole cash payments would be
detrimental to the best interests of the remaining shareholders.
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. Under the Plan:
* You will receive a monthly or quarterly check in a stated
amount of not less than $50.
* All dividends and distributions must be reinvested in your
account.
* Redemptions of shares to make payments will give rise to a
gain or loss for tax purposes. See the Automatic Withdrawal
Plan provisions on the Application included with this
Prospectus and "Dividends and Distributions" below.
Restrictions
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 equal
at least the lesser of three times the annual withdrawal or
$5,000.
ALTERNATE PURCHASE PLANS
Distribution Arrangements
In this Prospectus the Trust provides you with two
alternative ways to invest in the Trust through two separate
classes of shares. All classes represent interests in the same
portfolio of Oregon Obligations.
Class Y Shares Class I Shares
"Institutional Class" "Financial Intermediary
Class"
Initial Sales None None. Financial
Charge Intermediaries may
charge a fee for
purchase of shares.
Contingent None None
Deferred Sales
Charge ("CDSC")
Distributions and None Distribution fee of
Service Fees 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 services fee
of 0.25 of 1% of
such assets.
"What Price Will I Pay For the Trust's Shares?"
The offering price for Class Y Shares is the net asset value
per share. You will receive that day's offering price on purchase
orders, including Telephone Investments and investments by mail,
considered received prior to 4:00 p.m. New York time. Dealers
have the added flexibility of transmitting orders received prior
to 4:00 p.m. New York time to the Distributor [or Agent] before
its [the Distributor's] close of business that day (normally 5:00
p.m. New York time) and still receive that day's offering price.
Otherwise, orders will be filled at the next determined offering
price. Dealers are required to submit orders promptly. Purchase
orders received on a non-business day, including those for
Automatic Investment, will be executed on the next succeeding
business day. The sale of shares will be suspended (1) during
any period when net asset value determination is suspended, or,
(2) when the Distributor judges it is 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.
"What about confirmations and share certificates?"
A statement will be mailed to you confirming each purchase
of Class Y Shares in the Trust. Additionally, your account at
the Agent will be credited in full and fractional shares (rounded
to the nearest 1/1000th of a share). Purchases of Class I Shares
will be confirmed by financial intermediaries. The Trust will not
issue certificates for Class Y Shares or Class I Shares.
General
The Trust and the Distributor may 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.
"Is there a Distribution Plan or a Service Plan?"
The Trust has adopted a Distribution Plan (the "Plan") under
the Investment Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Trust to finance activities primarily
intended to result in the sale of its shares;
(ii) permit the Manager, out of its own funds, to make
payment for distribution expenses; and
(iii) protect the Trust against any claim that some of the
expenses which it pays or may pay might be considered
to be sales-related and therefore come within the
purview of the Rule.
No payments are made with respect to assets represented by
Class Y Shares.
Pursuant to the Plan, the Trust makes payments with respect
to Class I Shares to broker/dealers, or others selected by the
Distributor, including any principal underwriter of the Trust,
who have entered into written agreements with the Distributor or
the Trust and (i) rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of
the Trust's shares or (ii) assisted in the servicing of
shareholder accounts.
For any fiscal year, payments with respect to Class I Shares
through the Distributor or Agent, are made 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 can
be made only out of the Trust's assets allocable to the Class I
Shares.
Shareholder Service Plan for Class I Shares
The Trust's Shareholder Services Plan authorizes it to pay a
service fee to Qualified Recipients with respect to Class I
Shares. For any fiscal year, such fees, paid through the
Distributor or Agent, may not exceed 0.25 of 1% of the average
annual net assets represented by Class I Shares. Additionally,
payment shall be made only out of the Trust's assets represented
by Class I Shares. "Qualified Recipients" means broker/dealers
or others selected by the Distributor, including any principal
underwriter of the Trust, who have entered into written
agreements with the Distributor and who have agreed to provide
personal services to Class I shareholders and/or maintain their
accounts. No payments are made with respect to assets represented
by Class Y Shares.
DIVIDENDS AND DISTRIBUTIONS
"How are dividends and distributions paid?"
The Trust pays dividends and other distributions with
respect to each class of shares. The Trust calculates its
dividends and other distributions with respect to each class at
the same time and in the same manner. 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 this
income varies, so will the Trust's dividends. There is no fixed
dividend rate. It is expected that most of the Trust's dividends
will be comprised of interest income. The dividends of each class
can vary due to certain class-specific charges. The Trust will
declare all of its net income 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.
Redeemed shares continue to earn dividends through and
including the earlier of:
1. the day prior to the day when redemption
proceeds are mailed, wired or transferred by
the Automated Clearing House, the Agent or
paid by the Agent to a selected dealer; or
2. the third day the New York Stock Exchange
is open after the day the net asset value of
the redeemed shares was determined.
The Trust's present policy is to pay dividends so 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, holders of Class Y Shares may choose 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. All arrangements for
the payment of dividends with respect to Class I Shares,
including reinvestment of dividends, must be made through
financial intermediaries.
"How will the information I give the Trust affect payments to
me?"
If you do not comply with laws requiring you to furnish
taxpayer identification numbers and report dividends, the Trust
may be required to impose backup withholding at a rate of 31%
upon payment of redemptions to shareholders, and from capital
gains distributions (if any) and any other distributions that do
not qualify as "exempt-interest 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 automatically
be reinvested in full and fractional shares of the Trust of the
same class at net asset value on the record date for the dividend
or distribution or other date fixed by the Board of Trustees.
Your election to receive cash will continue in effect until
the Agent receives written notification of a change.
All shareholders, whether their dividends are received in
cash or reinvested, will receive a monthly account summary
indicating the current status of their investment.
TAX INFORMATION
Net investment income includes income from Oregon
Obligations in the portfolio which the Trust allocates as
"exempt-interest dividends." Such dividends are exempt from
regular Federal income tax. The Trust will allocate
"exempt-interest dividends" by applying one designated percentage
to all income dividends it declares during its tax year. It will
normally make this designation in the first month following its
fiscal year end for dividends paid in the prior year.
It is possible that, under certain circumstances, a small
portion of dividends paid by the Trust will be subject to income
taxes. During the Trust's fiscal year ended September 30, 1998,
99.98% of the Trust's dividends were exempt interest dividends.
For the calendar year 1998, 0.02% of total dividends paid were
taxable. The percentage of tax-exempt income from any particular
dividend may differ from the percentage of the Trust's tax-exempt
income during the dividend period.
Net capital gains of the Trust, if any, 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 intends to qualify during each fiscal year under
the Code to pay "exempt-interest dividends" to its shareholders.
"Exempt-interest dividends" 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 Trust will treat as ordinary income in the year received
certain gains on Oregon Obligations it acquired after April 30,
1993 and sells for less than face or redemption value. Those
gains will be taxable to you as ordinary income, if distributed.
Capital gains dividends (net long-term gains over net short-
term losses which the Trust distributes and so designates) are
reportable by shareholders as gains from the sale or exchange of
a capital asset held for more than a year. This is the case
whether the shareholder reinvests the distribution in shares of
the Trust or receives it in cash, regardless of the length of
time the investment is held.
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 reduce future capital gains dividends and
amounts taxed to shareholders.
The Trust's gains or losses on sales of Oregon Obligations
will be deemed long- or short-term, depending upon the length of
time the Trust holds these obligations.
You will receive information on the tax status of the
Trust's dividends and distributions annually.
Special Tax Matters
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.
If you or your spouse is receiving Social Security or
railroad retirement benefits, a portion of these benefits may
become taxable, if you receive exempt-interest dividends from the
Trust.
If you, or someone related to you, is a "substantial user"
of facilities financed by industrial development or private
activity bonds, you should consult your own tax adviser before
purchasing shares of the Trust.
Interest from all Oregon Obligations is tax-exempt for
purposes of computing the shareholder's regular tax. However,
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. An adjustment
required by the Code will tend to make it more likely that
corporate shareholders will be subject to the alternative minimum
tax. They should consult their tax advisers.
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. For redemptions made after January 1, 1998, your
gain or loss will be long-term if you held the redeemed shares
for over one year and short-term if for a year or less. Long-term
capital gains are currently taxed at a maximum rate of 20% 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.
"What should I know about Oregon taxes?"
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.
<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 has been audited
by KPMG LLP, independent auditors, whose report thereon is
included with 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. 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 Year
Ended Ended
1998 1997 1996 9/30/98 9/30/97
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period .............. $10.68 $10.49 $10.55 $10.68 $10.49
Income from Investment
Operations:
Net investment income .. 0.53 0.53 0.54 0.54 0.54
Net gain (loss) on
securities (both
realized and
unrealized) .......... 0.19 0.21 (0.05) 0.19 0.21
Total from Investment
Operations ........... 0.72 0.74 0.49 0.73 0.75
Less Distributions:
Dividends from net
investment income .... (0.53) (0.54) (0.54) (0.55) (0.55)
Distributions from
capital gains ........ (0.01) (0.01) (0.01) (0.01) (0.01)
Total Distributions .... (0.54) (0.55) (0.55) (0.56) (0.56)
Net Asset Value, End of
Period ................. $10.86 $10.68 $10.49 $10.85 $10.68
Total Return (not reflecting
sales charge)(%) ....... 6.90 7.21 4.76 6.96 7.37
Ratios/Supplemental Data
Net Assets, End of Period
(in thousands $) ..... 322,475 312,005 305,096 10,665 4,031
Ratio of Expenses to
Average Net
Assets (%) .......... 0.71 0.73 0.73 0.55 0.58
Ratio of Net Investment
Income to Average Net
Assets (%) ........... 4.83 5.01 5.15 4.95 5.21
Portfolio Turnover
Rate (%) ............... 7 5 10 7 5
In addition, the Trust earns credits from its custodian for uninvested
cash balances which are used to reduce certain expenses incurred. If the
credits are taken into consideration, the expense ratios were as follows:
Actual Expense Ratio
after Considering
Custodian Credits 0.69 0.72 0.72 0.53 0.57
<CAPTION>
Class A(1) Class Y(2)
Year Ended September 30, Period Ended 9/30/96(3)
1995 1994
<C> <C> <C>
$10.20 $10.95 $10.34
0.55 0.56 0.27
(0.39) (0.75) 0.15
(0.94) (0.19) 0.42
(0.55) (0.56) (0.27)
(0.04) - -
(0.59) (0.56) (0.27)
$10.55 $10.20 $10.49
9.52 (1.77) 4.14+
310,554 316,317 242
0.73 0.70 0.58*
5.37 5.26 5.35*
13 11 10+
0.71 0.68 0.57*
<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>
APPLICATION FOR TAX-FREE TRUST OF OREGON
FOR CLASS I & 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 Organization. If a Trust, include the name(s) of
Trustees in which account will be registered and the name and date of the
Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust
may be registered in the name of the Plan or Trust itself.)
________________________________________________________________________
Tax I.D. Number Authorized Individual Title
B. MAILING ADDRESS AND TELEPHONE NUMBER
________________________________________________________________________
Street or PO Box City
_________________________________ (______)_______________________
State Zip Daytime Phone Number
Occupation:________________________Employer:____________________________
Employer's Address:_____________________________________________________
Street Address: City State Zip
Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a
non-U.S. Citizen or resident and not subject to back-up withholding (See
certification in Step 4, Section B, below.)
C. INVESTMENT DEALER OR BROKER:
(Important - to be completed by Dealer or Broker)
______________________________ ____________________________________
Dealer Name Branch Number
______________________________ ____________________________________
Street Address Rep. Number/Name
______________________________ (_________)_________________________
City State Zip Area Code Telephone
STEP 2 PURCHASES OF SHARES
A. INITIAL INVESTMENT
Make check payment to TAX-FREE TRUST OF OREGON
__ Initial Investment $______________ (Minimum $1,000)
(Indicate Class of Shares)
__ Class I Shares
__ Class Y 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 1B.
STEP 3
SPECIAL FEATURES
A. AUTOMATIC INVESTMENT PROGRAM
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to have amounts
automatically drawn on your Financial Institution account and invested in
your Tax-Free Trust of Oregon account. To establish this program, please
complete Step 4, Sections A & B of this Application.
I/We wish to make regular monthly investments of $ _________________
(minimum $50) on the ___ 1st day or ___ 16th day of the month (or
on the first business day after that date).
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
B. TELEPHONE INVESTMENT
(Check appropriate box)
___ Yes ___ No
This option provides you with a convenient way to add to your account
(minimum $50 and maximum $50,000) at any time you wish by simply calling
the Trust toll-free at 1-800-872-6735. To establish this program, please
complete Step 4, Sections A & B of this Application.
(YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK)
C. AUTOMATIC WITHDRAWAL PLAN
(Minimum investment $5,000)
Application must be received in good order at least 2 weeks prior to
1st actual liquidation date.
(Check appropriate box)
___ Yes ___ No
Please establish an Automatic Withdrawal Plan for this account,
subject to the terms of the Automatic Withdrawal Plan Provisions set
forth below. To realize the amount stated below, 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 Trusts, 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.
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>
Inside Back Cover
MANAGER AND FOUNDER
Aquila Management Corporation
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
US Bank National Association
111 S.W. Fifth Avenue
U.S. Bancorp Tower
Portland, Oregon 97204
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Vernon R. Alden
Warren C. Coloney
David B. Frohnmayer
James A. Gardner
Diana P. Herrmann
Raymond H. Lung
John W. Mitchell
Richard C. Ross
OFFICERS
Diana P. Herrmann, President
Sue McCarthy-Jones, Senior Vice President
Kerry A. Lemert, Vice President
Christine L. Neimeth, 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 Center, DE 19809
CUSTODIAN
Bank One Trust Company, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG 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
<PAGE>
Back Cover
This Prospectus concisely states information about the Trust
that you should know before investing. A Statement of Additional
Information about the Trust dated February 1, 1999, (the
"Additional Statement") has been filed with the Securities and
Exchange Commission. 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 this Prospectus and the Additional Statement are all
material facts about the Trust available to you.
You can get additional information about the Trust's
investments in the Trust's annual and semi-annual reports to
shareholders. In the Trust's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Trust's performance during its
last fiscal year. You can get the Additional Statement and the
Trust's annual and semi-annual reports without charge, upon
request.
In addition, you can review and copy information about the
Trust (including the Additional Statement) at the Public
Reference Room of the SEC in Washington, D.C. You can get
information on the operation of the SEC's public reference room
by calling the SEC at 1-800-SEC-0330. You can get other
information about the Trust at the SEC's Internet site at
http://www.sec.gov. You can get copies of this information, upon
payment of a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-6009.
The file number under which the Trust is registered
with the SEC under the
Investment Company Act of 1940 is 811-4626.
TABLE OF CONTENTS
THE TRUST'S OBJECTIVE, INVESTMENT STRATEGIES
AND MAIN RISKS...................................
RISK/RETURN BAR CHART AND PERFORMANCE TABLE .....
FEES AND EXPENSES OF THE TRUST...................
INVESTMENT OF THE TRUST'S ASSETS.................
TRUST MANAGEMENT.................................
NET ASSET VALUE PER SHARE........................
PURCHASES .......................................
REDEEMING YOUR INVESTMENT........................
ALTERNATE PURCHASE PLANS.........................
DIVIDENDS AND DISTRIBUTIONS......................
TAX INFORMATION..................................
FINANCIAL HIGHLIGHTS.............................
APPLICATION
AQUILA
TAX-FREE TRUST
OF OREGON
[LOGO]
A tax-free
income investment
One of The
Aquilasm Group of Funds
A Series of The Cascades Trust
PROSPECTUS
To receive a free copy of the Trust's Additional Statement,
annual or semi-annual report, or other information about the
Trust, or to make shareholder inquiries call:
the Trust's Shareholder Servicing Agent at
800-872-6735 toll free
or you can write to:
PFPC Inc
400 Bellevue Parkway
Wilmington, DE 19809
For General Inquiries and Yield Information, call 800-872-6734 or
212-697-6666
This Prospectus Should Be Read and Retained For Future Reference
*********************
<PAGE>
Aquila
Tax-Free Trust of Oregon
380 Madison Avenue Suite 2300
New York, NY 10017
800-USA-OREG (800-872-6734)
212-697-6666
Statement
of Additional
Information February 1, 1999
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. There are two Prospectuses for
the Trust dated February 1, 1999: 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 it at: 400 Bellevue
Parkway, Wilmington, DE 19809 or by calling at the following
numbers:
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 financial statements for the Trust for the year ended
September 30, 1998, 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 LLP, independent auditors, whose report thereon
is incorporated herein by reference. The Annual Report of the
Trust for the fiscal year ended can be obtained without charge by
calling any of the toll-free numbers listed above. The Annual
Report will be delivered with the Additional Statement.
TABLE OF CONTENTS
Trust History
Investment Strategies and Risks
Trust Policies
Management of the Trust
Ownership of Securities
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Capital Stock
Purchase, Redemption, and Pricing of Shares
Additional Tax Information
Underwriters
Performance
Appendix a
<PAGE>
TAX-FREE TRUST OF OREGON
Statement of Additional Information
TRUST HISTORY
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 Trust is an open-end, non-diversified management
investment company.
INVESTMENT STRATEGIES AND RISKS
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, 1998, 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.
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) owns 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.
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, which is marked to market every business
day. On delivery dates for such transactions, the Trust will
meet its commitments by selling the assets 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 and may in fact
never 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. 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 Securities 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-traded 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 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 in conformity with restrictions it has committed to
pursuant to a rule (the "CFTC Rule") adopted by the Commodity
Futures Trading Commission ("CFTC") under the Commodity Exchange
Act (the "CEA") to be eligible for the exclusion provided by the
CFTC Rule from qualifications as a "commodity pool operator" (as
defined under 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 as to its Futures and options activities due to
requirements other than those described in this paragraph; the
Trust will, as to long positions, be required to abide by the
more restrictive of the two requirements.) 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.
TRUST POLICIES
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 such 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 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.
5. 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" in the Prospectus; the Trust can also purchase and
sell Futures and options on them within the limits there discussed.
6. 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.
7. 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" in the
Prospectus); this is investing, not making a loan. The Trust cannot
lend its portfolio securities.
8. 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. 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.
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 will employ such traditional measures as varying
maturities, upgrading credit standards for portfolio purchases,
broadening diversification and increasing its position in cash, in
an attempt to protect against declines in the value of its
investments and other market risks.
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.
MANAGEMENT OF THE TRUST
The Board of Trustees
The business and affairs of the Trust are managed under the
direction and control of its Board of Trustees.
Trustees and Officers
The Trustees and officers of the Trust, their ages, 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. 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 Manager and the
Distributor. Ms. Herrmann is an interested person of the Trust as
an officer of the Trust and of the Manager and as a shareholder of
the Distributor. Each is also an interested person as a member of
the immediate family of the other. Mr. Lung is an interested person
as a security holder of the Sub-Adviser's parent. Mr. Mitchell is
an interested person as a security holder of the Sub-Adviser's
parent. They are so designated by an asterisk.
Lacy B. Herrmann*, 69, Chairman of the Board of Trustees, 380
Madison Avenue, New York, New York 10017
Founder and Chairman of the Board of Aquila Management Corporation,
the sponsoring organization and Manager or Administrator and/or
Adviser or Sub-Adviser to the following open-end investment
companies, and Founder, Chairman of the Board of Trustees and
(currently or until 1998) President of each since its
establishment, beginning in 1984: Pacific Capital Cash Assets
Trust, Churchill Cash Reserves Trust, Pacific Capital U.S.
Government Securities Cash Asset Trust, Pacific Capital Tax-Free
Cash Assets Trust, each of which is a money market fund, and
together with Capital Cash Management Trust ("CCMT") are called the
Aquila Money-Market Funds; Hawaiian Tax-Free Trust, Tax-Free Trust
of Arizona, Tax-Free Trust of Oregon (this Trust), Tax-Free Fund of
Colorado, Churchill Tax-Free Fund of Kentucky, Narragansett Insured
Tax-Free Income Fund and Tax-Free Fund For Utah, each of which is
a tax-free municipal bond fund and which together are called Aquila
Bond Funds; and Aquila Cascadia Equity Fund and Aquila Rocky
Mountain Equity Fund, which together are called Aquila Equity
Funds; currently President of Aquila Cascadia Equity Fund, Aquila
Rocky Mountain Equity Fund, Churchill Cash Reserves Trust,
Churchill Tax-Free Fund of Kentucky and Tax-Free Fund of Colorado;
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; Vice President and Director, and formerly
Secretary, of Aquila Distributors, Inc. since 1981, distributor of
the above funds; 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. and Quest For Value Accumulation Trust, and Director
or Trustee of Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest
Global Value Fund, Inc. and Oppenheimer 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, 75, Trustee, 20 Park Plaza, Suite 1010, Boston,
Massachusetts 02116
Director of Sonesta International Hotels Corporation and
Independent General Partner of the Merrill Lynch-Lee Funds;
Former Director of Colgate-Palmolive Company, Digital Equipment
Corporation, Intermet Corporation, The 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 Hawaiian Tax-Free Trust, Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust and Pacific
Capital U.S. Government Securities 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 Emeritus, Boston Symphony Orchestra; 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, 69, Trustee, 7304 Millwood Road, Bethesda,
Maryland 20817
President, Coloney & Company, Inc., Bethesda MD, since 1984;
Advisory Director 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, 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.
David Frohnmayer, 58, 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, 55, 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 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*, 40, Trustee, President, 380 Madison Avenue, New
York, New York 10017
President and Chief Operating Officer of the Manager/Administrator
since 1997, a Director since 1984, Secretary since 1986 and
previously its Executive Vice President, Senior Vice President or
Vice President, 1986-1997; President of various Aquila Bond Funds
since 1998; Assistant Vice President, Vice President, Senior Vice
President or Executive Vice President of Aquila Money-Market, Bond
and Equity Funds since 1986; Trustee of a number of Aquila Money-
Market, Bond and Equity Funds since 1995; Trustee of Reserve Money-
Market Funds since 1999 and Reserve Private Equity Series since
1998; Assistant Vice President and formerly Loan Officer of
European American Bank, 1981-1986; daughter of the Trust's
Chairman; 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.
Raymond H. Lung*, 72, Trustee, 16199 N.W. Canterwood Way, Portland,
Oregon 97229
Retired; Trustee of Qualivest Group of Funds 1994-1997; 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 Aquila Cascadia Equity Fund since 1996.
John W. Mitchell,* 54, Trustee, M & H Economic Consultants, P.O.
Box 40012, Portland, OR 97240-0012
Economist, Western Region, U. S. Bancorp; Chief Economist, U. S.
Bancorp, Portland, Oregon, 1983-1998; Member, Oregon Governor's
Council of Economic Advisors 1984-1998; Chairman, Oregon Governor's
Technical Advisory Committee for Tax Review in 1998; Trustee of
Aquila Cascadia Equity Fund since 1999.
Richard C. Ross, 77, 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 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, 53, Senior Vice President, 2019 Lloyd Center,
Portland Oregon 97232
Senior Vice President of Aquila Cascadia Equity Fund, 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, 1985-1990; serves
on the Board of Directors of a non-profit charitable foundation.
Kerry A. Lemert, 44, Vice President, 6775 S.W. Canyon Road,
Portland, Oregon 97225
Vice President of Aquila Cascadia Equity Fund since 1998; Assistant
Vice President, Black & Co., 1997-1998; Dealer-Sales and Assistant
Municipal bond trader, Pacific Crest Securities, 1994-1997;
Assistant Municipal Bond Trader, Registered Sales Assistant,
PaineWebber Inc., Portland Oregon, 1988-1994; Sales Assistant, E.F.
Hutton & Co., Inc., Portland, Oregon, 1984-1988.
Christine L. Neimeth, 34, Vice President, 2201 Lloyd Center,
Portland, Oregon 97232
Vice President of Aquila Cascadia Equity Fund since 1998;
Management Information Systems consultant, Hillcrest Ski and Sport,
1997; Institutional Municipal Bond Salesperson, Pacific Crest
Securities, 1996; Institutional Bond Broker, Hilliard Farber and
Company 1991-1995; Bond Trader, Bear Stearns and Company, 1989-91.
Active in college alumni and volunteer organizations.
Rose F. Marotta, 74, Chief Financial Officer, 380 Madison Avenue,
New York, New York 10017
Chief Financial Officer of the Aquila Money-Market, 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, 63, Treasurer, 380 Madison Avenue, New York, New
York 10017
Treasurer of the Aquila Money-Market, 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, 59, 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, 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, 59, Assistant Secretary, 380 Madison Avenue, New
York, New York 10017
Assistant Secretary of the Aquila Money-Market, 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.
The Trust does not currently pay fees to any of the Trust's
officers or to Trustees affiliated with the Manager or the Sub-
Adviser. For its fiscal year ended September 30, 1998, the Trust
paid a total of $86,564 in compensation and reimbursement of
expenses to those Trustees to whom it pays fees. No other
compensation or remuneration of any type, direct or contingent, was
paid by the Trust to its 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 equity funds. The following table lists the compensation
of all Trustees who received compensation from the Trust and the
compensation they received during the Trust's fiscal year from
other funds in the Aquilasm Group of Funds. None of such Trustees
has any pension or retirement benefits from the Trust or any of the
other funds in the Aquila group.
Compensation Number of
from all boards on
Compensation funds in the which the
from the Aquilasm Trustee
Name Trust Group serves
Vernon R.
Alden $7,408 $55,259 7
Warren C.
Coloney $9,270 $10,920 2
David
Frohnmayer $6,323 $7,273 2
James A.
Gardner $7,450 $8,400 2
Raymond H.
Lung $8,479 $10,349 2
Richard C.
Ross $8,203 $9,903 2
OWNERSHIP OF SECURITIES
Of shares of the Trust outstanding on November 23, 1998,
Merrill, Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561 New
Brunswick, NJ held of record 2,213,593 Class A Shares (7.4% of the
class) and 14,167 Class C Shares (12.5% of the class); BHC
Securities Inc., 2005 Market Street, Philadelphia, PA held of
record 2,339,414 Class A Shares (7.8% of the class); Painewebber
f/b/o T. and B. Howser, P.O. Box 4493 Salem, OR held of record
6,420 Class C Shares (5.6% of the class); Painewebber f/b/o D. and
J. Hoar, 2105 NW 133rd Pl, Portland, OR held of record 9,277 class
C Shares (8.2% of the Class); National Investor Services held of
record 12,191 Class C Shares (10.7% of the class); Lewco Securities
Corp. held of record 9,267 Class C Shares (8.2% of the class); US
Bank National Association held of record 54, 104 and 67,338 Class
Y Shares in two accounts (5.4% and 6.7% of the class,
respectively.) 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. J.L. Bernard, 2606 SW 58th
Street, Redmond, OR held of record 10,617 Class C Shares (9.3% of
the class); Trustees of H.W. Kugler Trust, 2817 Alameda Street,
Medford, OR held of record 12,211 Class C Shares (10.8% of the
class). 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.
Management Ownership
As of the date of this Additional Statement, all of the
Trustees and officers as a group owned less than 1% of its
outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
Information about the Sub-Adviser, the Manager and the
Distributor
The Sub-Adviser services Oregon clients at offices in
Portland, Oregon. As in the past, since the beginning of the
Trust's operations in 1987, the Trust's investments will continue
to be managed so that it will have a portfolio of
quality-oriented (investment grade) securities.
The Trust's Manager is founder and Manager and/or
administrator to the Aquilasm Group of Funds, which consists of
tax-free municipal bond funds, money market funds and equity
funds. As of December 31, 1998, these funds had aggregate assets
of approximately $3.2 billion, of which approximately $2.0
billion consisted of assets of the 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.
Mr. Herrmann and Ms. Herrmann are affiliated with the Trust
as officers and Trustees. Mr. Herrmann controls the Manager, as
described above, and Ms. Herrmann is an officer and a director of
the Manager.
Under the Advisory and Administration Agreement, the Trust
will pay to the Manager a 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 management fee shall be
payable at the annual rate of 0.40 of 1% of such net asset value.
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 rate of 0.25 of 1% of such net asset
value, provided, however, that for any day that the Trust pays or
accrues a fee under the Distribution Plan of the Trust based upon
the assets of the Trust (other than a fee allocable by class to
certain shares of the Trust) the annual management fee shall be
payable at the annual rate of 0.20 of 1% of such net asset value.
During the fiscal year ended September 30, 1998, the Trust
incurred fees of $1,307,096 under the Advisory and Administration
Agreement. For the fiscal year of the Trust ended September 30,
1997, fees of $617,654 were paid or accrued to the Manager under
the administration agreement then in effect. For the fiscal year
ended September 30, 1996 fees of $615,409 were paid or accrued to
the Manager under the former administration agreement. 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 fiscal year ended September 30,
1996 fees of $615,409 were paid or accrued to the former adviser.
Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300,
New York, NY 10017 is the Trust's Distributer. The Distributor
currently handles the distribution of the shares of fourteen
funds (five money market funds, seven tax-free municipal bond
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 Additional Statement, 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.
The 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 the Sub-Adviser in
the Sub-Advisory Agreement.
The Advisory and Administration Agreement also 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 the 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.
The Advisory and Administration Agreement provides that the
Manager shall, at its own expense, pay all compensation of
Trustees, officers, and employees of the Trust who are affiliated
persons of the Manager.
The Trust bears 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 the agreement 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
sub-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 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 1940 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 1940 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 0.26 of 1% of such net asset value.
The Sub-Advisory Agreement
The services of the Sub-Adviser are rendered under the
Sub-Advisory Agreement between the Manager and the Sub-Adviser,
which provides, subject to the control of the Board of Trustees,
for investment supervision and at the Sub-Adviser's expense 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, for
pricing of the Trust's portfolio at least quarterly using another
such source satisfactory to the Trust. The Sub-Advisory Agreement
states that the Sub-Adviser shall, at its expense, provide to the
Trust all office space and facilities, equipment and clerical
personnel necessary for the carrying out of the Sub-Adviser's
duties under 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 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 September 30, 1998, 1997 and
1996, 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 became effective on May 1, 1998
and provides that it shall, unless terminated as therein
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.
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.
Underwriting Commissions
During the fiscal years ended September 30, 1998, 1997 and
1996, the aggregate dollar amount of sales charges on sales of
shares in the Trust was $834,920, $864,852 and $642,985,
respectively, and the amount retained by the Distributor was
$156,496, $78,595 and 69,664, respectively.
In connection with sales of Class A Shares, the Distributor
pays a portion of the sales charge on such shares to dealers in
the form of discounts and to brokers in the form of agency
commissions (together, "Commissions"), in amounts that vary with
the size of the sales charge as follows:
Sales Charge as
Percentage Commissions
of Public as Percentage
Offering of Offering
Price Price
4.00% 3.00%
3.75% 3.00%
3.50% 2.75%
3.25% 2.75%
3.00% 2.50%
2.50% 2.25%
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 Manager,
Sub-Adviser or 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) as to 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 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 Manager,
Sub-Adviser or Distributor paid or accrued during such quarter.
In addition, if any such Qualified Recipient is an affiliated
person, as that term is defined in the 1940 Act, of the Trust,
Manager, Sub-Adviser or 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 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 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 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 Manager,
Sub-Adviser or Distributor paid or accrued during such quarter.
In addition, if any such Qualified Recipient is an affiliated
person, as that term is defined in the 1940 Act, of the Trust,
Manager, Sub-Adviser or 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 therein 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 1, 1996 or
(ii) Class C Plan Agreements entered into thereafter.
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 I 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 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
Manager, Sub-Adviser or Distributor paid or accrued during such
quarter. In addition, if any such Qualified Recipient is an
affiliated person, as that term is defined in the Act, of the
Trust, Manager, Sub-Adviser or 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 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 III 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 I 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 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 therein
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 IV 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.
Payments Under the Plan
Generally, payments under Parts I - III of the Plan are not
based on the recipients expenses. During the fiscal year ended
September 30, 1998, $476,542 was paid to Qualified Recipients
with respect to Class A Shares, of which $14,437 was retained by
the Distributor. 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. 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. During
the fiscal year ended September 30, 1998, $7,431 was paid to
Qualified Recipients with respect to Class C Shares. 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. During the fiscal year ended
September 30, 1996, no or nominal payments were made with respect
to Class C Shares. During the fiscal year ended September 30,
1998 no Class I Shares were outstanding and no payments were made
with respect to such shares.
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. "Manager" 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. Service Fees with respect to Class C Shares
will be paid to the Distributor. During the fiscal years ended
September 30, 1998 and 1997, $2,477 and $1,636, respectively, of
Service Fees were paid to Qualified Recipients with respect to
the Trust's Class C Shares. All of such payments were for
compensation.
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.
"Manager" 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 year ended September 30, 1998.
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, Manager,
Sub-Adviser or 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 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.
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 therein 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.
Transfer Agent, Custodian and Auditors
The Trust's Shareholder Servicing Agent (transfer agent) is
PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
The Trust's Custodian, Bank One Trust Company, N.A., 100
East Broad Street, Columbus, Ohio 43271, is responsible for
holding the Trust's assets.
The Trust's auditors, KPMG LLP, 345 Park Avenue, New York,
New York, 10154, perform an annual audit of the Trust's financial
statements.
BROKERAGE ALLOCATION AND OTHER PRACTICES
During the fiscal years ended September 30, 1998, 1997 and
1996, all of the Trust's transactions were principal transactions
and no brokerage commissions were paid. Brokerage allocation and
other practices relating to brokerage are set forth in the
description of the Sub-Advisory Agreement, above.
CAPITAL STOCK
The Trust has four classes of shares.
* 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. 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.
* 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. 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. 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.
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. 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 services fee of 0.25
of 1% of such assets.
The Trust's four classes of shares differ 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.
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. No
amendment, whether or not affecting the rights of the
shareholders, 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 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 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.
Upon liquidation of the Trust, shareholders are entitled to share
pro-rata in the net assets of the Trust available for
distribution to shareholders, 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, which may differ from each other as
provided in rules and regulations of the Securities and Exchange
Commission or by exemptive order. 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").
Shares are fully paid and non-assessable, except as set forth in
the next paragraph; the holders of shares have no pre-emptive or
conversion rights, except that Class C Shares automatically
convert to Class A Shares after being held for six years.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders of a trust such as the 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 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 Trust or the Trustees. The Declaration of Trust
does, however, contain an express disclaimer of shareholder
liability for acts or obligations of the Trust. The Declaration
of Trust provides for indemnification out of the Trust's property
of any shareholder held personally liable for the obligations of
the Trust. The Declaration of Trust also provides that the Trust
shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the 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 Trust
itself would be unable to meet its obligations. In the event the
Trust had two or more Series, and if any such Series 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.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
In addition to information about purchase, redemption and
pricing of shares set forth in the Prospectus, the Trust provides
additional services.
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 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.
Exchange Privilege
There is an exchange privilege as set forth below among this
Trust, certain tax-free municipal bond funds and equity funds
(together with the Trust, 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,
Churchill Tax-Free Fund of Kentucky, Tax-Free Fund of Colorado,
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. Government Securities 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 subject to a CDSC, 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.
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 of 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
Fund 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 Fund 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 requirements of the investment company
whose shares are being acquired and (iii) the ownership of the
accounts from which and to which the exchange is made are
identical.
The Agent will accept telephone exchange instructions from
anyone. To make a telephone exchange telephone:
800-872-6735 toll free
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. Government Securities Cash Assets Trust
(which invests in U.S. Government 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.
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 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, the 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 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 for Class A Shares are as
follows. Exchanges at net asset value are permitted because a
sales charge has already been paid on the shares exchanged. Sales
without sales charge are permitted to Trustees, officers and
certain others due to reduced or eliminated selling expenses
and/or since such sales may encourage incentive, responsibility
and interest and an identification with the aims and policies of
the Trust. Limited reinvestments of redemptions 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.
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.
ADDITIONAL TAX INFORMATION
Certain Exchanges
If you incur a sales commission on a purchase of shares of
one mutual fund (the original fund) and then sell such shares 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.
Tax Status of the Trust
During its last fiscal year, the Trust qualified as a
"regulated investment company" under the Code and intends to
continue such qualification. A regulated investment company is
not liable for federal income taxes on amounts paid by it as
dividends and distributions.
The Code, however, contains a number of complex qualifying
tests. Therefore, it is possible, although not likely, that the
Trust might not meet one or more of these tests in any particular
year. If the Trust fails to qualify, it would be treated for tax
purposes as an ordinary corporation. As a consequence, it would
receive no tax deduction for payments made to shareholders and
would be unable to pay dividends and distributions which would
qualify as "exempt-interest dividends" or "capital gains
dividends."
UNDERWRITERS
Aquila Distributors, Inc. acts as the Trust's principal
underwriter in the continuous public offering of all of the
Trust's classes of shares. The Distributor is not obligated to
sell a specific number of shares. 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.
(1) (2) (3) (4) (5)
Name of Net Under- Compensation Brokerage Other
Principal writing on Redemptions Commissions Compen-
Underwriter Discounts and sation
and Repurchases
Commissions
Aquila $156,496 None None None(1)
Distributors
Inc.
(1) Amounts paid to the Distributor under the Trust's
Distribution Plan described in the Prospectus are for
compensation.
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 classes of shares.
Each of these and other methods that may be used by the Trust are
described in the following material. Prior to April 6, 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.
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 shares of each of the Trust's
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
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%)
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.
Sales charges at the time of purchase are payable only on
purchases of Class A Shares of the Trust.
Average Annual Compounded Rates of Return:
Class A Shares Class C Shares Class Y Shares
One Year 2.58% 4.96% 6.96%
Five Years 4.39% N/A N/A
Ten Years 6.72% N/A N/A
Since
inception on
June 16, 1986 6.83% 6.38%(1) 7.46%(1)
(1) Period from April 6, 1996 (inception of class) through
September 30, 1998.
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 classes of shares. Such quotations are computed
in the same manner as the Trust's average annual compounded rate,
except that such quotations will be based on the Trust's actual
return for a specified period as opposed to its average return
over the periods described above.
Total Return
Class A Shares Class C Shares Class Y Shares
One Year 2.58% 4.96% 6.96%
Five Years 23.94% N/A N/A
Ten Years 91.67% N/A N/A
Since
inception on
June 16, 1986 125.30% 16.64%(1) 19.60%(1)
(1) Period from April 6, 1996 (inception of class) through
September 30, 1998.
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 classes of shares 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 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 46.12%, 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, 1998 (the date of
the Trust's most recent audited financial statements):
Class A Shares Class C Shares Class Y Shares
Yield 3.60% 2.90% 3.90%
Taxable
Equivalent
Yield 6.55% 5.28% 7.09%
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.
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.
