N-30D 1 tfto2002anl.txt TAX-FREETRUST OF OREGON 9/30/2002 ANNUAL REPORT MANAGER AND FOUNDER AQUILA MANAGEMENT CORPORATION 380 Madison Avenue, Suite 2300 New York, New York 10017 INVESTMENT SUB-ADVISER U.S. BANCORP ASSET MANAGEMENT, INC. 555 S.W. Oak U.S. Bancorp Tower Portland, Oregon 97204 BOARD OF TRUSTEES Lacy B. Herrmann, Chairman Gary C. Cornia David B. Frohnmayer James A. Gardner Diana P. Herrmann Raymond H. Lung John W. Mitchell Patricia L. Moss Ralph R. Shaw Nancy Wilgenbusch OFFICERS Diana P. Herrmann, President James M. McCullough, Senior Vice President Sally J. Church, Vice President Christine L. Neimeth, Vice President Rose F. Marotta, Chief Financial Officer Joseph P. DiMaggio, 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, Delaware 19809 CUSTODIAN BANK ONE TRUST COMPANY, N.A. 1111 Polaris Parkway Columbus, Ohio 43240 INDEPENDENT AUDITORS KPMG LLP 757 Third Avenue New York, New York 10017 Further information is contained in the Prospectus, which must precede or accompany this report. ANNUAL REPORT SEPTEMBER 30, 2002 TAX-FREE TRUST OF OREGON A TAX-FREE INCOME INVESTMENT [Logo of Tax-Free Trust of Oregon: a square with two pine trees in front of a mountain] [Logo of the Aquila Group of Funds: an eagle's head] ONE OF THE AQUILA(SM) GROUP OF FUNDS [Logo of Tax-Free Trust of Oregon: a square with two pine trees in front of a mountain] SERVING OREGON INVESTORS FOR MORE THAN 15 YEARS TAX-FREE TRUST OF OREGON ANNUAL REPORT "POSITIVE RETURNS" November 18, 2002 Dear Fellow Shareholder: Lately, it is difficult to go through even a single day without hearing some unsettling news - the stock market is down again, a new terror alert is issued, etc., etc. In fact, in most people's viewpoint, it is pretty "ugly" out there in terms of the securities markets. By contrast, we are pleased to provide you with some GOOD NEWS in the form of this latest Annual Report for Tax-Free Trust of Oregon. Your investment in the Trust continues to provide you and all other shareholders with a POSITIVE RETURN. * Every month you receive a dividend - either through a cash payment or a statement of reinvestment. This distributed return has been positive each month and is DOUBLE TAX-FREE to you and all of the Trust's shareholders. Considering all the negative returns that are a product of the securities markets these days, that's pretty good. When you equate this DOUBLE TAX-FREE return to a taxable return using the 28% tax bracket, it would be equivalent to a 7% return on your money. * Additionally, although the share price of the Trust can and will vary depending upon market conditions, we strive to manage your investment to keep fluctuations relatively moderate. During the latest report period from October 1, 2001 to September 30, 2002, the share price actually increased from $10.72 to $11.12. This share price increase may seem to be relatively modest in nature. However, considering the world out there, it is indeed pleasant to get ANY INCREASE in price in addition to the POSITIVE RETURN of the dividends. * The Trust has continued to be a source of good over this report period through the municipal bond holdings in its portfolio. The municipal bonds in the Trust have helped communities throughout the entire state of Oregon to build and renovate a variety of public purpose projects. The roads, schools, hospitals, airports, and other projects that have been financed by the Trust have benefited all shareholders, as well as the entire citizenry of the state of Oregon. THE TRUST'S STRATEGY How have we been able to produce these results during a time when many other funds and organizations are struggling? We believe it comes down to the Trust's strategy of providing a portfolio of quality, intermediate maturity securities, and diversification. We have always taken the approach of having the Trust comprised of high-quality securities. In fact, the Trust's prospectus specifically limits the portfolio manager to investing in investment grade bonds or equivalent, those which are within the top four credit ratings - AAA, AA, A and BBB. In practice, 95.6% of the portfolio is invested in the top two categories - AAA AND AA. Historically, these higher quality bonds have experienced fewer problems and lesser fluctuation than those outside of our investment universe. We believe that having a portfolio which is intermediate in its maturity tends to moderate the fluctuation in share price for the Trust. We, therefore, strive to structure the Trust's portfolio so that some of the bonds have maturities of 1 year, while others have maturities of 20 - 25 years, but the overall average is 13.1 years. This helps us to keep the value of your investment stable. Moreover, it ensures that the capital of your investment is basically there when you need it. Indeed, to the maximum extent practicable, we strive to provide you with RETURN OF YOUR INVESTMENT, as well as RETURN ON YOUR INVESTMENT. Furthermore, the investments of your Trust are geographically spread over a diverse group of projects. As of September 30, 2002, Tax-Free Trust of Oregon had approximately 220 securities in its portfolio. These were spread over the entire state and thus were not overly concentrated. This approach has two benefits. One is avoiding any adverse effect to the share value in the remote event that any particular bond had a problem. Second, it helps build and renovate the various kinds of municipal projects that help citizens throughout the state. APPRECIATION Management of the Trust will continue to strive to do the kind of things that will provide you and other shareholders with the satisfaction that your investment is producing a POSITIVE RETURN for you, while providing you with a high level of confidence. We continue to value the support you have placed in the Trust through your investment. Sincerely, /S/ Diana P. Herrmann /s/ Lacy B. Herrmann ---------------------- ---------------------- Diana P. Herrmann Lacy B. Herrmann President Chairman of the Board of Trustees For certain investors, some dividends may be subject to Federal and state taxes, including the Alternative Minimum Tax (AMT). Past performance does not guarantee future stability. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. PERFORMANCE REPORT The following graph illustrates the value of $10,000 invested in the Class A shares of Tax-Free Trust of Oregon for the 10-year period ended September 30, 2002 as compared with the Lehman Brothers Quality Intermediate Municipal Bond Index and the Consumer Price Index (a cost of living index). The performance of each of the other classes is not shown in the graph but is included in the table below. It should be noted that the Lehman Index does not include any operating expenses nor sales charges and being nationally oriented, does not reflect state specific bond market performance. [Graphic of a line chart with the following information:]
Lehman Brothers Trust's Class A Shares Quality Intermediate Municipal Bond Index With Sales Charge Without Sales Charge Cost of Living 9/92 $10,000 $ 9,600 $10,000 $10,000 9/93 $10,990 $10,624 $11,070 $10,269 9/94 $10,927 $10,444 $10,883 $10,573 9/95 $12,025 $11,342 $11,819 $10,842 9/96 $12,559 $11,958 $12,460 $11,168 9/97 $13,513 $12,833 $13,372 $11,408 9/98 $14,501 $13,663 $14,236 $11,578 9/99 $14,653 $13,628 $14,201 $11,883 9/00 $15,436 $14,350 $14,952 $12,293 9/01 $16,904 $15,651 $16,308 $12,619 9/02 $18,300 $17,007 $17,721 $12,810
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED SEPTEMBER 30, 2002 --------------------------------------- SINCE 1 YEAR 5 YEARS 10 YEARS INCEPTION ------ ------- -------- --------- Class A (6/16/86) With Sales Charge ...... 4.21% 4.93% 5.45% 6.51% Without Sales Charge ... 8.59% 5.80% 5.89% 6.77% Class C (4/5/96) With CDSC .............. 6.63% 4.89% n/a 5.30% Without CDSC ........... 7.67% 4.89% n/a 5.30% Class Y (4/5/96) No Sales Charge ........ 8.65% 5.94% n/a 6.36% Lehman Index .............. 8.26% 6.25% 6.23% 6.74%* (Class A) 8.26% 6.25% n/a 6.31% (Class C&Y) * From commencement of the index on 1/1/87. Total return figures shown for the Trust reflect any change in price and assume all distributions within the period were invested in additional shares. Returns for Class A shares are calculated with and without the effect of the initial 4% maximum sales charge. Returns for Class C shares are calculated with and without the effect of the 1% contingent deferred sales charge (CDSC), imposed on redemptions made within the first 12 months after purchase. Class Y shares are sold without any sales charge. The rates of return will vary and the principal value of an investment will fluctuate with market conditions. Shares, if redeemed, may be worth more or less than their original cost. A portion of each classes' income may be subject to federal and state income taxes. Past performance is not predictive of future investment results. MANAGEMENT DISCUSSION The total net assets of Tax-Free Trust of Oregon reached $402,481,655 as of the Trust's fiscal year-end of September 30, 2002. This compares with total net assets of $345,036,473 on September 30, 2001. Much of this growth in assets was realized through new investors buying shares of the Trust, as well as existing shareholders adding to their accounts. The economic environment experienced over this past year coupled with the serious decline in the stock market caused investors to consider very seriously municipal bonds as a solid and alternative area for investments, providing a positive return. As you are probably aware, the Federal Reserve Board ("Fed") aggressively lowered short-term interest rates in 2001, from a level of 6% to 1.75% on December 11, 2001. As of November 6, 2002, the Fed reduced interest rates further by 1/2 of 1%. This is the lowest level of interest rates in over 40 years. These interest rate decreases were intended to help stimulate the overall economic environment of our country. Concurrently, they also had the effect of stimulating and increasing the share value of the Trust. The share price of the Class A shares of the Trust increased to $11.12 as of September 30, 2002, as compared to $10.72 on September 30, 2001. The third quarter of 2002 turned out to be the worst quarterly performance for the stock based Dow Jones Industrial Average since the stock market crash of 1987. This decline in equity securities had a distinct effect on not only reducing the wealth factor of individuals, but also it had a major psychological impact caused by incessant negative headlines. These factors, in turn, had a substantial effect on fiscal decisions by individuals, as well as corporations. Investors turned to other assets to offset their losses in stocks. This alternative approach to investing resulted in general increases in the prices of real estate. Lower interest rates also provided homeowners with an opportunity to refinance their mortgages. Additionally, investors sought out more conservative assets, such as municipal bonds. The result has been that municipal bonds, on a tax adjusted basis, ended up by having the best performance of an asset class over 1, 3, and 5 year periods. The economic weakness in our country had a negative rippling effect on most municipalities and states. Indeed, most states have felt the pinch of lower tax receipts. This, in turn, drove many state budgets into a deficit position. As a result, states and municipalities are making major efforts to cut their budgets in every way possible. The economic environment has also driven states and municipalities to seek additional fund sources through new municipal bond offerings. In general, issuance of municipal debt through the first nine months of 2002 was the highest on record, $251 billion. There is a distinct possibility that issuance will likely reach $320 billion by end of 2002, far outpacing the $292.2 billion issued in 1993, which was the previous largest annual issuance on record. MANAGEMENT DISCUSSION (continued) Through September 30, 2002, the rate of municipal bond issuance within Oregon did not kept pace with the national rate. However, this situation was reversed in October by a very large increase in municipal issuance of nearly 30% over the level of 2001. One specific new issuance was that of the Oregon State Boards Association which sought to issue approximately $775 million for 42 different school districts. Since this new issuance of bonds is expected to be taxable at the Federal level, it should not affect the market for double tax-exempt securities like the ones held in the Trust. In times like these, we have seen many investors seeking higher returns from municipal bonds by buying lower credit-rated securities with longer maturities. Since Oregon State has become one of 20 states that have been put on the negative credit watch by various credit agencies, Tax-Free Trust of Oregon does not feel that it should follow this path in order to achieve higher returns for shareholders. Indeed, it is the aim of the Trust to maintain its approach of having high quality securities within its portfolio. As of September 30, 2002, Tax-Free Trust of Oregon's portfolio had 95.6% of its securities rated within the two highest categories possible - AAA and AA. We also continue to stress an overall intermediate level of maturities for the Trust's portfolio. We take this approach to avoid undue volatility of share price. Despite uncertain economic times, we continue to strive for value without raising the overall level of risk. In general, we continue to seek a satisfactory double tax-free yield as well as high stability for the principal of shareholders' investments. PRIVACY NOTICE (UNAUDITED) OUR PRIVACY POLICY. In providing services to you as an individual who owns or is considering investing in shares of a fund of the Aquila(SM) Group of Funds, we collect certain nonpublic personal information about you. Our policy is to keep this information strictly safeguarded and confidential, and to use or disclose it only as necessary to provide services to you or as otherwise permitted by law. Our privacy policy applies equally to former shareholders and persons who inquire about a fund. INFORMATION WE COLLECT. "Nonpublic personal information" is personally identifiable financial information about you as an individual or your family. The kinds of nonpublic personal information we have about you may include the information you provide us on your share purchase application or in telephone calls or correspondence with us, and information about your fund transactions and holdings, how you voted your shares and the account where your shares are held. INFORMATION WE DISCLOSE. We disclose nonpublic personal information about you to companies that provide necessary services to your fund, such as the fund's transfer agent, distributor, investment adviser or sub-adviser and to our affiliates, as permitted or required by law, or as authorized by you. We also may disclose this information to another fund of the Aquila(SM) Group of Funds or its distributor, or to the broker-dealer that holds your fund shares, under agreements that permit them to use the information only to provide you information about your fund, other funds in the Aquila(SM) Group of Funds or new services we are offering which may be of interest to you. Any other use is strictly prohibited. We do not sell information about you or any of our fund shareholders to anyone. HOW WE SAFEGUARD YOUR INFORMATION. We restrict access to nonpublic personal information about you to only those persons who need it to provide services to you or who are permitted by law to receive it. We maintain physical, electronic and procedural safeguards to protect the confidentiality of all nonpublic personal information we have about you. If you have any questions regarding our Privacy Policy, please contact us at 1-800-437-1020. [Logo of KPMG LLP: four solid rectangles with the letters KPMG in front of them] INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders of Tax-Free Trust of Oregon: We have audited the accompanying statement of assets and liabilities of Tax-Free Trust of Oregon, including the statement of investments, as of September 30, 2002, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2002, by correspondence with the custodian. As to securities purchased or sold but not yet received or delivered, we performed other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Tax-Free Trust of Oregon as of September 30, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP New York, New York November 15, 2002 TAX-FREE TRUST OF OREGON STATEMENT OF INVESTMENTS SEPTEMBER 30, 2002
RATING FACE MOODY'S/ AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS - 55.5% S&P VALUE -------------- ---------------------------------------------------------- -------- ------------ City of Beaverton, Oregon $ 910,000 5.950%, 04/01/2003 ................................. Aa3/AA $ 930,193 960,000 6.050%, 04/01/2004 ................................. Aa3/AA 980,813 1,020,000 6.150%, 04/01/2005 ................................. Aa3/AA 1,042,613 1,080,000 6.250%, 04/01/2006 ................................. Aa3/AA 1,104,473 Bend, Oregon Transportation Highway Systems (MBIA Corporation Insured) 1,135,000 5.300%, 9/1/2017 ................................... Aaa/NR 1,239,987 Blue Mountain, Oregon Hospital District (AMBAC Indemnity Corporation Insured) 1,000,000 5.000%, 02/01/2021 ................................. Aaa/AAA 1,042,500 Chemeketa, Oregon Community College District (Financial Guaranty Insurance Corporation Insured) 1,385,000 5.500%, 06/01/2014 ................................. Aaa/AAA 1,630,837 Clackamas County, Oregon School District #007J (Lake Oswego) (State School Bond Guaranty Program) 1,340,000 5.375%, 06/01/2013 ................................. Aa2/NR 1,535,975 Clackamas County, Oregon School District #62 (Oregon City) (State School Bond Guaranty Program) 2,000,000 5.500%, 06/15/2020 ................................. Aa2/AA 2,185,000 Clackamas County, Oregon School District #62 C (Oregon City) 1,330,000 5.375%, 06/15/2017 ................................. Aa2/AA 1,471,313 Clackamas County, Oregon School District #86 (Canby) (State School Bond Guaranty Program) 3,535,000 5.250%, 06/15/2020 ................................. Aa2/AA 3,791,288 Clackamas County, Oregon School District #108 (Estacada) (Financial Security Assurance Insured) 1,295,000 5.375%, 06/15/2017 ................................. Aaa/AAA 1,439,069 2,000,000 5.000%, 06/15/2025 ................................. Aaa/AAA 2,065,000 Clackamas County, Oregon School District #115 (AMBAC Indemnity Corporation Insured) 615,000 5.700%, 06/01/2007 ................................. Aaa/AAA 670,350 1,000,000 6.150%, 06/01/2014 ................................. Aaa/AAA 1,097,500 Clackamas County, Oregon Tax Allocation 1,000,000 6.500%, 05/01/2020 ................................. NR/NR* 1,000,680 Clackamas, Multnomah and Washington County, Oregon School District #7J $ 1,500,000 5.700%, 06/15/2010 ................................. Aa2/NR $ 1,588,125 Clackamas, Oregon Community College District (Financial Guaranty Insurance Corporation Insured) 3,955,000 5.250%, 06/15/2017 ................................. Aaa/AAA 4,335,669 2,750,000 5.250%, 06/15/2018 ................................. Aaa/AAA 2,994,063 Clackamas and Washington County, Oregon School District #3J (Financial Guaranty Insurance Corporation Insured) 1,620,000 5.000%, 06/01/2017 ................................. Aaa/AAA 1,717,200 Clatsop County School District #1 (Astoria) (State School Bond Guaranty Program) 1,725,000 5.500%, 06/15/2019 ................................. NR/AA 2,011,781 Columbia County, Oregon School District #502 (Financial Guaranty Insurance Corporation Insured) 2,070,000 zero coupon, 06/01/2015 ............................ Aaa/AAA 1,247,175 Deschutes County, Oregon (Financial Security Assurance Insured) 2,000,000 5.000%, 12/01/2014 ................................. Aaa/NR 2,232,500 1,615,000 5.000%, 12/01/2015 ................................. Aaa/NR 1,780,538 2,260,000 5.000%, 12/01/2016 ................................. Aaa/NR 2,463,400 Deschutes County, Oregon Admin. School District #1 (Financial Security Assurance Insured) 1,145,000 5.500%, 06/15/2014 ................................. AAA/NR 1,309,594 1,300,000 5.500%, 06/15/2016 ................................. AAA/NR 1,472,250 1,355,000 5.500%, 06/15/2018 ................................. AAA/NR 1,514,212 3,000,000 5.125%, 06/15/2021 ................................. AAA/NR 3,161,250 Deschutes County, Oregon Admin. School District #1 1,500,000 5.000%, 12/01/2017 ................................. A1/A 1,601,250 Douglas County, Oregon School District #4 (Roseburg) (State School Bond Guaranty Program) 1,075,000 5.125%, 12/15/2017 ................................. Aa2/NR 1,170,406 Douglas County, Oregon School District #116 (Winston- Dillard) (State School Bond Guaranty Program) 1,020,000 5.625%, 06/15/2020 ................................. NR/AA 1,122,000 Eugene, Oregon (Parks & Open Space) $ 1,465,000 5.250%, 02/01/2018 ................................. Aa2/NR $ 1,574,875 1,555,000 5.250%, 02/01/2019 ................................. Aa2/NR 1,667,738 Gresham, Oregon (Financial Security Assurance Insured) 1,155,000 5.375%, 06/01/2018 ................................. Aaa/NR 1,286,381 Hood River County, Oregon School District (AMBAC Indemnity Corporation Insured) 2,000,000 5.650%, 06/01/2008 ................................. Aaa/AAA 2,140,000 Jackson County, Oregon School District #4 (Phoenix- Talent) (Financial Security Assurance Insured) 1,395,000 5.500%, 06/15/2018 ................................. Aaa/AAA 1,558,912 Jackson County, Oregon School District #9 (Eagle Point) (State School Bond Guaranty Program) 1,120,000 5.625%, 06/15/2017 ................................. Aa2/NR 1,264,200 1,660,000 5.000%, 06/15/2021 ................................. Aa2/NR 1,734,700 Jackson County, Oregon School District #549 (Medford) (State School Bond Guaranty Program) 1,750,000 5.000%, 06/15/2012 ................................. Aa2/NR 1,981,875 Jackson County, Oregon School District #549C (Financial Security Assurance Insured) 1,000,000 5.300%, 06/01/2008 ................................. Aaa/AAA 1,095,000 Jefferson County School District #509J (Financial Guaranty Insurance Corporation Insured) 1,025,000 5.250%, 06/15/2017 ................................. Aaa/AAA 1,132,625 Josephine County, Oregon School District #7 (Grants Pass) (Financial Guaranty Insurance Corporation Insured) 2,700,000 5.700%, 06/01/2013 ................................. Aaa/AAA 3,061,125 Josephine County, Oregon Three Rivers School District (Financial Security Assurance Insured) 1,780,000 5.250%, 06/15/2018 ................................. Aaa/NR 1,937,975 Lane County, Oregon School District #40 (Creswell) (State School Bond Guaranty Program) 1,430,000 5.375%, 06/15/2020 ................................. NR/AA 1,547,975 Lane County, Oregon School District #4J (Eugene) 2,000,000 5.375%, 07/01/2009 ................................. Aa3/NR 2,060,440 Lane County, Oregon School District #52J (Financial Guaranty Insurance Corporation Insured) 750,000 6.400%, 12/01/2009 ................................. Aaa/AAA 879,375 Lane & Douglas County, Oregon School District #45J (State School Bond Guaranty Program) $ 1,525,000 6.000%, 06/15/2018 ................................. NR/AA $ 1,830,000 Lane and Douglas County, Oregon School District 97J (Siuslaw) (State School Bond Guaranty Program) 1,000,000 5.400%, 06/15/2019 ................................. Aa2/NR 1,085,000 Lincoln County, Oregon (MBIA Corporation Insured) 1,000,000 5.375%, 02/01/2010 ................................. Aaa/AAA 1,011,430 Lincoln County, Oregon School District (Financial Guaranty Insurance Corporation Insured) 1,245,000 5.250%, 06/15/2012 ................................. Aaa/AAA 1,391,287 Linn Benton, Oregon Community College District (Financial Guaranty Insurance Corporation Insured) 1,160,000 zero coupon, 06/15/2011 ............................ Aaa/AAA 858,400 Linn County, Oregon School District #7 (Harrisburg) (State School Bond Guaranty Program) 1,660,000 5.500%, 06/15/2019 ................................. NR/AA 1,823,925 Linn County, Oregon School District #9 (Lebanon) (Financial Guaranty Insurance Corporation Insured) 3,000,000 zero coupon,, 06/15/2030 ........................... Aaa/AAA 2,981,250 Linn County, Oregon School District #9 (Lebanon) (MBIA Corporation Insured) 2,500,000 5.000%, 06/15/2030 ................................. Aaa/AAA 2,568,750 Malheur County, Oregon Jail Bonds (MBIA Corporation Insured) 1,345,000 6.300%, 12/01/2012 ................................. Aaa/AAA 1,506,400 Marion and Clackamas County, Oregon Union High School District #7J (Financial Security Assurance Insured) 1,340,000 6.000%, 06/01/2013 ................................. Aaa/AAA 1,453,900 Metro, Oregon 3,240,000 5.000%, 01/01/2013 ................................. Aa1/AA+ 3,584,250 Multnomah and Clackamas County, Oregon School District #10 (Gresham-Barlow) (Financial Security Assurance Insured) 1,500,000 5.500%, 06/15/2018 ................................. Aaa/AAA 1,676,250 2,650,000 5.000%, 06/15/2021 ................................. Aaa/AAA 2,765,938 Multnomah County School District #7 (Reynolds) (State School Bond Guaranty Program) $ 500,000 5.625%, 06/15/2017 ................................. Aa2/AA $ 564,375 2,375,000 5.125%, 06/15/2019 ................................. Aa2/AA 2,550,156 Multnomah County School District #40 5,100,000 5.625%, 06/01/2012 ................................. NR/AA- 5,431,500 Multnomah County School District #40 (Financial Security Assurance Insured) 2,055,000 5.000%, 12/01/2015 ................................. Aaa/AAA 2,229,675 Northern, Oregon Correctional (AMBAC Indemnity Corporation Insured) 1,195,000 5.400%, 09/15/2016 ................................. Aaa/AAA 1,320,475 Oak Lodge Water District (AMBAC Indemnity Corporation Insured) 215,000 7.300%, 12/01/2005 ................................. Aaa/AAA 240,531 215,000 7.300%, 12/01/2006 ................................. Aaa/AAA 238,381 215,000 7.400%, 12/01/2007 ................................. Aaa/AAA 238,919 State of Oregon Board of Higher Education 900,000 6.200%, 10/15/2007 ................................. Aa2/AA 901,359 2,000,000 6.250%, 10/15/2012 ................................. Aa2/AA 2,003,040 820,000 zero coupon, 08/01/2016 ............................ Aa2/AA 464,325 655,000 zero coupon, 08/01/2017 ............................ Aa2/AA 350,425 500,000 zero coupon, 08/01/2018 ............................ Aa2/AA 252,500 2,890,000 6.000%, 10/15/2018 ................................. Aa2/AA 2,894,162 540,000 zero coupon, 08/01/2019 ............................ Aa2/AA 257,175 2,560,000 5.500%, 08/01/2021 ................................. Aa2/AA 2,780,800 3,000,000 5.000%, 08/01/2022 ................................. Aa2/AA 3,127,500 1,655,000 5.600%, 08/01/2023 ................................. Aa2/AA 1,768,781 1,500,000 5.600%, 08/01/2023 ................................. Aa2/AA 1,603,125 6,300,000 6.000%, 08/01/2026 ................................. Aa2/AA 7,331,625 State of Oregon Elderly & Disabled Housing 720,000 6.250%, 08/01/2013 ................................. Aa2/AA 737,100 State of Oregon Veterans' Welfare 505,000 9.000%, 04/01/2008 ................................. Aa2/AA 522,948 700,000 9.200%, 10/01/2008 ................................. Aa2/AA 943,250 1,115,000 5.200%, 10/01/2018 ................................. Aa2/AA 1,162,387 1,000,000 5.250%, 10/01/2042 ................................. Aa2/AA 1,042,500 Polk County, Oregon School District #2 (Dallas) (Financial Security Assurance Insured) $ 1,000,000 5.400%, 06/01/2012 ................................. Aaa/AAA $ 1,036,930 Polk, Marion, and Benton County, Oregon School District #13J (Financial Guaranty Insurance Corporation Insured) 1,000,000 5.500%, 12/01/2008 ................................. Aaa/AAA 1,081,250 City of Portland, Oregon 1,480,000 5.100%, 10/01/2009 ................................. Aaa/NR 1,504,228 2,790,000 5.750%, 06/01/2013 ................................. Aaa/NR 3,086,438 1,000,000 4.600%, 06/01/2014 ................................. Aaa/NR 1,062,500 2,000,000 5.600%, 06/01/2015 ................................. Aa2/NR 2,207,500 250,000 5.250%, 06/01/2015 ................................. Aa2/NR 265,000 2,975,000 zero coupon, 06/01/2015 ............................ Aa2/NR 1,781,281 1,120,000 5.125%, 06/01/2018 ................................. Aaa/NR 1,198,400 Portland, Oregon Community College District 3,015,000 5.125%, 06/01/2013 ................................. Aa2/AA 3,384,338 3,115,000 5.125%, 06/01/2016 ................................. Aa2/AA 3,403,138 2,350,000 5.000%, 06/01/2021 ................................. Aa2/AA 2,455,750 Portland, Oregon Community College District (Financial Guaranty Insurance Corporation Insured) 1,395,000 5.000%, 06/01/2017 ................................. Aaa/AAA 1,494,394 Salem-Keizer, Oregon School District #24 (Financial Security Assurance Insured) 1,000,000 4.875%, 06/01/2014 ................................. Aaa/AAA 1,063,750 Southwestern Oregon Community College District (MBIA Corporation Insured) 1,120,000 6.000%, 06/01/2025 ................................. Aaa/AAA 1,293,600 Tillamook County, Oregon School District (Financial Security Assurance Insured) 3,000,000 5.250%, 06/15/2022 ................................. Aaa/AAA 3,202,500 Tualatin Hills Park and Recreation District, Oregon (MBIA Corporation Insured) 2,470,000 5.750%, 03/01/2012 ................................. Aaa/AAA 2,707,738 2,000,000 5.750%, 03/01/2015 ................................. Aaa/AAA 2,190,000 Umatilla County, Oregon (Financial Guaranty Insurance Corporation Insured) 2,000,000 5.600%, 10/01/2015 ................................. Aaa/AAA 2,270,000 Umatilla County, Oregon School District #16R (Pendleton) (Financial Guaranty Insurance Corporation Insured) $ 1,550,000 5.500%, 07/01/2012 ................................. Aaa/NR $ 1,825,125 Umatilla County, Oregon School District #8R Hermiston (AMBAC Indemnity Corporation Insured) 700,000 6.100%, 12/01/2012 ................................. Aaa/AAA 768,250 Wasco County, Oregon School District #12 (Financial Security Assurance Insured) 1,135,000 6.000%, 06/15/2015 ................................. Aaa/AAA 1,362,000 1,400,000 5.500%, 06/15/2017 ................................. Aaa/AAA 1,653,750 1,790,000 5.500%, 06/15/2020 ................................. Aaa/AAA 2,087,588 Wash. & Clackamas Countys School District #23 (Tigard) (MBIA Corporation Insured) 2,700,000 5.375%, 06/15/2014 ................................. Aaa/NR 3,094,875 Washington and Clackamas County, Oregon School District #23J (Tigard) 2,000,000 5.400%, 01/01/2010 ................................. Aa3/NR 2,056,160 1,000,000 5.650%, 06/01/2015 ................................. Aa3/NR 1,128,750 Washington County, Oregon 1,000,000 5.000%, 06/01/2017 ................................. Aa2/NR 1,075,000 Washington County, Oregon School District #15 (Forest Grove) (Financial Security Assurance Insured) 1,760,000 5.375%, 06/15/2016 ................................. Aaa/NR 1,971,200 2,000,000 5.000%, 06/15/2021 ................................. Aaa/NR 2,087,500 Washington County, Oregon School District #48J (Beaverton) 1,175,000 5.500%, 06/01/2006 ................................. Aa2/AA- 1,239,625 1,130,000 5.600%, 06/01/2007 ................................. Aa2/AA- 1,193,562 1,000,000 6.150%, 06/01/2008 ................................. Aa2/AA- 1,007,210 1,415,000 5.700%, 06/01/2008 ................................. Aa2/AA- 1,496,362 1,440,000 6.000%, 06/01/2011 ................................. Aa2/AA- 1,531,800 2,000,000 5.125%, 01/01/2015 ................................. Aa2/AA- 2,197,500 1,600,000 5.125%, 01/01/2016 ................................. Aa2/AA- 1,742,000 Washington County, Oregon School District #48J (Beaverton) (Financial Guaranty Insurance Corporation Insured) 2,500,000 5.375%, 06/01/2019 ................................. Aaa/AAA 2,687,500 Washington County, Oregon School District #88JT (Financial Security Assurance Insured) $ 585,000 6.100%, 06/01/2012 ................................. Aaa/AAA $ 642,037 2,315,000 6.100%, 06/01/2012 ................................. Aaa/AAA 2,581,225 2,055,000 5.125%, 06/15/2012 ................................. Aaa/NR 2,288,756 Washington Multnomah & Yamhill County, Oregon School District #1J 1,295,000 5.250%, 06/01/2013 ................................. Aa3/NR 1,445,544 Washington & Yamhill, Oregon County School District #58J (AMBAC Indemnity Corporation Insured) 70,000 6.600%, 11/01/2004 ................................. Aaa/AAA 70,268 80,000 6.600%, 11/01/2005 ................................. Aaa/AAA 80,306 90,000 6.600%, 11/01/2006 ................................. Aaa/AAA 90,345 Yamhill, Oregon County School District #29J (Newberg) (Financial Security Assurance Insured) 2,000,000 5.350%, 06/01/2006 ................................. Aaa/AAA 2,120,000 ------------ Total State of Oregon General Obligation Bonds ..... 223,578,967 ------------ STATE OF OREGON REVENUE BONDS - 43.1% ---------------------------------------------------------- AIRPORT REVENUE BONDS - 0.8% ---------------------------------------------------------- Port of Portland, Oregon Airport (AMBAC Indemnity Corporation Insured) 3,000,000 5.500%, 07/01/2024 ................................. Aaa/AAA 3,210,000 ------------ CERTIFICATES OF PARTICIPATION REVENUE BONDS - 6.0% ---------------------------------------------------------- Multnomah County, Oregon 1,000,000 5.200%, 07/01/2005 ................................. Aa3/NR 1,033,580 Oregon State Department of Administration Services (AMBAC Indemnity Corporation Insured) 500,000 5.375%, 05/01/2014 ................................. Aaa/AAA 570,000 950,000 5.000%, 11/01/2019 ................................. Aaa/AAA 1,002,250 1,500,000 5.800%, 05/01/2024 ................................. Aaa/AAA 1,738,125 3,700,000 6.000%, 05/01/2026 ................................. Aaa/AAA 4,486,250 Oregon State Department of Administration Services (MBIA Corporation Insured) 1,480,000 5.375%, 11/01/2016 ................................. Aaa/AAA 1,653,900 4,250,000 5.500%, 11/01/2020 ................................. Aaa/AAA 4,765,313 State of Oregon (MBIA Corporation Insured) $ 1,250,000 5.700%, 01/15/2010 ................................. Aaa/AAA $ 1,263,487 2,750,000 6.200%, 11/01/2012 ................................. Aaa/AAA 2,788,143 1,000,000 5.500%, 01/15/2015 ................................. Aaa/AAA 1,010,230 550,000 5.500%, 01/15/2015 ................................. Aaa/AAA 555,626 500,000 5.800%, 03/01/2015 ................................. Aaa/AAA 508,040 1,000,000 5.800%, 03/01/2015 ................................. Aaa/AAA 1,016,080 Washington County, Oregon Educational Services 645,000 5.625%, 06/01/2016 ................................. A1/NR 677,250 Washington County, Oregon Educational Services (MBIA Corporation Insured) 830,000 5.750%, 06/01/2025 ................................. Aaa/AAA 883,950 ------------ Total Certificates of Participation Revenue Bonds ........ 23,952,224 ------------ HOSPITAL REVENUE BONDS - 8.5% ---------------------------------------------------------- Clackamas, Oregon Hospital Facilities Authority (Legacy Health System) 2,000,000 5.250%, 02/15/2017 ................................. Aa3/AA 2,112,500 2,980,000 5.250%, 02/15/2018 ................................. Aa3/AA 3,132,725 Clackamas, Oregon Hospital Facilities Authority (Legacy Health System) (MBIA Corporation Insured) 2,650,000 4.750%, 02/15/2011 ................................. Aaa/AAA 2,898,438 Clackamas, Oregon Hospital Facilities Authority (Sisters of Providence Hospital) 500,000 6.375%, 10/01/2004 ................................. Aa3/AA- 521,200 Clackamas County Hospital Facility (Legacy Health System) 4,000,000 5.250%, 05/01/2021 ................................. Aa3/AA 4,170,000 Clackamas County, Oregon Hospital Facilities Authority (Mary's Woods) 3,460,000 6.625%, 05/15/2029 ................................. NR/NR* 3,611,375 Deschutes County, Oregon Hospital Facilities Authority (Cascade Health) 2,000,000 5.600%, 01/01/2027 ................................. A1/NR 2,097,500 3,000,000 5.600%, 01/01/2032 ................................. A1/NR 3,135,000 Douglas County, Oregon Hospital Facilities Authority (Catholic Health) (MBIA Corporation Insured) 535,000 5.600%, 11/15/2005 ................................. Aaa/AAA 587,831 Medford, Oregon Hospital Authority (Asante Health Systems) (MBIA Corporation Insured) $ 1,000,000 5.000%, 08/15/2018 ................................. Aaa/AAA $ 1,046,250 State of Oregon Health Housing Educational & Cultural Facilities Auth. (Peacehealth) (AMBAC Indemnity Corporation Insured) 2,300,000 5.250%, 11/15/2017 ................................. Aaa/AAA 2,527,125 1,850,000 5.000%, 11/15/2026 ................................. Aaa/AAA 1,905,500 1,430,000 5.000%, 11/15/2032 ................................. Aaa/AAA 1,474,687 Western Lane County, Oregon Hospital Facilities Authority (Sisters of St. Joseph Hospital) (MBIA Corporation Insured) 1,000,000 5.625%, 08/01/2007 ................................. Aaa/AAA 1,078,750 3,765,000 5.750%, 08/01/2019 ................................. Aaa/AAA 4,070,906 ------------ Total Hospital Revenue Bonds ............................. 34,369,787 ------------ HOUSING, EDUCATIONAL, AND CULTURAL REVENUE BONDS - 7.3% ---------------------------------------------------------- Central Oregon Community College District, Oregon 1,000,000 5.300%, 05/01/2025 ................................. Aaa/AAA 1,053,750 Clackamas, Oregon Community College District (MBIA Corporation Insured) 1,865,000 5.700%, 06/01/2016 ................................. Aaa/AAA 2,109,781 Multnomah County, Oregon Educational Facility (University of Portland) 1,000,000 6.000%, 04/01/2020 ................................. NR/BBB+ 1,088,750 Oregon St. Facilities Authority Revenue College Housing 1,000,000 5.300%, 10/01/2022++ ............................... NR/BBB 995,000 Oregon Health Sciences University (MBIA Corporation Insured) 4,500,000 5.250%, 07/01/2015 ................................. Aaa/AAA 4,854,375 11,515,000 zero coupon, 07/01/2021 ............................ Aaa/AAA 4,807,512 State of Oregon Housing and Community Services 540,000 5.900%, 07/01/2012 ................................. Aa2/NR 583,200 500,000 6.700%, 07/01/2013 ................................. Aa2/NR 504,370 1,800,000 6.050%, 07/01/2020 ................................. Aa2/NR 1,926,000 885,000 6.000%, 07/01/2020 ................................. Aa2/NR 950,269 1,940,000 5.400%, 07/01/2027 ................................. Aa2/NR 2,020,025 1,670,000 6.875%, 07/01/2028 ................................. Aa2/NR 1,708,794 State of Oregon Housing and Community Services (MBIA Corporation Insured) $ 1,500,000 5.450%, 07/01/2024 ................................. Aaa/AAA $ 1,528,125 State of Oregon Housing, Educational and Cultural Facilities Authority (George Fox University) (LOC: Bank of America) 1,000,000 5.700%, 03/01/2017 ................................. NR/AA- 1,067,500 State of Oregon Housing Finance Authority 1,000,000 6.800%, 07/01/2013 ................................. AA2/A+ 1,015,610 Portland, Oregon Housing Authority 1,000,000 5.100%, 01/01/2027 ................................. NR/A 1,015,000 City of Salem, Oregon Educational Facilities (Willamette University) 1,000,000 6.000%, 04/01/2010 ................................. A2/NR 1,052,500 Yamhill County, Oregon Educational Services (AMBAC Indemnity Corporation Insured) 1,000,000 5.150%, 07/01/2019 ................................. NR/AAA 1,051,250 ------------ Total Housing, Educational, and Cultural Revenue Bonds ...................................... 29,331,811 ------------ TRANSPORTATION REVENUE BONDS - 4.3% ---------------------------------------------------------- State of Oregon Department of Transportation (Light Rail) (MBIA Corporation Insured) 2,000,000 6.000%, 06/01/2005 ................................. Aaa/AAA 2,190,000 Oregon State Department Transportation Highway 2,555,000 5.375%, 11/15/2018 ................................. Aa1/AA+ 2,797,725 Oregon St. Department Transportation Highway Usertax 3,025,000 5.500%, 11/15/2018 ................................. Aa1/AA+ 3,403,125 4,545,000 5.125%, 11/15/2026 ................................. Aa1/AA+ 4,749,525 Tri-County Metropolitan Transportation District 1,440,000 5.750%, 08/01/2016 ................................. Aa3/AA+ 1,652,400 Tri-County Metropolitan Transportation District (LOC: Morgan Guaranty Trust) 2,500,000 5.400%, 06/01/2019 ................................. NR/AA 2,637,500 ------------ Total Transportation Revenue Bonds ................. 17,430,275 ------------ URBAN RENEWAL REVENUE BONDS - 1.9% ---------------------------------------------------------- Portland, Oregon Airport Way Renewal & Redevelopment (AMBAC Indemnity Corporation Insured) $ 1,640,000 6.000%, 06/15/2014 ................................. Aaa/NR $ 1,935,200 1,765,000 5.750%, 06/15/2020 ................................. Aaa/NR 2,020,925 Portland, Oregon Urban Renewal Tax Allocation (AMBAC Indemnity Corporation Insured) (Convention Center) 1,150,000 5.750%, 06/15/2018 ................................. Aaa/NR 1,325,375 2,000,000 5.450%, 06/15/2019 ................................. Aaa/NR 2,197,500 ------------ Total Urban Renewal Revenue Bonds .................. 7,479,000 ------------ UTILITY REVENUE BONDS - 2.1% ---------------------------------------------------------- City of Eugene, Oregon Electric Utility (Financial Security Assurance Insured) 1,600,000 5.000%, 08/01/2018 ................................. Aaa/AAA 1,690,000 City of Eugene, Oregon Electric Utility (MBIA Corporation Insured) 640,000 4.850%, 08/01/2013 ................................. Aaa/AAA 642,989 1,200,000 5.000%, 08/01/2023 ................................. Aaa/AAA 1,203,516 City of Eugene, Oregon Electric Utility 500,000 5.000%, 08/01/2017 ................................. A1/AA- 509,540 1,400,000 5.800%, 08/01/2019 ................................. A1/AA- 1,524,250 City of Eugene, Oregon Trojan Nuclear Project 1,900,000 5.900%, 09/01/2009 ................................. Aa1/AA- 1,909,424 Northern Wasco County, Oregon Public Utility Development (Financial Guaranty Insurance Corporation Insured) 1,000,000 5.625%, 12/01/2022 ................................. Aaa/AAA 1,073,750 ------------ Total Utility Revenue Bonds ........................ 8,553,469 ------------ WATER AND SEWER REVENUE BONDS - 11.2% ---------------------------------------------------------- Bend Oregon Sewer Revenue (AMBAC Indemnity Corporation Insured) 1,130,000 5.150%, 10/01/2014 ................................. Aaa/NR 1,248,650 City of Klamath Falls Water (Financial Security Assurance Insured) 1,100,000 6.100%, 06/01/2014 ................................. Aaa/AAA 1,196,250 City of Klamath Wastewater (AMBAC Indemnity Corporation Insured) $ 1,545,000 5.650%, 06/01/2020 ................................. Aaa/AAA $ 1,707,225 Klamath Falls, Oregon Water Revenue (Financial Security Assurance Insured) 1,575,000 5.500%, 07/01/2016 ................................. Aaa/AAA 1,864,406 Lebanon, Oregon Wastewater (Financial Security Assurance Insured) 1,000,000 5.700%, 03/01/2020 ................................. Aaa/AAA 1,107,500 City of Portland Sewer (MBIA Corporation Insured) 2,500,000 5.250%, 06/01/2016 ................................. Aaa/AAA 2,703,125 City of Portland Sewer (Financial Guaranty Insurance Corporation Insured) 500,000 6.000%, 10/01/2012 ................................. Aaa/AAA 510,000 2,355,000 6.250%, 06/01/2015 ................................. Aaa/AAA 2,566,950 2,900,000 5.750%, 08/01/2019 ................................. Aaa/AAA 3,316,875 Portland Water System 1,440,000 5.500%, 08/01/2015 ................................. Aa1/NR 1,522,800 7,420,000 5.500%, 08/01/2019+ ................................ Aa1/NR 8,134,175 1,185,000 5.500%, 08/01/2020 ................................. Aa1/NR 1,290,169 Salem Oregon Water & Sewer (Financial Security Assurance Insured) 1,000,000 5.375%, 06/01/2015 ................................. Aaa/AAA 1,170,000 1,970,000 5.375%, 06/01/2016 ................................. Aaa/AAA 2,181,775 3,025,000 5.500%, 06/01/2020 ................................. Aaa/AAA 3,304,813 Washington County, Oregon Clean Water Services (Financial Guaranty Insurance Corporation Insured) 995,000 5.000%, 10/01/2013 ................................. Aaa/AAA 1,110,669 3,525,000 5.125%, 10/01/2017 ................................. Aaa/AAA 3,820,219 Washington County Unified Sewer Agency (AMBAC Indemnity Corporation Insured) 2,120,000 5.900%, 10/01/2006 ................................. Aaa/AAA 2,302,850 315,000 5.900%, 10/01/2006 ................................. Aaa/AAA 338,231 2,500,000 6.125%, 10/01/2012 ................................. Aaa/AAA 2,728,125 750,000 6.125%, 10/01/2012 ................................. Aaa/AAA 818,437 ------------ Total Water and Sewer Revenue Bonds ................ 44,943,244 ------------ OTHER REVENUE BONDS - 1.0% ---------------------------------------------------------- Baker County Pollution Control (Ash Grove Cement West Project) (Small Business Administration Insured) $ 355,000 6.200%, 07/01/2004 ................................. Aaa/NR $ 358,617 380,000 6.300%, 07/01/2005 ................................. Aaa/NR 383,823 Multnomah County School District #1J, Special Obligations 1,000,000 5.000%, 03/01/2007 ................................. A1/A 1,011,290 Oregon State Department of Administration Services (Lottery Revenue) (Financial Security Assurance Insured) 2,000,000 5.750%, 04/01/2014 ................................ Aaa/AAA 2,290,000 ------------ Total Other Revenue Bonds ................................ 4,043,730 ------------ Total State of Oregon Revenue Bonds ...................... 173,313,540 ------------ Total Municipal Bonds (cost $366,629,727**) ........... 98.6% 396,892,507 Other assets less liabilities ......................... 1.4 5,589,148 ------ ------------ Net Assets ............................................ 100.0% $402,481,655 ====== ============
(*) Any security not rated has been determined by the Investment Sub-Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a rating service. (**) See notes 2f and 4. + A portion of this security is pledged as collateral for the Trust's when-issued commitment. ++ Security traded on a "when-issued" basis (see note 10). PORTFOLIO ABBREVIATIONS: AMBAC - American Municipal Bond Assurance Corp. LOC - Letter of Credit MBIA - Municipal Bond Investors Assurance Corp. See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2002 ASSETS Investments at value (cost $366,629,727) .................................................. $396,892,507 Cash ...................................................................................... 938,136 Interest receivable ....................................................................... 6,067,937 Receivable for Trust shares sold .......................................................... 666,494 Receivable for investment securities sold ................................................. 426,432 Other assets .............................................................................. 11,716 ------------ Total assets .............................................................................. 405,003,222 ------------ LIABILITIES Payable for investment securities purchased ............................................... 1,225,856 Payable for Trust shares redeemed ......................................................... 648,432 Dividends payable ......................................................................... 307,693 Distribution fees payable ................................................................. 165,294 Management fees payable ................................................................... 130,827 Accrued expenses .......................................................................... 43,465 ------------ Total liabilities ......................................................................... 2,521,567 ------------ NET ASSETS ................................................................................... $402,481,655 ============ Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $.01 per share ........ $ 362,033 Additional paid-in capital ................................................................ 370,535,801 Net unrealized appreciation on investments (note 4) ....................................... 30,262,779 Accumulated net realized gain on investments .............................................. 818,285 Undistributed net investment income ....................................................... 502,757 ------------ $402,481,655 ============ CLASS A Net Assets ................................................................................ $345,459,985 ============ Capital shares outstanding ................................................................ 31,070,823 ============ Net asset value and redemption price per share ............................................ $ 11.12 ============ Offering price per share (100/96 of $11.12 adjusted to nearest cent) ...................... $ 11.58 ============ CLASS C Net Assets ................................................................................ $ 25,857,246 ============ Capital shares outstanding ................................................................ 2,327,545 ============ Net asset value and offering price per share .............................................. $ 11.11 ============ Redemption price per share (* a 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) ............................................ $ 11.11* ============ CLASS Y Net Assets ................................................................................ $ 31,164,424 ============ Capital shares outstanding ................................................................ 2,804,923 ============ Net asset value, offering and redemption price per share .................................. $ 11.11 ============
See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2002 INVESTMENT INCOME: Interest income ........................................................... $ 18,625,006 Management fees (note 3) .................................................. $ 1,452,102 Distribution and service fees (note 3) .................................... 666,665 Transfer and shareholder servicing agent fees ............................. 172,621 Trustees' fees and expenses (note 9) ...................................... 112,068 Legal fees ................................................................ 73,616 Shareholders' reports and proxy statements ................................ 64,635 Audit and accounting fees ................................................. 30,749 Custodian fees ............................................................ 29,309 Registration fees and dues ................................................ 27,119 Insurance ................................................................. 7,103 Miscellaneous ............................................................. 50,656 ------------ 2,686,643 Expenses paid indirectly (note 7) ......................................... (51,007) ------------ Net expenses .............................................................. 2,635,636 ------------ Net investment income ..................................................... 15,989,370 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from securities transactions ..................... 820,660 Change in unrealized appreciation on investments .......................... 13,993,923 ------------ Net realized and unrealized gain (loss) on investments .................... 14,814,583 ------------ Net change in net assets resulting from operations ........................ $ 30,803,953 ============
See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 ------------------ ------------------ OPERATIONS: Net investment income ...................................... $ 15,989,370 $ 15,243,893 Net realized gain (loss) from securities transactions ...... 820,660 648,916 Change in unrealized appreciation on investments ........... 13,993,923 13,003,395 ------------- ------------- Change in net assets resulting from operations .......... 30,803,953 28,896,204 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6): Class A Shares: Net investment income ...................................... (14,128,754) (13,839,683) Net realized gain on investments ........................... (498,294) (198,559) Class C Shares: Net investment income ...................................... (661,883) (322,032) Net realized gain on investments ........................... (24,704) (4,451) Class Y Shares: Net investment income ...................................... (1,122,356) (1,068,265) Net realized gain on investments ........................... (38,173) (15,146) ------------- ------------- Change in net assets from distributions ................. (16,474,164) (15,448,136) ------------- ------------- CAPITAL SHARE TRANSACTIONS (NOTE 8): Proceeds from shares sold .................................. 73,069,033 45,694,799 Reinvested dividends and distributions ..................... 10,576,448 8,937,268 Cost of shares redeemed .................................... (40,530,088) (38,726,743) ------------- ------------- Change in net assets from capital share transactions .... 43,115,393 15,905,324 ------------- ------------- Change in net assets .................................... 57,445,182 29,353,392 NET ASSETS: Beginning of period ........................................ 345,036,473 315,683,081 ------------- ------------- End of period .............................................. $ 402,481,655 $ 345,036,473 ============= =============
See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION Tax-Free Trust of Oregon (the "Trust") is a separate portfolio of The Cascades Trust. The Cascades Trust (the "Business Trust") is an open-end investment company, which was organized on October 17, 1985, as a Massachusetts business trust and is authorized to issue an unlimited number of shares. The Trust is a non-diversified portfolio which commenced operations on June 16, 1986 and until April 5, 1996, offered only one class of shares. On that date, the Trust began offering two additional classes of shares, Class C and Class Y shares. All shares outstanding prior to that date were designated as Class A shares and are sold with a front-payment sales charge and bear an annual service fee. Class C shares are sold with a level-payment sales charge with no payment at time of purchase but level service and distribution fees from date of purchase through a period of six years thereafter. A contingent deferred sales charge of 1% is assessed to any Class C shareholder who redeems shares of this Class within one year from the date of purchase. Class C Shares, together with a pro-rata portion of all Class C Shares acquired through reinvestment of dividends and other distributions paid in additional Class C Shares, automatically convert to Class A Shares after 6 years. The Class Y shares are only offered to institutions acting for an investor in a fiduciary, advisory, agency, custodian or similar capacity and are not offered directly to retail investors. Class Y shares are sold at net asset value without any sales charge, redemption fees, contingent deferred sales charge or distribution or service fees. On January 31, 1998 the Trust established Class I shares, which are offered and sold only through financial intermediaries and are not offered directly to retail investors. At September 30, 2002 there were no Class I shares outstanding. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America for investment companies. a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities of more than 60 days are valued at fair value each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services; in the case of securities for which market quotations are readily available, securities are valued at the mean of bid and asked quotations and, in the case of other securities, at fair value determined under procedures established by and under the general supervision of the Board of Trustees. Securities which mature in 60 days or less are valued at amortized cost if their term to maturity at purchase was 60 days or less, or by amortizing their unrealized appreciation or depreciation on the 61st day prior to maturity, if their term to maturity at purchase exceeded 60 days. b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue and market discount. c) FEDERAL INCOME TAXES: It is the policy of the Trust to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Trust intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are charged directly to such class. e) USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. f) NEW ACCOUNTING PRONOUNCEMENT: In November 2000, the AICPA issued a revised audit and accounting guide, AUDITS OF INVESTMENT COMPANIES, which is effective for fiscal years beginning after December 15, 2000. The revised Guide requires the Trust to amortize premium and discounts on all fixed- income securities. The Fund elected to adopt this requirement effective October 1, 2001. This change does not affect the Trust's net asset value, but does change the classification of certain amounts in the statement of operations. For the year ending September 30, 2002, interest income increased by $53,196, and the change in net unrealized appreciation of investments decreased by $53,196. In addition, the Trust recorded an adjustment to increase the cost of securities and increase accumulated undistributed net investment income by $277,321 to reflect the cumulative effect of this change up to the date of adoption. For the year ended September 30, 2002, the new accounting pronouncement did not have a material impact on the financial highlights of the Trust. 3. FEES AND RELATED PARTY TRANSACTIONS a) MANAGEMENT ARRANGEMENTS: Aquila Management Corporation (the "Manager"), the Trust's founder and sponsor, serves as the Manager for the Trust under an Advisory and Administration Agreement with the Trust. The portfolio management of the Trust has been delegated to a sub-adviser as described below. Under the Advisory and Administrative Agreement, the Manager provides all administrative services to the Trust, other than those relating to the day-to-day portfolio management. The Manager's services include providing the office of the Trust and all related services as well as overseeing the activities of the sub-adviser and all the various support organizations to the Trust such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor and additionally maintaining the Trust's accounting books and records. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.40% on the Trust's net assets. U.S. Bancorp Asset Management, Inc. (formerly U.S. Bancorp Piper Jaffray Asset Management, Inc.) (the "Sub-Adviser"), serves as the Investment Sub-Adviser for the Trust under a Sub-Advisory Agreement between the Manager and the Sub-Adviser. Under this agreement, the Sub-Adviser continuously provides, subject to oversight of the Manager and the Board of Trustees of the Trust, the investment program of the Trust and the composition of its portfolio, arranges for the purchases and sales of portfolio securities, and provides for daily pricing of the Trust's portfolio. For its services, the Sub-Adviser is entitled to receive a fee from the Manager which is payable monthly and computed as of the close of business each day at the annual rate of 0.18% on the Trust's net assets. Specific details as to the nature and extent of the services provided by the Manager and the Sub-Adviser are more fully defined in the Trust's Prospectus and Statement of Additional Information. b) DISTRIBUTION AND SERVICE FEES: The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Trust is authorized to make service fee payments to broker-dealers or others ("Qualified Recipients") selected by Aquila Distributors, Inc. (the "Distributor"), including, but not limited to, any principal underwriter of the Trust, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Trust's shares or servicing of shareholder accounts. The Trust makes payment of this service fee at the annual rate of 0.15% of the Trust's average net assets represented by Class A Shares. For the year ended September 30, 2002, service fees on Class A Shares amounted to $479,614, of which the Distributor retained $19,624. Under another part of the Plan, the Trust is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Trust's Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Trust's net assets represented by Class C Shares and for the year ended September 30, 2002, amounted to $140,288. In addition, under a Shareholder Services Plan, the Trust is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Trust's net assets represented by Class C Shares and for the year ended September 30, 2002, amounted to $46,763. The total of these payments made with respect to Class C Shares amounted to $187,051, of which the Distributor retained $23,465. Specific details about the Plans are more fully defined in the Trust's Prospectus and Statement of Additional Information. Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Trust's shares. Through agreements between the Distributor and various broker-dealer firms ("dealers"), the Trust's shares are sold primarily through the facilities of these dealers having offices within Oregon, with the bulk of sales commissions inuring to such dealers. For the year ended September 30, 2002, total commissions on sales of Class A Shares amounted to $1,218,644 of which the Distributor received $169,571. c) OTHER RELATED PARTY TRANSACTIONS For the year ended September 30, 2002 the Trust accrued legal fees of $73,616 of which $73,073 were allocable to Hollyer Brady Smith & Hines LLP, counsel to the Trust for legal services in conjunction with the Fund's ongoing operations. The Secretary of the Trust is a Partner of Hollyer Brady Smith & Hines LLP. 4. PURCHASES AND SALES OF SECURITIES During the year ended September 30, 2002, purchases of securities and proceeds from the sales of securities aggregated $82,512,785 and $39,525,916, respectively. At September 30, 2002, aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost amounted to $30,595,294, and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $4,375 for a net unrealized appreciation of $30,590,919. The tax cost of the Trust's securities at September 30, 2002 equals $366,301,587. 5. PORTFOLIO ORIENTATION Since the Trust invests principally and may invest entirely in double tax-free municipal obligations of issuers within Oregon, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Oregon and whatever effects these may have upon Oregon issuers' ability to meet their obligations. Two such developments, Measure 5, a 1990 amendment to the Oregon Constitution, as well as Measures 47 and 50, limit the taxing and spending authority of certain Oregon governmental entities. Although these amendments could have an adverse effect on the general financial condition of certain municipal entities that would impair the ability of certain Oregon issuer's to pay interest and principal on their obligations, experience over the history of such amendments would indicate a low probability of this happening. 6. DISTRIBUTIONS The Trust declares dividends daily from net investment income and makes payments monthly in additional shares at the net asset value per share, in cash, or in a combination of both, at the shareholder's option. Net realized capital gains, if any, are distributed annually and are taxable. The Trust intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Oregon income taxes. However, due to differences between financial statement reporting and Federal income tax reporting requirements, distributions made by the Trust may not be the same as the Trust's net investment income, and/or net realized securities gains. In this regard, the Trust credited distributions in excess of net investment income in the amount of $81,410 and debited additional accumulated net realized gain on investments in the amount of $81,410 at September 30, 2002. This adjustment had no impact on the Trust's aggregate net assets at September 30, 2002. Further, a small portion of the dividends may, under some circumstances, be subject to taxes at ordinary income and/or capital gain rates. For certain shareholders, some dividend income may, under some circumstances, be subject to the alternative minimum tax. The tax character of distributions paid by the Trust during its fiscal years ended September 30, 2002 and 2001 is as follows: Distributions paid from Year Ended September 30, 2002 2001 ----------- ----------- Net tax-exempt income $15,819,924 $15,168,864 Ordinary income 19,956 18,394 Capital gain 642,581 218,155 ----------- ----------- $16,482,461 $15,405,413 =========== =========== 7. EXPENSES The Trust has negotiated an expense offset arrangement with its custodian, wherein it receives credit toward the reduction of custodian fees and other Trust expenses whenever there are uninvested cash balances.The Statement of Operations reflects the total expenses before any offset, the amount of offset and the net expenses. It is the general intention of the Trust to invest, to the extent practicable, some or all of cash balances in income-producing assets rather than leave cash on deposit. 8. CAPITAL SHARE TRANSACTIONS Transactions in Capital Shares of the Trust were as follows:
YEAR ENDED YEAR ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ CLASS A SHARES: Proceeds from shares sold ....... 4,559,335 $ 48,860,722 3,046,769 $ 32,323,152 Reinvested dividends and distributions ................ 860,102 9,227,559 815,575 8,626,274 Cost of shares redeemed ......... (3,122,090) (33,568,282) (3,219,333) (34,011,543) ---------- ------------ ---------- ------------ Net change ................... 2,297,347 24,519,999 643,011 6,937,883 ---------- ------------ ---------- ------------ CLASS C SHARES: Proceeds from shares sold ....... 1,279,711 13,712,695 754,192 8,004,403 Reinvested dividends and distributions ................ 42,016 450,607 20,272 214,572 Cost of shares redeemed ......... (176,382) (1,890,476) (160,595) (1,702,903) ---------- ------------ ---------- ------------ Net change ................... 1,145,345 12,272,826 613,869 6,516,072 ---------- ------------ ---------- ------------ CLASS Y SHARES: Proceeds from shares sold ....... 972,682 10,495,616 507,863 5,367,244 Reinvested dividends and distributions ................ 83,730 898,282 9,109 96,422 Cost of shares redeemed ......... (473,970) (5,071,330) (285,830) (3,012,297) ---------- ------------ ---------- ------------ Net change ................... 582,442 6,322,568 231,142 2,451,369 ---------- ------------ ---------- ------------ Total transactions in Trust shares .......................... 4,025,134 $ 43,115,393 1,488,022 $ 15,905,324 ========== ============ ========== ============
9. TRUSTEES' FEES AND EXPENSES During the fiscal year there were eleven Trustees, two of whom are affiliated with the Manager and are not paid any trustee fees. Trustees' fees paid during the year were at the annual rate of $7,400 for carrying out their responsibilities and attendance at regularly scheduled Board Meetings. If additional or special meetings are scheduled for the Trust, separate meeting fees are paid for each such meeting to those Trustees in attendance. The Trust also reimburses Trustees for expenses such as travel, accommodations, and meals incurred in connection with attendance at regularly scheduled or special Board Meetings and outreach meetings of Shareholders. For the fiscal year ended September 30, 2002 such reimbursements averaged approximately $4,150 per Trustee. 10. SECURITIES TRADED ON A WHEN-ISSUED BASIS The Trust may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Trust with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Trust at the time of entering into the transaction. Beginning on the date the Trust enters into a when-issued transaction, cash or other liquid securities are segregated in the amount of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A -------------------------------------------------- YEAR ENDED SEPTEMBER 30, -------------------------------------------------- 2002 2001 2000 1999 1998 ------ ------ ------ ------ ------ Net asset value, beginning of period ............. $10.72 $10.29 $10.27 $10.86 $10.68 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income+ ........................ 0.48 0.49 0.50 0.50 0.53 Net gain (loss) on securities (both realized and unrealized) ................... 0.41 0.44 0.02 (0.56) 0.19 ------ ------ ------ ------ ------ Total from investment operations .............. 0.89 0.93 0.52 (0.06) 0.72 ------ ------ ------ ------ ------ Less distributions (note 6): Dividends from net investment income .......... (0.47) (0.49) (0.50) (0.51) (0.53) Distributions from capital gains .............. (0.02) (0.01) - (0.02) (0.01) ------ ------ ------- ------ ------ Total distributions ........................... (0.49) (0.50) (0.50) (0.53) (0.54) ------ ------ ------- ------ ------ Net asset value, end of period ................... $11.12 $10.72 $10.29 $10.27 $10.86 ====== ====== ======= ====== ====== Total return (not reflecting sales charge) ....... 8.59% 9.18% 5.26% (0.62)% 6.90% Ratios/supplemental data Net assets, end of period (in millions) ....... $345 $309 $289 $309 $322 Ratio of expenses to average net assets ....... 0.71% 0.72% 0.71% 0.71% 0.71% Ratio of net investment income to average net assets ........................ 4.45% 4.62% 4.93% 4.70% 4.83% Portfolio turnover rate ....................... 11% 17% 20% 16% 7% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets ....... 0.69% 0.70% 0.70% 0.68% 0.69%
---------- + Per share amounts have been calculated using the monthly average shares method. See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 ------ ------ ------ ------ ------ Net asset value, beginning of period .......... $10.71 $10.28 $10.27 $10.85 $10.67 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income + .................... 0.38 0.39 0.41 0.41 0.43 Net gain (loss) on securities (both realized and unrealized) ................ 0.42 0.45 0.02 (0.55) 0.20 ------ ------ ------ ------ ------ Total from investment operations ........... 0.80 0.84 0.43 (0.14) 0.63 ------ ------ ------ ------ ------ Less distributions (note 6): Dividends from net investment income ....... (0.38) (0.40) (0.42) (0.42) (0.44) Distributions from capital gains ........... (0.02) (0.01) - (0.02) (0.01) ------ ------ ------ ------ ------ Total distributions ........................ (0.40) (0.41) (0.42) (0.44) (0.45) ------ ------ ------ ------ ------ Net asset value, end of period ................ $11.11 $10.71 $10.28 $10.27 $10.85 ====== ====== ====== ====== ====== Total return (not reflecting sales charge) .... 7.67% 8.26% 4.27% (1.38)% 6.00% Ratios/supplemental data Net assets, end of period (in millions) .... $25.9 $12.7 $5.8 $3.0 $1.2 Ratio of expenses to average net assets .... 1.55% 1.56% 1.55% 1.56% 1.56% Ratio of net investment income to average net assets .............................. 3.56% 3.70% 4.03% 3.84% 3.98% Portfolio turnover rate .................... 11% 17% 20% 16% 7% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets .... 1.54% 1.54% 1.54% 1.53% 1.54%
CLASS Y ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 ------ ------ ------ ------ ------ Net asset value, beginning of period .......... $10.72 $10.28 $10.27 $10.85 $10.68 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income + .................... 0.49 0.50 0.52 0.52 0.54 Net gain (loss) on securities (both realized and unrealized) ................ 0.41 0.45 0.01 (0.56) 0.19 ------ ------ ------ ------ ------ Total from investment operations ........... 0.90 0.95 0.53 (0.04) 0.73 ------ ------ ------ ------ ------ Less distributions (note 6): Dividends from net investment income ....... (0.49) (0.50) (0.52) (0.52) (0.55) Distributions from capital gains ........... (0.02) (0.01) - (0.02) (0.01) ------ ------ ------ ------ ------ Total distributions ........................ (0.51) (0.51) (0.52) (0.54) (0.56) ------ ------ ------ ------ ------ Net asset value, end of period ................ $11.11 $10.72 $10.28 $10.27 $10.85 ====== ====== ====== ====== ====== Total return (not reflecting sales charge) .... 8.65% 9.45% 5.32% (0.39)% 6.96% Ratios/supplemental data Net assets, end of period (in millions) .... $31.2 $23.8 $20.5 $17.0 $10.7 Ratio of expenses to average net assets .... 0.56% 0.57% 0.56% 0.56% 0.55% Ratio of net investment income to average net assets .............................. 4.59% 4.76% 5.08% 4.86% 4.95% Portfolio turnover rate .................... 11% 17% 20% 16% 7% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets .... 0.54% 0.55% 0.54% 0.53% 0.53%
---------- + Per share amounts have been calculated using the monthly average shares method. See accompanying notes to financial statements. ADDITIONAL INFORMATION (UNAUDITED) TRUSTEES(1) AND OFFICERS
NUMBER OF POSITIONS PORTFOLIOS HELD WITH IN FUND NAME, FUND AND PRINCIPAL COMPLEX OTHER ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN DIRECTORSHIPS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE ----------------- ---------- ------------------- ----------- --------------- INTERESTED TRUSTEES(4) Lacy B. Herrmann Chairman of the Founder and Chairman of the Board, Aquila 13 Director or trustee, OCC New York, NY Board of Trustees Management Corporation, the sponsoring Cash Reserves, Inc., OCC (05/12/29) since 1985 organization and Manager or Administrator Accumulation Trust, and/or Adviser or Sub-Adviser to each fund Oppenheimer Quest of the Aquila(sm) Group of Funds(5) and Founder, Value Funds Group, Chairman of the Board of Trustees and Oppenheimer Small Cap (currently or until 1998) President of each Value Fund, Oppenheimer since its establishment, beginning in 1984; Midcap Fund, and Director of the Distributor since 1981 and Oppenheimer Rochester formerly Vice President or Secretary, 1981- Group of Funds. 1998; President and a Director, STCM Management Company, Inc., sponsor and investment adviser to Capital Cash Management Trust and Capital Cash U.S. Government Securities Trust, since 1973; Trustee Emeritus, Brown University and active in university, school and charitable organizations. Diana P. Herrmann Trustee since 1994 President and Chief Operating Officer of the 8 None New York, NY and President Manager since 1997, a Director since 1984, (02/25/58) since 1998 Secretary since 1986 and previously its Executive Vice President, Senior Vice President or Vice President, 1986-1997; President, Senior Vice President or Executive Vice President of funds in the Aquila(sm) Group of Funds since 1986; Director of the Distributor since 1997; trustee, Reserve Money-Market Funds, 1999-2000 and Reserve Private Equity Series, 1998-2000; active in mutual fund and trade organizations and in charitable and volunteer organizations. Raymond H. Lung Trustee since 1992 Retired; trustee, Qualivest Group of Funds, 1 None Portland, OR 1994-1997; former Executive Vice President (12/24/26) and Executive Trust Officer, U.S. National Bank of Oregon; previously active in bank trade organizations and director of certain Pacific Northwest companies. John W. Mitchell Trustee since 1999 Principal of M & H Economic Consultants; 1 None Portland, OR Economist, Western Region, for U. S. Bancorp (07/13/44) since 1998; 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. NON-INTERESTED TRUSTEES Gary C. Cornia Trustee since 2002 President, the National Tax Association; 4 None Orem, UT Professor and Chair of the Executive (06/24/48) Committee, the International Center for Land Policy Studies and Training Institute, Taipei, Taiwan; formerly Associate Dean, Marriott School of Management, Brigham Young University, 1991-2000; Chair, Utah Governor's Tax Review Committee since 1993; Faculty Associate, the Land Reform Training Institute, Taipei, Taiwan and The Lincoln Institute of Land Policy, Cambridge, Massachusetts. David B. Frohnmayer Trustee since 1997 President, University of Oregon since 1994; 1 Umpqua Holding Eugene, OR former Dean of the University of Oregon Company (07/09/40) Law School and former Attorney General of the State of Oregon. James A. Gardner Trustee since 1986 President, Gardner Associates, an investment 1 None Terrebonne, OR and real estate firm, since 1989; Partner, the (07/06/43) Canyons Ranch, a real estate firm, since 1991; President Emeritus, Lewis and Clark College and Law School; director, Oregon High Desert Museum since 1989; active in civic, business, educational and church organizations in Oregon. Patricia L. Moss Trustee since 2002 President and Chief Executive Officer, Cascade 1 Cascade Bancorp and Bend, OR Bancorp & Bank of the Cascades since 1998, Bank of the Cascades (07/23/53) and Executive Vice President & director, Chief Financial Officer, Chief Operating Officer, 1987-1998; director, Oregon Bankers Association; active in community and educational organizations. Ralph R. Shaw Trustee since 2000 General Partner, Shaw Management Company, 1 Schnitzer Steel Industries, Portland, OR an investment counseling firm, since 1980, Inc., Magni Systems, Inc., (08/23/38) of Shaw Venture Partners since 1982, of Shaw Severon Corporation Venture Partners II since 1987 and of Shaw (formerly Micromonitors, Venture Partners III since 1994 (US Bancorp, Inc.), Integra Telecom, parent of the Sub-Adviser, is a limited partner Inc. (formerly OGIT in the last three ventures); active in local Communications, Inc.), civic and charitable organizations. Dendreon Corporation (formerly Activated Cell Therapy, Inc.), LaTIS, Inc., Telestream, Inc., 3PF.com, Inc. (formerly ComAlliance, Inc.), BMG Seltec Corp. Nancy Wilgenbusch Trustee since 2002 President, Marylhurst University since 1 Chair, Oregon Regional Marylhurst, OR 1984; member, Ethics Committee of the Advisory Board for (09/17/47) American Institute of Certified Public PacifiCorp ; member, Accountants; active board member of a PacifiCorp Advisory Board number of civic organizations. for Scottish Power, an international energy company; Chair, Portland Branch of the Federal Reserve Bank of San Francisco; director, Cascade Corporation, a leading international manufacturer of lift truck attachments. OFFICERS James M. McCullough Senior Vice Senior Vice President or Vice President of N/A N/A Portland, OR President since five Aquila Bond and Equity Funds; Senior (06/11/45) 1999 Vice President of the Distributor since 2000; Director of Fixed Income Institutional Sales, CIBC Oppenheimer & Co. Inc., Seattle, WA, 1995-1999. Sally W. Church Vice President Vice President, Tax-Free Trust of Oregon N/A N/A Salt Lake City, UT since 2002 since 2002 and 1989-1997; retired, 1997- (10/17/48) 2002; Vice President of Aquila Cascadia Equity Fund, 1996-1997. Christine L. Neimeth Vice President Vice President of three Aquila Bond and Equity N/A N/A Portland, OR since 1998 Funds; Management Information Systems (02/10/64) consultant, Hillcrest Ski and Sport, 1997; Institutional Municipal Bond Salesperson, Pacific Crest Securities, 1996; active in college alumni and volunteer organizations. Rose F. Marotta Chief Financial Chief Financial Officer of the Aquila(sm) N/A N/A New York, NY Officer since 1991 Group of Funds since 1991 and Treasurer, (05/08/24) 1981-1991; Treasurer and Director, STCM Management Company, Inc., since 1974; Treasurer of the Manager since 1984 and of the Distributor, 1985-2000. Joseph P. DiMaggio Treasurer since Treasurer of the Aquila(sm) Group of Funds N/A N/A New York, NY 2000 and the Distributor since 2000; Controller, (11/06/56) Van Eck Global Funds, 1993-2000. Edward M. W. Hines Secretary since Partner, Hollyer Brady Smith & Hines LLP, N/A N/A New York, NY 1985 legal counsel to the Trust, since 1989; (12/16/39) Secretary of the Aquila(sm) Group of Funds. Robert W. Anderson Assistant Secretary Compliance Officer of the Manager since N/A N/A New York, NY since 2000 1998 and Assistant Secretary of the Aquila(sm) (08/23/40) Group of Funds since 2000; trustee, Alpha Strategies Fund since July, 2002; Consultant, The Wadsworth Group, 1995-1998. John M. Herndon Assistant Secretary Assistant Secretary of the Aquila(sm) Group of N/A N/A New York, NY since 1995 Funds since 1995 and Vice President of the (12/17/39) five Aquila Money-Market Funds since 1990; Vice President of the Manager since 1990. Lori A. Vindigni Assistant Treasurer Assistant Treasurer of the Aquila(sm) Group of N/A N/A New York, NY since 2000 Funds since 2000; Assistant Vice President (11/02/66) of the Manager since 1998; Fund Accountant for the Aquila(sm) Group of Funds, 1995-1998.
---------- (1) The Trust's Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request by calling 800-437-1020 (toll free). (2) The mailing address of each Trustee and officer is c/o Tax-Free Trust of Oregon, 380 Madison Avenue, New York, NY 10017. (3) Each Trustee holds office until the next annual meeting of shareholders or until his or her successor is elected and qualifies. The term of office of each officer is one year. (4) Mr. Herrmann is an interested person of the Trust as that term is defined in the 1940 Act as an officer of the Trust and a director, officer and shareholder of the Manager and as a shareholder and director of the Distributor. Ms. Herrmann is an interested person of the Trust as an officer of the Trust, as a director, officer and shareholder of the Manager and as a shareholder and director of the Distributor. Each is also an interested person as a member of the immediate family of the other. Mr. Lung and Mr. Mitchell are interested persons as security holders of the Sub-Adviser's parent. (5) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S. Government Securities Cash Assets Trust, Pacific Capital Tax-Free Cash Assets Trust, Capital Cash Management Trust and Capital Cash U.S. Government Securities Trust, each of which is a money-market fund, are called the "Aquila Money-Market Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, 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, are called the "Aquila Bond Funds"; Aquila Rocky Mountain Equity Fund is an equity fund; considered together, these 13 funds are called the "Aquila(sm) Group of Funds." FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED) This information is presented in order to comply with a requirement of the Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF SHAREHOLDERS IS REQUIRED. For the fiscal year ended September 30, 2002, $15,819,924 of dividends paid by Tax-Free Trust of Oregon, constituting 95.98% of total dividends paid during fiscal 2002, were exempt-interest dividends; $642,581 of dividends paid by the Trust constituting 3.90% of total dividends paid during the fiscal year were capital gain distributions; and the balance was ordinary dividend income. Prior to January 31, 2003, shareholders will be mailed IRS Form 1099-DIV which will contain information on the status of distributions paid for the 2002 CALENDAR YEAR. SHAREHOLDER MEETING RESULTS (UNAUDITED) The Annual Meeting of Shareholders of Tax-Free Trust of Oregon (the "Trust") was held on May 7, 2002. The holders of shares representing 80% of the total net asset value of the shares entitled to vote were present in person or by proxy. At the meeting, the following matters were voted upon and approved by the shareholders (the resulting votes for each matter are presented below). 1. To elect Trustees. Number of Votes: TRUSTEE FOR WITHHELD ------- --- -------- Lacy B. Herrmann 26,250,263 292,922 David B. Frohnmayer 26,176,224 366,961 James A. Gardner 26,228,222 314,963 Diana P. Herrmann 26,277,584 265,601 Raymond H. Lung 26,250,925 292,260 John W. Mitchell 26,277,302 265,883 Patricia L. Moss 26,273,133 270,052 Ralph R. Shaw 26,301,347 241,838 Nancy Wilgenbusch 26,292,027 251,158 2. To ratify the selection of KPMG LLP as the Trust's independent auditors. Number of Votes: FOR AGAINST ABSTAIN --- ------- ------- 26,029,211 144,819 399,156