N-CSR 1 tftoncsr.txt TAX-FREE TRUST OF OREGON ANNUAL 9/30/04 NCSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-4626 Tax-Free Trust or Oregon (Exact name of Registrant as specified in charter) 380 Madison Avenue New York, New York 10017 (Address of principal executive offices) (Zip code) Joseph P. DiMaggio 380 Madison Avenue New York, New York 10017 (Name and address of agent for service) Registrant's telephone number, including area code: (212) 697-6666 Date of fiscal year end: 9/30 Date of reporting period: 9/30/04 FORM N-CSR ITEM 1. REPORTS TO STOCKHOLDERS. ANNUAL REPORT SEPTEMBER 30, 2003 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] (R) [LOGO OF THE AQUILA GROUP OF FUNDS: ONE OF THE AN EAGLE'S HEAD] AQUILA(SM) GROUP OF FUNDS [LOGO OF TAX-FREE TRUST OF OREGON: A SQUARE WITH TWO PINE TREES IN FRONT OF A MOUNTAIN] (R) SERVING OREGON INVESTORS FOR MORE THAN 15 YEARS TAX-FREE TRUST OF OREGON ANNUAL REPORT MANAGEMENT DISCUSSION The total net assets of Tax-Free Trust of Oregon were at the level of $445,133,699 as of the end of the fiscal year on September 30, 2004. This compared with the level of $441,497,870 on September 30, 2003. Most of this modest growth in assets occurred through additional purchases of Trust shares by new investors, as well as existing shareholders adding to their accounts. The past twelve months ended September 30th turned out to be a rather interesting and unusual year in terms of price changes with debt securities, including municipal securities. During this period, the Federal Reserve Board (the "Fed") had been monitoring the economic and monetary characteristics of our country. After spending all of the year 2003 concerned with deflation or at least disinflation, the Fed changed its course in June, 2004 and began raising short-term interest rates. As you may recall, previously short-term interest rates had been at a level of only 1% - the lowest rate in the last 60 years - as a result of concerns over the sluggishness of the economy. However, economic activity began to pick up during the year 2004. Consequently, at each of the three subsequent meetings of the Fed since June, short-term interest rates were raised by 1/4 of 1% to the level of 1.75% as of September 30, 2004. The spring of 2004 turned out to be very volatile for the bond market. Prior to the Fed's initial increase in short-term rates, the street generally began to believe that inflation would begin to rise and that the Federal Open Market Committee (the "FOMC") would need to raise rates faster than they had in the past. Those inclined to worry about inflation pointed to broad based global growth, a multiyear rise in commodity prices, a weaker dollar, and job growth as signs the FOMC was behind the ball and needed to curb inflationary pressure. Once the Fed began its hikes in short-term interest rates, an interesting phenomenon began to occur. Interest rates for bonds longer than two years actually decreased in the marketplace. This phenomenon is called a "Flattening of the Yield Curve" which usually occurs when the general economic perception is that inflation is under control and the Fed is doing its job by increasing short-term rates in order to stave off inflation. As you know, one of the key jobs of the Fed is to maintain price stability for our country. If one looks at interest rates as of September 30, 2003 and compares them to September 30, 2004, you would find that the U.S. Treasury securities market shows a much more dramatic rise in interest rates for bonds with a 10-year and shorter maturities. And, 30-year U.S. Treasuries were virtually the same in price. This type of price action is even more pronounced in the municipal bond market. According to Municipal Market Data (MMD), yields for generic AAA rated municipal general obligation debt rose for bonds with maturities less than 10 years over the same 1-year period. However, yields for debt securities after 10 years were either the same or slightly less. This produced an interesting result for the share value of the Trust. In general, bonds held by the Trust which had maturities of less than 10 years saw their prices decrease since September 30, 2003, while bonds with maturities longer than 10 years saw their prices increase. Consequently, the net asset value of the Class A shares of Tax-Free Trust of Oregon ended up being only slightly lower on September 30, 2004, at a level of $11.01, as compared with $11.04 on September 30, 2003. During this past fiscal year, there were a variety of discussions among legislators concerning the possibility of tax reform within the State and possible local taxation of property. In the final analysis, nothing came of all the various discussions. Both political parties blamed one another for lack of cooperation. We will continue to monitor whatever develops in this area over the future. The Trust will continue to seek to avoid undue volatility of share price through the purchase of high-quality intermediate maturity securities. As of September 30, 2004, Tax-Free Trust of Oregon's portfolio had 96.75% of its securities rated in the two highest categories possible - Aaa and Aa. As always, we continue to evaluate credit concerns and seek to reduce, if not eliminate, those credits from the portfolio that are of concern. In general, we continue to seek a satisfactory double tax-free yield as well as high stability for the principal of our shareholders' investments. 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, 2004 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. [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL] Trust's Class A Shares
Lehman Brothers Quality Intermediate Municipal Bond Index With Sales Charge Trust's Class A Shares Cost of Living Index 9/94 $ 9,943 $ 9,440 $ 9,836 $10,296 9/95 $10,942 $10,251 $10,682 $10,558 9/96 $11,424 $10,808 $11,262 $10,875 9/97 $12,296 $11,598 $12,086 $11,110 9/98 $13,195 $12,348 $12,867 $11,275 9/99 $13,334 $12,317 $12,835 $11,571 9/00 $14,045 $12,969 $13,514 $11,971 9/01 $15,382 $14,145 $14,739 $12,288 9/02 $16,653 $15,331 $15,975 $12,474 9/03 $17,351 $15,933 $16,602 $12,764 9/04 $17,982 $16,862 $17,573 $12,711
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED SEPTEMBER 30, 2004 ------------------------------------------------- SINCE 1 YEAR 5 YEARS 10 YEARS INCEPTION ------ ------- -------- --------- Class A (6/16/86) With Sales Charge.................................... (0.19)% 5.24% 5.36% 6.21% Without Sales Charge................................. 3.97% 6.11% 5.80% 6.44% Class C (4/5/96) With CDSC............................................ 2.06% 5.19% n/a 4.74% Without CDSC......................................... 3.09% 5.19% n/a 4.74% Class Y (4/5/96) No Sales Charge...................................... 4.13% 6.24% n/a 5.79% Lehman Index............................................. 3.04% 6.04% 6.04% 6.38%* (Class A) 3.04% 6.04% n/a 5.68% (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 class's income may be subject to federal and state income taxes. Past performance is not predictive of future investment results. -------------------------------------------------------------------------------- [LOGO OF KPMG LLP: FOUR SOLID RECTANGLES WITH THE LETTERS KPMG IN FRONT OF THEM] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 schedule of investments, as of September 30, 2004, 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2004, 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, 2004, 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 U.S. generally accepted accounting principles. /s/ KPMG LLP New York, New York November 17, 2004 -------------------------------------------------------------------------------- TAX-FREE TRUST OF OREGON SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2004
RATING FACE MOODY'S/ AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS 57.4% S&P VALUE ------------ ------------------------------------------------------------- -------- ---------- Bend, Oregon Transportation Highway System (MBIA Corporation Insured) $ 1,135,000 5.300%, 9/1/2017 ..................................... Aaa/NR $1,236,787 Benton and Linn Counties Oregon School District #509J (Financial Security Assurance Insured) 4,670,000 5.000%, 06/01/2021 ................................... Aaa/NR 4,962,902 Chemeketa, Oregon Community College District (Financial Guaranty Insurance Corporation Insured) 1,385,000 5.500%, 06/01/2014 ................................... Aaa/AAA 1,613,941 Clackamas County, Oregon School District #007J (Lake Oswego) 1,340,000 5.375%, 06/01/2013 ................................... Aa2/NR 1,500,626 Clackamas County, Oregon School District #62 (Oregon City) (Financial Security Assurance Insured) 5,270,000 5.000%, 06/15/2016 ................................... Aaa/AAA 5,819,029 Clackamas County, Oregon School District #62 (Oregon City) (State School Bond Guaranty Program) 1,330,000 5.375%, 06/15/2017 ................................... Aa3/AA- 1,500,839 2,055,000 5.500%, 06/15/2020 ................................... Aa3/AA- 2,332,363 Clackamas County, Oregon School District #86 (Canby) (State School Bond Guaranty Program) 3,535,000 5.250%, 06/15/2020 ................................... Aa3/AA- 3,966,058 Clackamas County, Oregon School District #108 (Estacada) (Financial Security Assurance Insured) 1,295,000 5.375%, 06/15/2017 ................................... Aaa/AAA 1,430,586 2,000,000 5.000%, 06/15/2025 ................................... Aaa/AAA 2,067,640 Clackamas County, Oregon Tax Allocation 1,000,000 6.500%, 05/01/2020 ................................... NR/NR* 1,000,820 Clackamas, Oregon Community College District (Financial Guaranty Insurance Corporation Insured) 3,955,000 5.250%, 06/15/2017 ................................... Aaa/AAA 4,327,640 4,310,000 5.250%, 06/15/2018 ................................... Aaa/AAA 4,678,763
Clackamas and Washington Counties, Oregon School District #3J (Financial Guaranty Insurance Corporation Insured) $ 2,285,000 5.250%, 06/15/2015 ................................... Aaa/AAA $2,589,111 1,620,000 5.000%, 06/01/2017 ................................... Aaa/AAA 1,695,703 Clatsop County, Oregon School District #1 (Astoria) (State School Bond Guaranty Program) 1,895,000 5.500%, 06/15/2019 ................................... NR/AA- 2,150,768 Columbia County, Oregon School District #502 (Financial Guaranty Insurance Corporation Insured) 2,070,000 zero coupon, 06/01/2015 .............................. Aaa/AAA 1,340,449 Deschutes County, Oregon (Financial Security Assurance Insured) 2,000,000 5.000%, 12/01/2014 ................................... Aaa/NR 2,212,660 1,615,000 5.000%, 12/01/2015 ................................... Aaa/NR 1,772,301 2,260,000 5.000%, 12/01/2016 ................................... Aaa/NR 2,471,762 Deschutes County, Oregon Administrative School District #1 (Bend-LaPine) 1,500,000 5.000%, 12/01/2017 ................................... A1/NR 1,599,240 Deschutes County, Oregon Administrative School District #1 (Bend-LaPine) (Financial Security Assurance Insured) 1,145,000 5.500%, 06/15/2014 ................................... Aaa/NR 1,287,816 1,300,000 5.500%, 06/15/2016 ................................... Aaa/NR 1,451,437 1,355,000 5.500%, 06/15/2018 ................................... Aaa/NR 1,506,868 3,000,000 5.125%, 06/15/2021 ................................... Aaa/NR 3,172,860 Deschutes and Jefferson Counties Oregon School District #02J (Redmond) (Financial Guaranty Insurance Corporation Insured) 1,000,000 5.000%, 06/15/2021 ................................... Aaa/NR 1,064,750 2,330,000 zero coupon, 06/15/2022 .............................. Aaa/NR 999,663 Douglas County, Oregon School District #4 (Roseburg) (State School Bond Guaranty Program) 1,075,000 5.125%, 12/15/2017 ................................... Aa3/NR 1,164,569
Douglas County, Oregon School District #116 (Winston-Dillard) (State School Bond Guaranty Program) $ 1,020,000 5.625%, 06/15/2020 ................................... NR/AA- $1,125,437 Eugene, Oregon (Parks and Open Space) 1,465,000 5.250%, 02/01/2018 ................................... Aa2/NR 1,580,354 1,555,000 5.250%, 02/01/2019 ................................... Aa2/NR 1,674,191 Gresham, Oregon (Financial Security Assurance Insured) 1,155,000 5.375%, 06/01/2018 ................................... Aaa/NR 1,279,648 Jackson County, Oregon School District #4 (Phoenix-Talent) (Financial Security Assurance Insured) 1,490,000 5.500%, 06/15/2013 ................................... Aaa/AAA 1,683,462 1,395,000 5.500%, 06/15/2018 ................................... Aaa/AAA 1,551,352 Jackson County, Oregon School District #9 (Eagle Point) (State School Bond Guaranty Program) 1,120,000 5.625%, 06/15/2017 ................................... Aa3/NR 1,257,334 1,880,000 5.000%, 06/15/2021 ................................... Aa3/NR 1,972,458 Jackson County, Oregon School District #549 (Medford) (State School Bond Guaranty Program) 1,750,000 5.000%, 06/15/2012 ................................... Aa3/NR 1,946,473 Jackson County, Oregon School District #549C (Financial Security Assurance Insured) 1,000,000 5.300%, 06/01/2008 ................................... Aaa/AAA 1,024,540 Jefferson County, Oregon School District #509J (Financial Guaranty Insurance Corporation Insured) 1,215,000 5.250%, 06/15/2014 ................................... Aaa/AAA 1,362,501 1,025,000 5.250%, 06/15/2017 ................................... Aaa/AAA 1,134,101 Josephine County, Oregon School District #7 (Grants Pass) (Financial Guaranty Insurance Corporation Insured) 2,700,000 5.700%, 06/01/2013 ................................... Aaa/AAA 2,959,983 Josephine County, Oregon School District #7 (Grants Pass) (Financial Security Assurance Insured) 1,000,000 5.250%, 06/15/2013 ................................... Aaa/AAA 1,140,620
Josephine County, Oregon Three Rivers School District (Financial Security Assurance Insured) $ 1,780,000 5.250%, 06/15/2018 ................................... Aaa/NR $1,932,297 1,130,000 5.000%, 06/15/2019 ................................... Aaa/NR 1,197,766 Lane and Douglas Counties, Oregon School District #45J (South Lane) (State School Bond Guaranty Program) 1,525,000 6.000%, 06/15/2018 ................................... NR/AA- 1,766,224 Lane and Douglas Counties, Oregon School District #97J (Siuslaw) (State School Bond Guaranty Program) 1,000,000 5.400%, 06/15/2019 ................................... Aa3/NR 1,083,300 Lane County, Oregon (Financial Security Assurance Insured) 2,870,000 5.000%, 06/01/2015 ................................... Aaa/NR 3,164,175 Lane County, Oregon School District #40 (Creswell) (State School Bond Guaranty Program) 1,430,000 5.375%, 06/15/2020 ................................... NR/AA- 1,613,683 Lane County, Oregon School District #52J (Financial Guaranty Insurance Corporation Insured) 750,000 6.400%, 12/01/2009 ................................... Aaa/AAA 820,928 Lincoln County, Oregon School District (Financial Guaranty Insurance Corporation Insured) 1,245,000 5.250%, 06/15/2012 ................................... Aaa/AAA 1,373,061 Linn-Benton, Oregon Community College District (Financial Guaranty Insurance Corporation Insured) 1,160,000 zero coupon, 06/15/2011 .............................. Aaa/AAA 914,718 Linn County, Oregon School District #7 (Harrisburg) (State School Bond Guaranty Program) 1,660,000 5.500%, 06/15/2019 ................................... NR/AA- 1,829,967 Linn County, Oregon School District #9 (Lebanon) (Financial Guaranty Insurance Corporation Insured) 3,000,000 5.600%, 06/15/2030 ................................... Aaa/AAA 3,235,080 Linn County, Oregon School District #9 (Lebanon) (MBIA Corporation Insured) 2,500,000 5.000%, 06/15/2030 ................................... Aaa/AAA 2,556,900
Malheur County, Oregon Jail Bonds (MBIA Corporation Insured) $ 1,345,000 6.300%, 12/01/2012 ................................... Aaa/AAA $1,413,070 Metro, Oregon 3,240,000 5.000%, 01/01/2013 ................................... Aa1/AA+ 3,489,901 3,000,000 5.250%, 09/01/2014 ................................... Aa1/AA+ 3,352,320 Multnomah and Clackamas Counties, Oregon School District #10 (Gresham-Barlow) (Financial Security Assurance Insured) 1,140,000 5.000%, 06/15/2016 ................................... Aaa/AAA 1,248,380 1,205,000 5.000%, 06/15/2017 ................................... Aaa/AAA 1,306,497 1,500,000 5.500%, 06/15/2018 ................................... Aaa/AAA 1,668,120 2,650,000 5.000%, 06/15/2021 ................................... Aaa/AAA 2,791,404 Multnomah County, Oregon School District #7 (Reynolds) (State School Bond Guaranty Program) 500,000 5.625%, 06/15/2017 ................................... Aa3/AA- 561,310 2,375,000 5.125%, 06/15/2019 ................................... Aa3/AA- 2,553,529 Multnomah County, Oregon School District #40 (David Douglas) (Financial Security Assurance Insured) 2,055,000 5.000%, 12/01/2015 ................................... Aaa/AAA 2,205,447 Northern Oregon Correctional (AMBAC Indemnity Corporation Insured) 1,195,000 5.400%, 09/15/2016 ................................... Aaa/AAA 1,294,185 Oak Lodge, Oregon Water District (AMBAC Indemnity Corporation Insured) 215,000 7.300%, 12/01/2005 ................................... Aaa/AAA 216,825 215,000 7.300%, 12/01/2006 ................................... Aaa/AAA 216,911 215,000 7.400%, 12/01/2007 ................................... Aaa/AAA 216,946 Oregon Coast Community College District (MBIA Corporation Insured) 1,590,000 5.250%, 06/15/2017 ................................... Aaa/NR 1,772,675 1,475,000 5.250%, 06/15/2020 ................................... Aaa/NR 1,614,417 State of Oregon 1,975,000 5.250%, 10/15/2013 ................................... Aa3/AA- 2,228,313 2,115,000 5.250%, 10/15/2014 ................................... Aa3/AA- 2,379,946
State of Oregon Board of Higher Education $ 820,000 zero coupon, 08/01/2016 .............................. Aa3/AA- $ 502,234 500,000 zero coupon, 08/01/2018 .............................. Aa3/AA- 271,760 540,000 zero coupon, 08/01/2019 .............................. Aa3/AA- 277,193 2,560,000 5.500%, 08/01/2021 ................................... Aa3/AA- 2,803,302 3,000,000 5.000%, 08/01/2022 ................................... Aa3/AA- 3,134,220 1,655,000 5.600%, 08/01/2023 ................................... Aa3/AA- 1,830,397 1,500,000 5.600%, 08/01/2023 ................................... Aa3/AA- 1,658,970 6,300,000 6.000%, 08/01/2026 ................................... Aa3/AA- 6,894,027 State of Oregon Elderly and Disabled Housing 40,000 6.250%, 08/01/2013 ................................... Aa3/AA- 40,144 State of Oregon Veterans' Welfare 700,000 9.200%, 10/01/2008 ................................... Aa3/NR 875,791 820,000 5.200%, 10/01/2018 ................................... Aa3/AA 846,970 Portland, Oregon 2,790,000 5.750%, 06/01/2013 ................................... Aaa/NR 2,866,641 1,000,000 4.600%, 06/01/2014 ................................... Aaa/NR 1,057,010 2,000,000 5.600%, 06/01/2015 ................................... Aa2/NR 2,125,400 95,000 5.250%, 06/01/2015 ................................... Aa2/NR 97,029 2,975,000 zero coupon, 06/01/2015 .............................. Aa2/NR 1,922,445 1,120,000 5.125%, 06/01/2018 ................................... Aaa/NR 1,218,582 0,480,000 4.350%, 06/01/2023 ................................... Aa2/NR 10,439,652 Portland, Oregon Community College District 3,015,000 5.125%, 06/01/2013 ................................... Aa2/AA 3,329,887 3,115,000 5.125%, 06/01/2016 ................................... Aa2/AA 3,389,930 2,350,000 5.000%, 06/01/2021 ................................... Aa2/AA 2,465,009 Portland, Oregon Community College District (Financial Guaranty Insurance Corporation Insured) 1,395,000 5.000%, 06/01/2017 ................................... Aaa/AAA 1,488,326 Salem-Keizer Oregon School District #24J (Financial Security Assurance Insured) 1,000,000 4.875%, 06/01/2014 ................................... Aaa/AAA 1,064,780 3,000,000 5.000%, 06/15/2016 ................................... Aaa/AAA 3,312,540
Southwestern Oregon Community College District (MBIA Corporation Insured) $ 1,120,000 6.000%, 06/01/2025 ................................... Aaa/AAA $ 1,299,222 Tillamook County, Oregon School District #9 (Financial Security Assurance Insured) 3,000,000 5.250%, 06/15/2022 ................................... Aaa/AAA 3,244,020 Tualatin Hills Park and Recreation District, Oregon (MBIA Corporation Insured) 2,470,000 5.750%, 03/01/2012 ................................... Aaa/AAA 2,513,571 2,000,000 5.750%, 03/01/2015 ................................... Aaa/AAA 2,034,860 Umatilla County, Oregon (Financial Guaranty Insurance Corporation Insured) 2,000,000 5.600%, 10/01/2015 ................................... Aaa/AAA 2,147,820 Umatilla County, Oregon School District #8R (Hermiston) (AMBAC Indemnity Corporation Insured) 700,000 6.100%, 12/01/2012 ................................... Aaa/AAA 705,355 Umatilla County, Oregon School District #16R (Pendleton) (Financial Guaranty Insurance Corporation Insured) 1,550,000 5.500%, 07/01/2012 ................................... Aaa/NR 1,789,150 Wasco County, Oregon School District #12 (The Dalles) (Financial Security Assurance Insured) 1,135,000 6.000%, 06/15/2015 ................................... Aaa/AAA 1,317,769 1,400,000 5.500%, 06/15/2017 ................................... Aaa/AAA 1,637,846 1,790,000 5.500%, 06/15/2020 ................................... Aaa/AAA 2,102,910 Washington County, Oregon 1,000,000 5.000%, 06/01/2017 ................................... Aa2/NR 1,067,510 Washington County, Oregon School District #15 (Forest Grove) (Financial Security Assurance Insured) 2,285,000 5.375%, 06/15/2014 ................................... Aaa/NR 2,554,493 1,760,000 5.375%, 06/15/2016 ................................... Aaa/NR 1,954,216 2,000,000 5.000%, 06/15/2021 ................................... Aaa/NR 2,100,740 Washington County, Oregon School District #48J (Beaverton) 1,175,000 5.500%, 06/01/2006 ................................... Aa2/AA- 1,181,603 1,130,000 5.600%, 06/01/2007 ................................... Aa2/AA- 1,136,814
Washington County, Oregon School District #48J (Beaverton) (continued) $ 1,000,000 6.150%, 06/01/2008 ................................... Aa2/AA- $ 1,006,880 1,415,000 5.700%, 06/01/2008 ................................... Aa2/AA- 1,423,759 1,440,000 6.000%, 06/01/2011 ................................... Aa2/AA- 1,449,576 2,000,000 5.125%, 01/01/2015 ................................... Aa2/AA- 2,158,520 1,620,000 5.125%, 01/01/2016 ................................... Aa2/AA- 1,750,280 Washington County, Oregon School District #48J (Beaverton) (Financial Guaranty Insurance Corporation Insured) 2,800,000 5.375%, 06/01/2019 ................................... Aaa/AAA 3,021,116 Washington and Clackamas Counties, Oregon School District #23 (Tigard) (MBIA Corporation Insured) 4,700,000 5.375%, 06/15/2014 ................................... Aaa/NR 5,326,980 2,500,000 5.375%, 06/15/2020 ................................... Aaa/NR 2,758,675 Washington and Clackamas Counties, Oregon School District #23J (Tigard) 1,000,000 5.650%, 06/01/2015 ................................... Aa3/NR 1,063,510 Washington, Clackamas, and Yamhill County, Oregon School District #88JT (Sherwood) (Financial Security Assurance Insured) 2,315,000 6.100%, 06/01/2012 ................................... Aaa/AAA 2,383,848 585,000 6.100%, 06/01/2012 ................................... Aaa/AAA 602,398 2,055,000 5.125%, 06/15/2012 ................................... Aaa/NR 2,256,041 Washington, Multnomah and Yamhill County, Oregon School District #1J (Hillsboro) 1,295,000 5.250%, 06/01/2013 ................................... Aa3/NR 1,425,407 Washington and Yamhill, Oregon County School District #58J (Farmington View) (AMBAC Indemnity Corporation Insured) 70,000 6.600%, 11/01/2004 ................................... Aaa/AAA 70,250 80,000 6.600%, 11/01/2005 ................................... Aaa/AAA 80,287 90,000 6.600%, 11/01/2006 ................................... Aaa/AAA 90,329
Yamhill County, Oregon School District #29J (Newberg) (Financial Security Assurance Insured) $ 2,000,000 5.350%, 06/01/2006 ................................... Aaa/AAA $ 2,011,460 Yamhill County, Oregon School District #29J (Newberg) (MBIA Corporation Insured) 2,850,000 5.250%, 06/15/2017 ................................... Aaa/NR 3,153,354 3,765,000 5.250%, 06/15/2020 ................................... Aaa/NR 4,110,288 ------------ Total General Obligation Bonds ............................. 255,471,796 ------------ STATE OF OREGON REVENUE BONDS - 39.4% AIRPORT REVENUE BONDS - 0.7% Port of Portland, Oregon Airport (AMBAC Indemnity Corporation Insured) 3,000,000 5.500%, 07/01/2024 ................................... Aaa/AAA 3,219,870 ------------ CERTIFICATES OF PARTICIPATION REVENUE BONDS - 4.9% Oregon State Department of Administration Services (AMBAC Indemnity Corporation Insured) 500,000 5.375%, 05/01/2014 ................................... Aaa/AAA 562,030 950,000 5.000%, 11/01/2019 ................................... Aaa/AAA 996,275 1,120,000 5.000%, 05/01/2021 ................................... Aaa/AAA 1,182,776 1,500,000 5.800%, 05/01/2024 ................................... Aaa/AAA 1,658,040 4,095,000 6.000%, 05/01/2026 ................................... Aaa/AAA 4,776,326 Oregon State Department of Administrative Services (Financial Security Assurance Insured) 1,300,000 5.500%, 11/01/2012 ................................... Aaa/AAA 1,503,190 1,135,000 5.000%, 05/01/2015 ................................... Aaa/AAA 1,250,395 Oregon State Department of Administration Services (MBIA Corporation Insured) 2,000,000 5.250%, 05/01/2011 ................................... Aaa/AAA 2,260,200 1,530,000 5.375%, 11/01/2016 ................................... Aaa/AAA 1,605,001 4,250,000 5.500%, 11/01/2020 ................................... Aaa/AAA 4,463,945 Washington County, Oregon Educational Services 645,000 5.625%, 06/01/2016 ................................... A1/NR 656,604
Washington County, Oregon Educational Services (MBIA Corporation Insured) $ 830,000 5.750%, 06/01/2025 ................................... Aaa/AAA $ 851,248 ------------ Total Certificates of Participation Revenue Bonds .......... 21,766,030 ------------ HOSPITAL REVENUE BONDS - 8.1% Clackamas County, Oregon Hospital Facilities Authority (Legacy Health System) 2,000,000 5.250%, 02/15/2017 ................................... Aa3/AA 2,121,300 2,980,000 5.250%, 02/15/2018 ................................... Aa3/AA 3,132,427 Clackamas County, Oregon Hospital Facilities Authority (Legacy Health System) (MBIA Corporation Insured) 2,650,000 4.750%, 02/15/2011 ................................... Aaa/AAA 2,856,170 Clackamas County, Oregon Hospital Facilities Authority (Legacy Health System) 4,000,000 5.250%, 05/01/2021 ................................... Aa3/AA 4,169,720 Clackamas County, Oregon Hospital Facilities Authority (Mary's Woods) 3,480,000 6.625%, 05/15/2029 ................................... NR/NR* 3,623,898 Deschutes County, Oregon Hospital Facilities Authority (Cascade Health) 2,000,000 5.600%, 01/01/2027 ................................... A1/NR 2,086,760 3,000,000 5.600%, 01/01/2032 ................................... A1/NR 3,126,450 Douglas County, Oregon Hospital Facilities Authority (Catholic Health) (MBIA Corporation Insured) 535,000 5.600%, 11/15/2005 ................................... Aaa/AAA 547,958 Medford, Oregon Hospital Authority (Asante Health Systems) (MBIA Corporation Insured) 1,050,000 5.000%, 08/15/2018 ................................... Aaa/AAA 1,096,389 Multnomah County Oregon Hospital Facility Authority (Providence Health System) 2,390,000 5.250%, 10/01/2022 ................................... Aa3/AA 2,517,196
State of Oregon Health Housing Educational and Cultural Facilities Authority (Peacehealth) (AMBAC Indemnity Corporation Insured) $ 2,300,000 5.250%, 11/15/2017 ................................... Aaa/AAA $ 2,516,085 1,850,000 5.000%, 11/15/2026 ................................... Aaa/AAA 1,900,801 1,430,000 5.000%, 11/15/2032 ................................... Aaa/AAA 1,451,836 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 1,024,780 3,885,000 5.750%, 08/01/2019 ................................... Aaa/AAA 3,981,698 ------------ Total Hospital Revenue Bonds ............................... 36,153,468 ------------ HOUSING, EDUCATIONAL, AND CULTURAL REVENUE BONDS - 5.0% Clackamas Community College District, Oregon (MBIA Corporation Insured) 1,865,000 5.700%, 06/01/2016 ................................... Aaa/AAA 1,984,957 Multnomah County, Oregon Educational Facility (University of Portland) 1,000,000 6.000%, 04/01/2020 ................................... NR/BBB+ 1,079,790 Oregon Health Sciences University, Oregon (MBIA Corporation Insured) 4,500,000 5.250%, 07/01/2015 ................................... Aaa/AAA 4,829,850 11,550,000 zero coupon, 07/01/2021 .............................. Aaa/AAA 5,263,912 3,000,000 5.250%, 07/01/2022 ................................... Aaa/AAA 3,236,790 State of Oregon Housing and Community Services 65,000 5.900%, 07/01/2012 ................................... Aa2/NR 67,637 305,000 6.700%, 07/01/2013 ................................... Aa2/NR 305,314 670,000 6.000%, 07/01/2020 ................................... Aa2/NR 705,209 1,510,000 5.400%, 07/01/2027 ................................... Aa2/NR 1,553,639 State of Oregon Housing and Community Services (MBIA Corporation Insured) 1,500,000 5.450%, 07/01/2024 ................................... Aaa/AAA 1,507,530
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- $ 1,050,860 State of Oregon Housing Finance Authority 870,000 6.800%, 07/01/2013 ................................... Aa2/A+ 871,053 ------------ Total Housing, Educational, and Cultural Revenue Bonds .......................................... 22,456,541 ------------ TRANSPORTATION REVENUE BONDS - 4.7% Oregon St. Department Transportation Highway Usertax 1,000,000 5.500%, 11/15/2014 ................................... Aa1/AA+ 1,156,940 2,000,000 5.500%, 11/15/2016 ................................... Aa1/AA+ 2,313,880 3,025,000 5.500%, 11/15/2018 ................................... Aa1/AA+ 3,499,743 2,555,000 5.375%, 11/15/2018 ................................... Aa1/AA+ 2,813,464 4,545,000 5.125%, 11/15/2026 ................................... Aa1/AA+ 4,748,616 Tri-County Metropolitan Transportation District, Oregon 1,440,000 5.750%, 08/01/2016 ................................... Aa3/AA+ 1,632,758 1,775,000 5.000%, 09/01/2016 ................................... Aa3/AA+ 1,929,638 Tri-County Metropolitan Transportation District, Oregon (LOC: Morgan Guaranty Trust) 2,500,000 5.400%, 06/01/2019 ................................... NR/AA- 2,613,725 ------------ Total Transportation Revenue Bonds ......................... 20,708,764 ------------ URBAN RENEWAL REVENUE BONDS - 2.5% Portland, Oregon Airport Way Renewal and Redevelopment (AMBAC Indemnity Corporation Insured) 1,640,000 6.000%, 06/15/2014 ................................... Aaa/NR 1,879,850 1,765,000 5.750%, 06/15/2020 ................................... Aaa/NR 1,992,561 Portland, Oregon River District Urban Renewal and Redevelopment (AMBAC Indemnity Corporation Insured) 1,420,000 5.000%, 06/15/2016 ................................... Aaa/NR 1,554,999 1,915,000 5.000%, 06/15/2020 ................................... Aaa/NR 2,045,641
Portland, Oregon Urban Renewal Tax Allocation (AMBAC Indemnity Corporation Insured) (Convention Center) $ 1,150,000 5.750%, 06/15/2018 ................................... Aaa/NR $ 1,303,376 2,000,000 5.450%, 06/15/2019 ................................... Aaa/NR 2,216,080 ------------ Total Urban Renewal Revenue Bonds .......................... 10,992,507 ------------ UTILITY REVENUE BONDS - 1.6% Emerald Peoples Utility District, Oregon (Financial Security Assurance Insured) 5.250%, 11/01/2022 ................................... Aaa/NR 1,579,504 1,455,000 Eugene, Oregon Electric Utility (Financial Security Assurance Insured) 5.250%, 08/01/2014 ................................... Aaa/AAA 1,179,133 1,060,000 5.000%, 08/01/2018 ................................... Aaa/AAA 1,695,664 1,600,000 Eugene, Oregon Trojan Nuclear Project 5.900%, 09/01/2009 ................................... Aaa/AA- 1,451,990 1,425,000 Northern Wasco County, Oregon Public Utility Development (Financial Guaranty Insurance Corporation Insured) 5.625%, 12/01/2022 ................................... Aaa/AAA 1,051,540 1,000,000 ------------ Total Utility Revenue Bonds ................................ 6,957,831 ------------ WATER AND SEWER REVENUE BONDS - 10.3% Bend, Oregon Sewer Revenue (AMBAC Indemnity Corporation Insured) 1,130,000 5.150%, 10/01/2014 ................................... Aaa/NR 1,244,695 Klamath Falls, Oregon Water (Financial Security Assurance Insured) 1,575,000 5.500%, 07/01/2016 ................................... Aaa/AAA 1,841,238 Klamath, Oregon Wastewater (AMBAC Indemnity Corporation Insured) 1,545,000 5.650%, 06/01/2020 ................................... Aaa/AAA 1,718,210
Lebanon, Oregon Wastewater (Financial Security Assurance Insured) $ 1,000,000 5.700%, 03/01/2020 ................................... Aaa/AAA $ 1,114,230 Portland, Oregon Sewer System (Financial Guaranty Insurance Corporation Insured) 2,900,000 5.750%, 08/01/2019 ................................... Aaa/AAA 3,281,611 Portland, Oregon Sewer System (Financial Security Assurance Insured) 2,760,000 5.250%, 06/01/2017 ................................... Aaa/AAA 3,074,254 3,470,000 5.000%, 06/01/2021 ................................... Aaa/AAA 3,687,638 Portland, Oregon Sewer System (MBIA Corporation Insured) 2,500,000 5.250%, 06/01/2016 ................................... Aaa/AAA 2,629,500 Portland, Oregon Water System 7,420,000 5.500%, 08/01/2019 ................................... Aa1/NR 8,191,086 1,235,000 5.500%, 08/01/2020 ................................... Aa1/NR 1,360,600 Salem Oregon Water and Sewer (Financial Security Assurance Insured) 1,000,000 5.375%, 06/01/2015 ................................... Aaa/AAA 1,154,930 1,970,000 5.375%, 06/01/2016 ................................... Aaa/AAA 2,151,614 3,025,000 5.500%, 06/01/2020 ................................... Aaa/AAA 3,324,687 Sunrise Water Authority, Oregon (Financial Security Assurance Insured) 1,630,000 5.000%, 03/01/2019 ................................... Aaa/AAA 1,767,311 1,350,000 5.250%, 03/01/2024 ................................... Aaa/AAA 1,450,467 Washington County, Oregon Clean Water Services (Financial Guaranty Insurance Corporation Insured) 995,000 5.000%, 10/01/2013 ................................... Aaa/AAA 1,095,236 3,525,000 5.125%, 10/01/2017 ................................... Aaa/AAA 3,809,291 Washington County, Oregon Clean Water Services (MBIA Corporation Insured) 2,235,000 5.250%, 10/01/2015 ................................... Aaa/AAA 2,565,065 Washington County, Unified Sewer Agency (AMBAC Indemnity Corporation Insured) 315,000 5.900%, 10/01/2006 ................................... Aaa/AAA 316,452 ------------ Total Water and Sewer Revenue Bonds ........................ 45,778,115 ------------
OTHER REVENUE BONDS - 1.6% Baker County, Oregon Pollution Control (Ash Grove Cement West Project) (Small Business Administration Insured) 6.300%, 07/01/2005 ................................... Aaa/NR $ 384,207 $ 380,000 Multnomah County, Oregon School District #1J, Special Obligations 5.000%, 03/01/2007 ................................... A2/A- 1,012,930 1,000,000 Oregon State Department of Administration Services (Lottery Revenue) (Financial Security Assurance Insured) 5.750%, 04/01/2014 ................................... Aaa/AAA 2,289,520 2,000,000 5.000%, 04/01/2019 ................................... Aaa/AAA 3,290,557 3,040,000 ------------ Total Other Revenue Bonds .................................. 6,977,214 ------------ Total State of Oregon Revenue Bonds ........................ 175,010,340 ------------ U.S. TERRITORY - 1.3% Puerto Rico Municipal Finance Agency (Financial Security Assurance Insured) 5.250%, 8/01/2016 .................................... Aaa/AAA 556,865 500,000 5.250%, 8/01/2020 .................................... Aaa/AAA 5,436,950 5,000,000 ------------ Total U.S. Territory Bonds ................................. 5,993,815 ------------ Total Municipal Bonds (cost $410,261,293**) ................ 98.1% 436,475,951 Other assets less liabilities .............................. 1.9 8,657,748 ----- ------------ Net Assets ................................................. 100.0% $445,133,699 ===== ============
(*) Any security not rated (NR) by either rating service 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 note 4. PORTFOLIO ABBREVIATIONS: ------------------------ AMBAC - American Municipal Bond Assurance Corp. LOC - Letter of Credit MBIA - Municipal Bond Investors Assurance NR - Not Rated See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 ASSETS Investments at value (cost $410,261,293) ......................................... $436,475,951 Cash ............................................................................. 5,459,940 Interest receivable .............................................................. 6,068,434 Receivable for Trust shares sold ................................................. 598,364 Receivable for investment securities sold ........................................ 70,000 Other Assets ..................................................................... 20,402 ------------ Total assets ..................................................................... 448,693,091 ------------ LIABILITIES Payable for investment securities purchased ........................................ 2,591,099 Dividends payable .................................................................. 324,376 Payable for Trust shares redeemed .................................................. 272,511 Distribution and service fees payable .............................................. 158,809 Management fees payable ............................................................ 144,535 Accrued expenses ................................................................... 68,062 ------------ Total liabilities .................................................................. 3,559,392 ------------ NET ASSETS ............................................................................. $445,133,699 ============ Net Assets consist of: Capital Stock = Authorized an unlimited number of shares, par value $.01 per share . $ 404,357 Additional paid=in capital ......................................................... 417,639,162 Net unrealized appreciation on investments (note 4) ................................ 26,214,658 Undistributed net investment income ................................................ 670,167 Accumulated net realized gain on investments ....................................... 205,355 ------------ $445,133,699 ============ CLASS A Net Assets ......................................................................... $366,700,228 ============ Capital shares outstanding ......................................................... 33,306,315 ============ Net asset value and redemption price per share ..................................... $ 11.01 ============ Offering price per share (100/96 of $11.01 adjusted to nearest cent) ............... $ 11.47 ============ CLASS C Net Assets ......................................................................... $ 41,449,974 ============ Capital shares outstanding ......................................................... 3,768,069 ============ Net asset value and offering price per share ....................................... $ 11.00 ============ 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) ...................................... $ 11.00* ============ CLASS Y Net Assets ......................................................................... $ 36,983,497 ============ Capital shares outstanding ......................................................... 3,361,278 ============ Net asset value, offering and redemption price per share ........................... $ 11.00 ============
See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004
INVESTMENT INCOME: Interest income ...................................... $20,856,703 Management fees (note 3) ............................. $ 1,764,876 Distribution and service fees (note 3) ............... 970,602 Transfer and shareholder servicing agent fees ........ 235,998 Trustees' fees and expenses (note 8) ................. 143,862 Shareholders' reports and proxy statements ........... 87,116 Legal fees ........................................... 82,970 Registration fees and dues ........................... 39,732 Custodian fees ....................................... 30,556 Auditing and tax fees ................................ 26,750 Insurance ............................................ 24,806 Miscellaneous ........................................ 60,212 ----------- 3,467,480 Expenses paid indirectly (note 6) .................... (15,234) ----------- Net expenses ......................................... 3,452,246 ----------- Net investment income ................................ 17,404,457 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from securities transactions 208,027 Change in unrealized appreciation on investments ..... (1,163,128) ----------- Net realized and unrealized gain (loss) on investments (955,101) ----------- Net change in net assets resulting from operations ... $16,449,356 ===========
See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 ------------------ ------------------ OPERATIONS: Net investment income ................................. $ 17,404,457 $ 16,966,997 Net realized gain (loss) from securities transactions . 208,027 811,685 Change in unrealized appreciation on investments ...... (1,163,128) (2,884,993) ------------- ------------- Change in net assets resulting from operations ..... 16,449,356 14,893,689 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 10): Class A Shares: Net investment income ................................. (14,426,316) (14,363,419) Net realized gain on investments ...................... (664,014) (695,373) Class C Shares: Net investment income ................................. (1,347,210) (1,129,376) Net realized gain on investments ...................... (79,319) (59,624) Class Y Shares: Net investment income ................................. (1,532,285) (1,405,437) Net realized gain on investments ...................... (68,645) (65,668) ------------- ------------- Change in net assets from distributions ............ (18,117,789) (17,718,897) ------------- ------------- CAPITAL SHARE TRANSACTIONS (NOTE 7): Proceeds from shares sold ............................. 62,381,661 83,776,003 Reinvested dividends and distributions ................ 11,823,400 11,642,913 Cost of shares redeemed ............................... (68,900,799) (53,577,493) ------------- ------------- Change in net assets from capital share transactions 5,304,262 41,841,423 ------------- ------------- Change in net assets ............................... 3,635,829 39,016,215 NET ASSETS: Beginning of period ................................... 441,497,870 402,481,655 ------------- ------------- End of period* ........................................ $ 445,133,699 $ 441,497,870 ============= ============= * Includes undistributed net investment income of: $ 670,167 $ 571,521 ============= =============
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 distribution 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. As of the report date, 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 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. If market quotations or a valuation from the pricing service is not readily available, the security is valued 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 is 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 exceeds 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) MULTIPLE CLASS ALLOCATION: All income, expenses (other than class-specific expenses), and unrealized gains or losses 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. 3. FEES AND RELATED PARTY TRANSACTIONS a) MANAGEMENT ARRANGEMENTS: Aquila Investment Management LLC (the "Manager"), a wholly-owned subsidiary of Aquila Management Corporation, 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. (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, 2004, service fees on Class A Shares amounted to $542,073, of which the Distributor retained $23,353. 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, 2004, amounted to $321,397. 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, 2004, amounted to $107,132. The total of these payments made with respect to Class C Shares amounted to $428,529, of which the Distributor retained $63,280. 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, 2004, total commissions on sales of Class A Shares amounted to $808,995 of which the Distributor received $149,424. c) OTHER RELATED PARTY TRANSACTIONS For the year ended September 30, 2004 the Trust incurred $80,720 of legal fees allocable to Hollyer Brady Barrett & Hines LLP, counsel to the Trust for legal services in conjunction with the Trust's ongoing operations. The Secretary of the Trust is a Partner of Hollyer Brady Barrett & Hines LLP. 4. PURCHASES AND SALES OF SECURITIES During the year ended September 30, 2004, purchases of securities and proceeds from the sales of securities aggregated $53,759,505 and $46,207,790, respectively. At September 30, 2004, aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost amounted to $26,698,549, and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $25,102 for a net unrealized appreciation of $26,673,447. The tax cost of the Trust's securities at September 30, 2004 equals $409,802,504. 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. 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. 6. 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. 7. CAPITAL SHARE TRANSACTIONS Transactions in Capital Shares of the Trust were as follows:
YEAR ENDED YEAR ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ CLASS A SHARES: Proceeds from shares sold .. 3,946,407 $ 43,343,332 4,290,731 $ 47,160,565 Reinvested dividends and distributions ........... 879,237 9,635,093 881,039 9,639,480 Cost of shares redeemed .... (4,179,993) (45,568,099) (3,581,928) (39,235,022) ---------- ------------ ---------- ------------ Net change .............. 645,651 7,410,326 1,589,842 17,565,023 ---------- ------------ ---------- ------------ CLASS C SHARES: Proceeds from shares sold .. 822,764 9,020,563 2,166,804 23,820,080 Reinvested dividends and distributions ........... 86,491 947,193 71,346 780,271 Cost of shares redeemed .... (1,118,216) (12,179,517) (588,665) (6,451,056) ---------- ------------ ---------- ------------ Net change .............. (208,961) (2,211,761) 1,649,485 18,149,295 ---------- ------------ ---------- ------------ CLASS Y SHARES: Proceeds from shares sold .. 909,277 10,017,766 1,167,839 12,795,358 Reinvested dividends and distributions ........... 113,375 1,241,114 111,651 1,223,162 Cost of shares redeemed .... (1,023,583) (11,153,183) (722,204) (7,891,415) ---------- ------------ ---------- ------------ Net change .............. (931) 105,697 557,286 6,127,105 ---------- ------------ ---------- ------------ Total transactions in Trust shares ..................... 435,759 $ 5,304,262 3,796,613 $ 41,841,423 ========== ============ ========== ============
8. TRUSTEES' FEES AND EXPENSES During the fiscal year ended September 30, 2004 there were eleven Trustees, two of whom are affiliated with the Manager and are not paid any trustee fees. Each Trustee's fee paid during the year averaged approximately $10,050 for carrying out 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 covers Trustees' 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, 2004 such meeting-related expenses averaged approximately $5,925 per Trustee. 9. 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. On the date the Trust enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value 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. 10. INCOME TAX INFORMATION AND 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. Further, a portion of the dividends may, under some circumstances, be subject to taxes at ordinary income and/or capital gain rates. The tax character of distributions: YEAR ENDED SEPTEMBER 30, 2004 2003 ----------- ----------- Net tax-exempt income $17,297,515 $16,869,800 Ordinary income 8,296 28,432 Capital gain 811,978 820,665 ----------- ----------- $18,117,789 $17,718,897 =========== =========== As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Accumulated net realized long term capital gain $ 207,730 Unrealized appreciation 26,673,447 Undistributed tax-exempt income 533,377 ----------- $27,414,554 =========== The difference between book basis and tax basis unrealized appreciation is attributable primarily to wash sales and premium/discount adjustments. TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A ------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------------------------------- 2004 2003 2002 2001 2000 Net asset value, beginning of period .......... $ 11.04 $ 11.12 $ 10.72 $ 10.29 $ 10.27 ------- ------- ------- ------- ------- Income (loss) from investment operations: Net investment income + ................... 0.44 0.45 0.48 0.49 0.50 Net gain (loss) on securities (both realized and unrealized) ............... (0.01) (0.06) 0.41 0.44 0.02 ------- ------- ------- ------- ------- Total from investment operations .......... 0.43 0.39 0.89 0.93 0.52 ------- ------- ------- ------- ------- Less distributions (note 10): Dividends from net investment income ...... (0.44) (0.45) (0.47) (0.49) (0.50) Distributions from capital gains .......... (0.02) (0.02) (0.02) (0.01) -- ------- ------- ------- ------- ------- Total distributions ....................... (0.46) (0.47) (0.49) (0.50) (0.50) ------- ------- ------- ------- ------- Net asset value, end of period ................ $ 11.01 $ 11.04 $ 11.12 $ 10.72 $ 10.29 ======= ======= ======= ======= ======= Total return (not reflecting sales charge) .... 3.97% 3.65% 8.59% 9.18% 5.26% Ratios/supplemental data Net assets, end of period (in millions) ... $ 367 $ 361 $ 345 $ 309 $ 289 Ratio of expenses to average net assets ... 0.72% 0.71% 0.71% 0.72% 0.71% Ratio of net investment income to average net assets ............................. 4.02% 4.11% 4.45% 4.62% 4.93% Portfolio turnover rate ................... 11% 12% 11% 17% 20% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets ....... 0.71% 0.70% 0.69% 0.70% 0.70%
----------- + Per share amounts have been calculated using the monthly average shares method. See accompanying notes to financial statements. FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C CLASS Y ------------------------------------------ ------------------------------------------ YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, ------------------------------------------ ------------------------------------------ 2004 2003 2002 2001 2000 2004 2003 2002 2001 2000 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net asset value, beginning of period ..... $11.03 $11.11 $10.71 $10.28 $10.27 $11.03 $11.11 $10.72 $10.28 $10.27 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income + ................ 0.35 0.36 0.38 0.39 0.41 0.46 0.47 0.49 0.50 0.52 Net gain (loss) on securities (both realized and unrealized) ............ (0.02) (0.06) 0.42 0.45 0.02 (0.02) (0.06) 0.41 0.45 0.01 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from investment operations ....... 0.33 0.30 0.80 0.84 0.43 0.44 0.41 0.90 0.95 0.53 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Less distributions (note 10): Dividends from net investment income ... (0.34) (0.36) (0.38) (0.40) (0.42) (0.45) (0.47) (0.49) (0.50) (0.52) Distributions from capital gains ....... (0.02) (0.02) (0.02) (0.01) -- (0.02) (0.02) (0.02) (0.01) -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total distributions .................... (0.36) (0.38) (0.40) (0.41) (0.42) (0.47) (0.49) (0.51) (0.51) (0.52) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net asset value, end of period ........... $11.00 $11.03 $11.11 $10.71 $10.28 $11.00 $11.03 $11.11 $10.72 $10.28 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Total return (not reflecting sales charge) 3.09% 2.77% 7.67% 8.26% 4.27% 4.13% 3.80% 8.65% 9.45% 5.32% Ratios/supplemental data Net assets, end of period (in millions) $ 41.4 $ 43.9 $ 25.9 $ 12.7 $ 5.8 $ 37.0 $ 37.1 $ 31.2 $ 23.8 $ 20.5 Ratio of expenses to average net assets 1.57% 1.55% 1.55% 1.56% 1.55% 0.57% 0.56% 0.56% 0.57% 0.56% Ratio of net investment income to average net assets .................. 3.17% 3.22% 3.56% 3.70% 4.03% 4.17% 4.26% 4.59% 4.76% 5.08% Portfolio turnover rate ................ 11% 12% 11% 17% 20% 11% 12% 11% 17% 20% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets 1.56% 1.54% 1.54% 1.54% 1.54% 0.56% 0.55% 0.54% 0.55% 0.54%
----------- + Per share amounts have been calculated using the monthly average shares method. See accompanying notes to financial statements. ADDITIONAL INFORMATION (UNAUDITED) INFORMATION ABOUT TRUSTEES AND OFFICERS
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) ----------------- ------- ------------------- ---------- ---------------------- INTERESTED TRUSTEES(4) Lacy B. Herrmann Founder and Founder and Chairman of the 7 Director or trustee, Pimco New York, NY Chairman of Board, Aquila Management Advisors VIT, Oppenheimer Quest (05/12/29) the Board of Corporation, the sponsoring Value Funds Group, Oppenheimer Trustees organization and parent of the Small Cap Value Fund, since 1985 Manager or Administrator and/or Oppenheimer Midcap Fund, and Adviser or Sub-Adviser to each Oppenheimer Rochester Group of fund of the Aquila(sm) Group of Funds. Funds,(6) Chairman of the Manager or Administrator and/or Adviser or Sub-Adviser to each since 2004, and Founder, Chairman of the Board of Trustees, Trustee and (currently or until 1998) President of each since its establishment, beginning in 1984, except Chairman of the Board of Trustees of Hawaiian Tax-Free Trust, Pacific Capital Cash Assets Trust, Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital U.S. Government Securities Cash Assets Trust through 2003, Trustee until 2004 and Chairman of the Board, Emeritus since 2004; Director of the Distributor since 1981 and formerly Vice President or Secretary, 1981-1998; Trustee Emeritus, Brown University and the Hopkins School; active in university, school and charitable organizations.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) ----------------- ------- ------------------- ---------- ---------------------- Diana P. Herrmann Trustee since Vice Chair and Chief Executive 10 None New York, NY 1994, President Officer of Aquila Management (02/25/58) since 1998, Corporation, Founder of the and Vice Chair Aquila(sm) Group of Funds and of the Board parent of Aquila Investment since 2003 Management LLC, Manager since 2004, President and Chief Operating Officer since 1997, a Director since 1984, Secretary since 1986 and previously its Executive Vice President, Senior Vice President or Vice President, 1986-1997; Chief Executive Officer and Vice Chair since 2004 and President, Chief Operating Officer and Manager of the Manager since 2003; Vice Chair, President, Executive Vice President or Senior 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; Governor, Investment Company Institute (2004) and head of its Small Funds Committee since 2004; active in charitable and volunteer organizations. Raymond H. Lung Trustee since Retired; trustee, Qualivest 1 None Portland, OR 1992 Group of Funds, 1994-1997; (12/24/26) former Executive Vice President 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 Principal of M & H Economic 1 None Portland, OR 1999 Consultants; Economist, Western (07/13/44) Region, for U. S. Bancorp 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.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) ----------------- ------- ------------------- ---------- ---------------------- NON-INTERESTED TRUSTEES Trustee since Director, Romney Institute of 4 None 2002 Public Management, Marriott Gary C. Cornia School of Management, Brigham Orem, UT Young University, 2004 - (06/24/48) present; Professor, Marriott School of Management, 1980 - present; Past President, the National Tax Association; Chair of the Executive Committee, the International Center for Land Policy Studies and Training Institute, Taipei, Taiwan; formerly Senior Visiting Fellow, Lincoln Institute of Land Policy, 2002-2003; Associate Dean, Marriott School of Management, Brigham Young University, 1991-2000; Chair, Utah Governor's Tax Review Committee, 1993-2002; member, Governor's Tax Review Committee since 2003; Faculty Associate, the Land Reform Training Institute, Taipei, Taiwan and The Lincoln Institute of Land Policy, Cambridge, Massachusetts. James A. Gardner Trustee since President, Gardner Associates, 1 None Terrebonne, OR 1986 an investment and real estate (07/06/43) firm, since 1989; Partner, the Canyons Ranch, a real estate firm, since 1991; President Emeritus, Lewis and Clark College and Law School; director, Oregon High Desert Museum since 1989, Vice Chairman since 2002; active in civic, business, educational and church organizations in Oregon. Edmund P. Jensen Trustee since President and CEO, VISA 1 BMG-Seltec, a Portland, OR 2003 International, 1994-1999; software company (4/13/37) director: Phoenix Technologies, a Tech/BIOS company, 2000 - present; Corillian Corp., a banking software company, 2000 - 2002; Trintech, a payment software company, 1999 - 2002.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) ----------------- ------- ------------------- ---------- ---------------------- Patricia L. Moss Trustee since President and Chief Executive 1 Cascade Bancorp and Bank of Bend, OR 2002 Officer, Cascade Bancorp & Bank the Cascades; MDU Resources (07/23/53) of the Cascades since 1998, and Group Inc. Executive Vice President & director, Chief Financial Officer, Chief Operating Officer, 1987-1998; active in community and educational organizations. Ralph R. Shaw Trustee since President, Shaw Management 1 Schnitzer Steel Industries, Portland, OR 2000 Company, an investment Inc., Magni Systems, Inc., (08/23/38) counseling firm, since 1980, Severon Corporation (formerly General Partner, Shaw Venture Micromonitors, Inc.), Integra Partners since 1983, Shaw Telecom, Inc. (formerly OGIT Venture Partners II since 1987 Communications, Inc.), LaTIS, and Shaw Venture Partners III Inc., Telestream, Inc., BMG since 1994 (US Bancorp, parent Seltec Corp. of the Sub-Adviser, is a limited partner in the last three ventures). Nancy Wilgenbusch Trustee since President, Marylhurst 1 Chair, Oregon Regional Advisory Marylhurst, OR 2002 University since 1984; member, Board for PacifiCorp; West (09/17/47) Ethics Committee of the Coast Bank's Board; director, American Institute of Certified Cascade Corporation, a leading Public Accountants; former international manufacturer of Chair, Portland Branch of the lift truck attachments. Federal Reserve Bank of San Francisco; active board member of a number of civic organizations. OFFICERS Charles E. Childs, III Executive Vice Executive Vice President of all N/A N/A New York, NY President since funds in the Aquila(sm) Group of (04/01/57) 2003 Funds and the Manager since 2003; Senior Vice President, corporate development, formerly Vice President, Assistant Vice President and Associate of the Manager's parent since 1987; Senior Vice President, Vice President or Assistant Vice President of the Aquila Money-Market Funds, 1988-2003.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) ----------------- ------- ------------------- ---------- ---------------------- James M. McCullough Senior Vice Senior Vice President or Vice N/A N/A Portland, OR (06/11/45) President President of Aquila Rocky since 1999 Mountain Equity Fund and four Aquila Bond Funds; Senior Vice President of the Distributor since 2000; Director of Fixed Income Institutional Sales, CIBC Oppenheimer & Co. Inc., Seattle, WA, 1995-1999. Jerry G. McGrew Senior Vice President of the Distributor N/A N/A New York, NY President since 1998, Registered (06/18/44) since 2002 Principal since 1993, Senior Vice President, 1997-1998 and Vice President, 1993-1997; Senior Vice President, Aquila Rocky Mountain Equity Fund and five Aquila Bond Funds since 1995; Vice President, Churchill Cash Reserves Trust, 1995-2001. Sally J. Church Vice President Vice President, Tax-Free Trust N/A N/A Portland, OR since 2002 of Oregon since 2002 and (10/17/48) 1989-1997; retired, 1997-2002; Vice President of Aquila Cascadia Equity Fund, 1996-1997. Christine L. Neimeth Vice President Vice President of Aquila Rocky N/A N/A Portland, OR since 1998 Mountain Equity Fund and (02/10/64) Tax-Free Trust of Oregon; Management Information Systems consultant, Hillcrest Ski and Sport, 1997; Institutional Municipal Bond Salesperson, Pacific Crest Securities, 1996; active in college alumni and volunteer organizations. Robert W. Anderson Chief Compliance Chief Compliance Officer of the N/A N/A New York, NY Officer since Trust, the Manager and the (08/23/40) 2004 and Distributor since 2004, Assistant Compliance Officer of the Secretary Manager or its predecessor and since 2000 current parent since 1998 and Assistant Secretary of the Aquila(sm) Group of Funds since 2000; Consultant, The Wadsworth Group, 1995-1998. Joseph P. DiMaggio Chief Financial Chief Financial Officer of the N/A N/A New York, NY Officer since Aquila(sm) Group of Funds since (11/06/56) 2003 and 2003 and Treasurer since 2000; Treasurer Controller, Van Eck Global since 2000 Funds, 1993-2000.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) ----------------- ------- ------------------- ---------- ---------------------- Edward M. W. Hines Secretary Partner, Hollyer Brady Barrett N/A N/A New York, NY since 1985 & Hines LLP, legal counsel to (12/16/39) the Trust, since 1989; Secretary of the Aquila(sm) Group of Funds. John M. Herndon Assistant Assistant Secretary of the N/A N/A New York, NY Secretary Aquila(sm) Group of Funds since (12/17/39) since 1995 1995 and Vice President of the three Aquila Money-Market Funds since 1990; Vice President of the Manager or its predecessor and current parent since 1990. Lori A. Vindigni Assistant Assistant Treasurer of the N/A N/A New York, NY Treasurer Aquila(sm) Group of Funds since (11/02/66) since 2000 2000; Assistant Vice President of the Manager or its predecessor and current parent since 1998; Fund Accountant for the Aquila(sm) Group of Funds, 1995-1998. David B. Frohnmayer(7) Trustee President, University of Oregon N/A N/A Eugene, OR Emeritus since 1994; former Dean of the (07/09/40) since 2003 University of Oregon Law School and former Attorney General of the State of Oregon; Trustee, Tax-Free Trust of Oregon, 1997-2003.
-------------- (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) Does not include funds that are currently inactive. (5) Mr. Herrmann and Ms. Herrmann are interested persons of the Trust, as that term is defined in the 1940 Act, as officers of the Trust and through their affiliations with both the Manager and 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. (6) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S. Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash Assets 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 11 funds are called the "Aquila(sm) Group of Funds." (7) As of Decmeber 7, 2003, Mr. Frohnmayer ceased to be a Trustee of the Trust. A Trustee Emeritus may attend Trustee meetings but has no voting power. -------------------------------------------------------------------------------- ANALYSIS OF EXPENSES (UNAUDITED) As a shareholder of the Trust, you may incur two types of costs: (1) transaction costs, including front-end sales charges with respect to Class A shares or contingent deferred sales charges ("CDSC") with respect to Class C shares; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Trust expenses. The tables below are intended to help you understand your ongoing costs (in dollars) of investing in the Trust and to compare these costs with the ongoing costs of investing in other mutual funds. The tables below are based on an investment of $1,000 invested on April 1, 2004 and held for the six months ended September 30, 2004. ACTUAL EXPENSES This table provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled "Expenses Paid During the Period". FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2004 ACTUAL TOTAL RETURN BEGINNING ENDING EXPENSES WITHOUT ACCOUNT ACCOUNT PAID DURING SALES CHARGES(1) VALUE VALUE THE PERIOD(2) ------------------------------------------------------------------------------- Class A 1.37% $1,000.00 $1,013.70 $3.57 ------------------------------------------------------------------------------- Class C 0.95% $1,000.00 $1,009.50 $7.84 ------------------------------------------------------------------------------- Class Y 1.36% $1,000.00 $1,013.60 $2.82 ------------------------------------------------------------------------------- (1) ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF ANY, AT NET ASSET VALUE AND DOES NOT REFLECT THE DEDUCTION OF THE APPLICABLE SALES CHARGES WITH RESPECT TO CLASS A SHARES OR THE APPLICABLE CONTINGENT DEFERRED SALES CHARGES ("CDSC") WITH RESPECT TO CLASS C SHARES. TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL RETURN FOR THE YEAR. (2) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.71%, 1.56% AND 0.56% FOR THE TRUST'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Trust's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Trust and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Trust with the 5.00% hypothetical examples that appear in the shareholder reports of other mutual funds. Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, with respect to Class A shares. The example does not reflect the deduction of the applicable sales charges or contingent deferred sales charges ("CDSC") with respect to Class C shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transaction costs were included, your costs would have been higher. FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2004 HYPOTHETICAL ANNUALIZED BEGINNING ENDING EXPENSES TOTAL ACCOUNT ACCOUNT PAID DURING RETURN VALUE VALUE THE PERIOD(1) -------------------------------------------------------------------------------- Class A 5.00% $1,000.00 $1,021.45 $3.59 -------------------------------------------------------------------------------- Class C 5.00% $1,000.00 $1,017.20 $7.87 -------------------------------------------------------------------------------- Class Y 5.00% $1,000.00 $1,022.20 $2.83 -------------------------------------------------------------------------------- (1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.71%, 1.56% AND 0.56% FOR THE TRUST'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SHAREHOLDER MEETING RESULTS (UNAUDITED) The Annual Meeting of Shareholders of Tax-Free Trust of Oregon (the "Trust") was held on May 3, 2004. The holders of shares representing 84% 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 are presented below). 1. To elect Trustees. Number of Votes: TRUSTEE FOR WITHHELD ------- --- -------- Lacy B. Herrmann 33,504,181 270,074 Gary C. Cornia 33,522,791 251,463 James A. Gardner 33,521,187 253,068 Diana P. Herrmann 33,493,387 280,868 Edmund P. Jensen 33,537,998 236,257 Raymond H. Lung 33,527,705 246,550 John W. Mitchell 33,536,580 237,674 Patricia L. Moss 33,543,396 230,859 Ralph R. Shaw 33,513,271 260,984 Nancy Wilgenbusch 33,522,639 251,616 2. To ratify the selection of KPMG LLP as the Trust's independent registered public accounting firm. Number of Votes: FOR AGAINST ABSTAIN --- ------- ------- 33,155,486 60,035 558,733 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INFORMATION AVAILABLE (UNAUDITED) Much of the information that the funds in the Aquila(sm) Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent the entire list of portfolio securities of your Trust twice a year in the semi-annual and annual reports you receive. You should know, however, that we prepare, and have available, portfolio listings at the end of each quarter. Whenever you may be interested in seeing a listing of your Trust's portfolio other than in your shareholder reports, please check our website (www.aquilafunds.com) or call us at 1-800-437-1020. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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, 2004, $17,297,515 of dividends paid by Tax-Free Trust of Oregon, constituting 95.47% of total dividends paid during fiscal 2004, were exempt-interest dividends; $811,978 of dividends paid by the Trust constituting 4.48% of total dividends paid during the fiscal year were capital gain distributions; and the balance was ordinary dividend income. Prior to January 31, 2005, shareholders will be mailed IRS Form 1099-DIV which will contain information on the status of distributions paid for the 2004 CALENDAR YEAR. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PROXY VOTING RECORD. The Trust does not invest in equity securities. Accordingly, there were no matters relating to a portfolio security considered at any shareholder meeting held during the 12 months ended June 30, 2004 with respect to which the Trust was entitled to vote. Applicable regulations require us to inform you that the foregoing proxy voting information is available on the SEC website at http://www.sec.gov. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PRIVACY NOTICE (UNAUDITED) TAX-FREE TRUST OF OREGON OUR PRIVACY POLICY. In providing services to you as an individual who owns or is considering investing in shares of the Trust 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 us, such as the Trust's transfer agent, distributor, investment adviser or sub-adviser, as permitted or required by law, or as authorized by 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. AQUILA DISTRIBUTORS, INC. AQUILA INVESTMENT MANAGEMENT LLC This Privacy Policy also has been adopted by Aquila Distributors, Inc. and Aquila Investment Management LLC and applies to all nonpublic information about you that each of these companies may obtain in connection with services provided to the Trust or to you as a shareholder of the Trust. -------------------------------------------------------------------------------- (THIS PAGE INTENTIONALLY LEFT BLANK) (THIS PAGE INTENTIONALLY LEFT BLANK) FOUNDER AQUILA MANAGEMENT CORPORATION MANAGER AQUILA INVESTMENT MANAGEMENT LLC 380 Madison Avenue, Suite 2300 New York, New York 10017 INVESTMENT SUB-ADVISER U.S. BANCORP ASSET MANAGEMENT, INC. 555 S.W. Oak Street U.S. Bancorp Tower Portland, Oregon 97204 BOARD OF TRUSTEES Lacy B. Herrmann, Chairman Gary C. Cornia James A. Gardner Diana P. Herrmann Edmund P. Jensen Raymond H. Lung John W. Mitchell Patricia L. Moss Ralph R. Shaw Nancy Wilgenbusch OFFICERS Diana P. Herrmann, Vice Chair and President James M. McCullough, Senior Vice President Sally J. Church, Vice President Christine L. Neimeth, Vice President Joseph P. DiMaggio, Chief Financial Officer and 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. 760 Moore Road King of Prussia, Pennsylvania 19406 CUSTODIAN BANK ONE TRUST COMPANY, N.A. 1111 Polaris Parkway Columbus, Ohio 43240 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP 757 Third Avenue New York, New York 10017 Further information is contained in the Prospectus, which must precede or accompany this report. ITEM 2. CODE OF ETHICS. (a) As of September 30, 2004 (the end of the reporting period) the Trust has adopted a code of ethics that applies to the Trust's principal executive officer(s)and principal financial officer(s) and persons performing similar functions ("Covered Officers") as defined in the Aquila Group of Funds Code of Ethics for Principal Executive and Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002.; (f)(1) Pursuant to Item 10(a)(1), a copy of the Trust's Code of Ethics that applies to the Trust's principal executive officer(s) and principal financial officer(s) and persons performing similar functions is included as an exhibit to its annual report on this Form N-CSR; (f)(2) The text of the Trust's Code of Ethics that applies to the Trust's principal executive officer(s) and principal financial officer(s) and persons performing similar functions has been posted on its Internet website which can be found at the Trust's Internet address at aquilafunds.com. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1)(ii) The Board of Trustees of the Fund has determined that it does not have at least one audit committee financial expert serving on its audit committee. The Fund does not have such a person serving on the audit committee because none of the persons currently serving as Trustees happens to have the technical accounting and auditing expertise included in the definition of "audit committee financial expert" recently adopted by the Securities and Exchange Commission in connection with this Form N-CSR, and the Board has not heretofore deemed it necessary to seek such a person for election to the Board. The primary mission of the Board, which is that of oversight over the operations and affairs of the Fund, confronts the Trustees with a wide and expanding range of issues and responsibilities. The Trustees believe that, accordingly, it is essential that the Board's membership consist of persons with as extensive experience as possible in fulfilling the duties and responsibilities of mutual fund directors and audit committee members and, ideally, with extensive experience and background relating to the economic and financial sectors and securities in which the Fund invests, including exposure to the financial and accounting matters commonly encountered with respect to those sectors and securities. The Board believes that its current membership satisfies those criteria. It recognizes that it would also be helpful to have a member with the relatively focused accounting and auditing expertise reflected in the applicable definition of "audit committee financial expert," just as additional members with similarly focused technical expertise in other areas relevant to the Fund's operations and affairs would also contribute added value. However, the Board believes that the Fund is better served, and its assets better employed, by a policy of hiring experts in various areas, including the specialized area of technical accounting and auditing matters, if and as the Board identifies the need, rather than by seeking to expand its numbers by adding technical experts in the areas constituting its domain of responsibility. The Fund's Audit Committee Charter explicitly authorizes the Committee to retain such experts as it deems necessary in fulfilling its duties under the Charter. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. 905: Not applicable. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) as of a date within 90 days of the fling of this report, the registrant's chief financial and executive officers have concluded that the disclosure controls and procedures of the registrant are appropriately designed to ensure that information required to be disclosed in the registrant's reports that are filed under the Securities Exchange Act of 1934 are accumulated and communicated to registrant's management, including its principal executive officer(s) and principal financial officer(s), to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the Securities and Exchange Commission. (b) There have been no significant changes in registrant's internal controls or in other factors that could significantly affect registrant's internal controls subsequent to the date of the most recent evaluation, including no significant deficiencies or material weaknesses that required corrective action. ITEM 10. EXHIBITS. (a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002. (a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. (b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TAX-FREE TRUST OF OREGON By: /s/ Lacy B. Herrmann --------------------------------- Chairman of the Board December 6, 2004 By: /s/ Diana P. Herrmann --------------------------------- Vice Chair, Trustee and President December 6, 2004 By: /s/ Joseph P. DiMaggio ----------------------------------- Chief Financial Officer December 6, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Lacy B. Herrmann --------------------------------- Lacy B. Herrmann Chairman of the Board December 6, 2004 By: /s/ Diana P. Herrmann --------------------------------- Diana P. Herrmann Vice Chair, Trustee and President December 6, 2004 By: /s/ Joseph P. DiMaggio ----------------------------------- Joseph P. DiMaggio Chief Financial Officer and Treasurer December 6, 2004 TAX-FREE TRUST OF OREGON EXHIBIT INDEX (a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002. (a) (2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. (b) Certification of chief executive officer and chief financial officer as required by Rule 30a-2(b) of the Investment Company Act of 1940.