0000791049-09-000019.txt : 20120612
0000791049-09-000019.hdr.sgml : 20120612
20091130144809
ACCESSION NUMBER: 0000791049-09-000019
CONFORMED SUBMISSION TYPE: 485APOS
PUBLIC DOCUMENT COUNT: 4
FILED AS OF DATE: 20091130
DATE AS OF CHANGE: 20120228
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CASCADES TRUST
CENTRAL INDEX KEY: 0000791049
IRS NUMBER: 136868231
STATE OF INCORPORATION: MA
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 485APOS
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-04382
FILM NUMBER: 091211686
BUSINESS ADDRESS:
STREET 1: 380 MADISON AVE STE 2300
CITY: NEW YORK
STATE: NY
ZIP: 10017
BUSINESS PHONE: 2126976666
MAIL ADDRESS:
STREET 1: 380 MADISON AVENUE
STREET 2: # 2300
CITY: NEW YORK
STATE: NY
ZIP: 10017
FORMER COMPANY:
FORMER CONFORMED NAME: TAX FREE TRUST OF OREGON
DATE OF NAME CHANGE: 19890810
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CASCADES TRUST
CENTRAL INDEX KEY: 0000791049
IRS NUMBER: 136868231
STATE OF INCORPORATION: MA
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 485APOS
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-04626
FILM NUMBER: 091211687
BUSINESS ADDRESS:
STREET 1: 380 MADISON AVE STE 2300
CITY: NEW YORK
STATE: NY
ZIP: 10017
BUSINESS PHONE: 2126976666
MAIL ADDRESS:
STREET 1: 380 MADISON AVENUE
STREET 2: # 2300
CITY: NEW YORK
STATE: NY
ZIP: 10017
FORMER COMPANY:
FORMER CONFORMED NAME: TAX FREE TRUST OF OREGON
DATE OF NAME CHANGE: 19890810
0000791049
S000006648
TAX-FREE TRUST OF OREGON
C000018137
Tax-Free Trust of Oregon Class A
ORTFX
C000018138
Tax-Free Trust of Oregon Class C
ORTCX
C000018139
Tax-Free Trust of Oregon Class I
ORTIX
C000018140
Tax-Free Trust of Oregon Class Y
ORTYX
485APOS
1
ora10.txt
N-1A PARTS A, B AND C
Registration Nos. 33-4382 & 811-4626
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 34 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [ X ]
Amendment No. 35 [ X ]
THE CASCADES TRUST
(Exact Name of Registrant as Specified in Charter)
380 Madison Avenue, Suite 2300
New York, New York 10017
(Address of Principal Executive Offices)
(212) 697-6666
(Registrant's Telephone Number)
EDWARD M.W. HINES
Butzel Long, a professional corporation
380 Madison Avenue
New York, New York 10017
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
---
[___] immediately upon filing pursuant to paragraph (b)
[___] on (date) pursuant to paragraph (b)
[___] 60 days after filing pursuant to paragraph(a)(i)
[_X_] on February 1, 2010 pursuant to paragraph (a)(i)
[___] 75 days after filing pursuant to paragraph (a)(ii)
[___] on (date) pursuant to paragraph (a)(ii) of Rule 485.
[___] This post-effective amendment designates a new effective date for a
previous post-effective amendment.
TAX-FREE TRUST OF OREGON
Summary Prospectus | February 1, 2010
Ticker: Class A-ORTFX Class C-ORTCX Class I ORTIX Class Y ORTYX
This summary prospectus is designed to provide investors with key Trust
information in a clear and concise format. Before you invest, you may want to
review the Trust's complete prospectus, which contains more information about
the Trust and its risks. You can find the Trust's prospectus and other
information about the Trust online at www.aquilafunds.com. You can also get this
information at no cost by calling 800-437-1020 (toll-free) or by sending an
e-mail request to info@aquilafunds.com. If you purchase shares of the Trust
through a broker-dealer or other financial intermediary (such as a bank), the
prospectus and other information will also be available from your financial
intermediary. The Trust's prospectus and statement of additional information,
both dated February 1, 2010, are incorporated by reference into this summary
prospectus and may be obtained, free of charge, at the website, phone number or
e-mail address noted above.
Investment Objective
The Trust's objective, which is a fundamental policy, is to provide you as high
a level of current income exempt from Oregon state and regular Federal income
taxes as is consistent with preservation of capital.
Fees and Expenses of the Trust
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Trust. You may qualify for sales charge discounts if you and
your family invest, or agree to invest in the future, at least $25,000 in the
Trust or in other funds in the Aquila Group of Funds. More information about
these and other discounts, as well as eligibility requirements for each share
class, is available from your financial advisor and in "Alternative Investment
Plans on page *** of the Trust's prospectus, "What are the sales charges for
purchases of Class A Shares on page ** of the prospectus and "Reduced sales
charges for Certain Purchase of Class A Shares" on page ***of the prospectus.
Class I Shares and Class Y Shares are purchased through financial
intermediaries.
Shareholder Fees (fees paid directly from your investment)
TO BE UPDATED
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Class A Class C Class I Class Y
Shares Shares Shares Shares
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.00% None None None
percentage of offering price);.................................
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Maximum Deferred Sales Charge (Load) (as a percentage of None(1) 1.00% None None
the lesser of redemption value or purchase price)..............
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Maximum Sales Charge (Load) Imposed on Reinvested None None None None
Dividends or Distributions (as a percentage of offering
price).......................................................................
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Redemption Fees.................................................None......... None None None
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Annual Trust Operating Expenses (Expenses that you pay
each year as a percentage of your investment)
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Management Fee..................................................0.40%........ 0.40% 0.40% 0.40%
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Distribution (12b-1) Fee........................................0.15%........ 0.75% 0.15%(2) None
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Service Fee.....................................................None......... 0.25%
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Other Expenses(3)...............................................0.21%........ 0.21% 0.38% 0.21%
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Total Annual Trust
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Operating Expenses(3)...........................................0.76%........ 1.61% 0.93% 0.61%
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
(1) Purchases of $1 million or more have no sales charge but a contingent
deferred sales charge of up to 1% for redemptions within two years of
purchase and up to 0.50 of 1% for redemptions during the third and fourth
years after purchase.
(2) Current rate; up to 0.25% can be authorized.
(3) Does not reflect an offset in Trust expenses received in the year ended
September 30, 2009 for uninvested cash balances; when included. total
annual Trust operating expenses were 0.74% for Class A Shares and 1.59% for
Class C Shares, 0.59% for Class Y Shares.
1
Example
This Example is intended to help you compare the cost of investing in the Trust
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Trust for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year, that you reinvest all dividends and
distributions, and that the Trust's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
TO BE UPDATED
1 year 3 years 5 years 10 years
---------------------------- ------------------- -------------------- --------------------- -------------------------
---------------------------- ------------------- -------------------- --------------------- -------------------------
Class A Shares.......... $475 $633 $805 $1,305
---------------------------- ------------------- -------------------- --------------------- -------------------------
---------------------------- ------------------- -------------------- --------------------- -------------------------
Class C Shares.......... $264 $508 $876 $1,473(1)
---------------------------- ------------------- -------------------- --------------------- -------------------------
---------------------------- ------------------- -------------------- --------------------- -------------------------
Class I Shares.......... $95 $296 $515 $1,143
---------------------------- ------------------- -------------------- --------------------- -------------------------
---------------------------- ------------------- -------------------- --------------------- -------------------------
Class Y Shares.......... $62 $195 $340 $762
---------------------------- ------------------- -------------------- --------------------- -------------------------
You would pay the following expenses if you did not redeem your Class C Shares:
-------------------------- --------------------- -------------------- --------------------- -------------------------
Class C Shares........ $164 $508 $876 $1,473(1)
-------------------------- --------------------- -------------------- --------------------- -------------------------
(1) Six years after the date of purchase, Class C Shares automatically convert
to Class A Shares. Over time, long-term Class C Shareholders could pay the
economic equivalent of an amount that is more than the maximum front-end
sales charge allowed under applicable regulations because of the 12b-1 fee
and service fee.
Portfolio Turnover
The Trust pays transaction costs, such as commissions, when it buys and sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Trust
shares are held in a taxable account. These costs, which are not reflected in
annual Trust operating expenses or in the example, affect the Trust's
performance. During the most recent fiscal year, the Trust's portfolio turnover
rate was ***** of the average value of its portfolio.
Principal Investment Strategies
The Trust invests in tax-free municipal obligations which pay interest exempt
from Oregon state and regular Federal income taxes. We call these "Oregon
Obligations." In general, all or almost all of these obligations are issued by
the State of Oregon, its counties and various other local authorities. At least
80% of the Trust's assets will always consist of such obligations of these
issuers. These obligations can be of any maturity, but the Trust's average
portfolio maturity has traditionally been between 10 and 18 years.
At the time of purchase, the Trust's Oregon Obligations must be of investment
grade quality. This means that they must either
* be rated within the four highest credit ratings assigned by nationally
recognized statistical rating organizations or,
* if unrated, be determined to be of comparable quality by the Trust's
Sub-Adviser, FAF Advisors, Inc.
The Sub-Adviser selects obligations for the Trust's portfolio to best achieve
the Trust's objective by considering various characteristics including quality,
maturity and coupon rate.
The Trust may use futures and options thereon to "hedge" or protect its
portfolio from adverse movements in securities prices and interest rates.
Principal Risks
Loss of money is a risk of investing in the Trust.
The Trust's assets, being primarily or entirely Oregon issues, are subject to
economic and other conditions affecting Oregon. Adverse local events, such as a
downturn in the Oregon economy, could affect the value of the Trust's portfolio.
(See "What are the main risk factors and special considerations specifically
relating to investment in Oregon Issuers?" in the Trust's prospectus.)
There are two types of risk associated with any fixed-income debt securities
such as Oregon Obligations: interest rate risk and
2
credit risk.
* Interest rate risk relates to fluctuations in market value arising from
changes in prevailing interest rates. If interest rates rise, the value of
debt securities, including Oregon Obligations, will normally decline. If
the value of Oregon Obligations held by the Trust declines, the net asset
value of your shares in the Trust will also decline. Oregon Obligations
with longer maturities generally have a more pronounced reaction to
interest rate changes than shorter-term securities.
* Credit risk relates to the ability of the particular issuers of the Oregon
Obligations the Trust owns to make periodic interest payments as scheduled
and ultimately repay principal at maturity.
There are risks in using futures and options for hedging purposes.
An investment in the Trust is not a deposit in FAF Advisors, Inc., any of its
bank or non-bank affiliates or any other bank, and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
The Trust is classified as a "non-diversified" investment company under the
Investment Company Act of 1940 (the "1940 Act"). Thus, compared with
"diversified" funds, it may invest a greater percentage of its assets in
obligations of a particular issuer. In general, the more the Trust invests in
the securities of specific issuers, the more the Trust is exposed to risks
associated with investments in those issuers.
Trust Performance
The following bar chart and table provide some indication of the potential risks
of investing in the Trust. The Trust's past performance (before and after taxes)
is not necessarily an indication of how the Trust will perform in the future.
Updated performance information is available at www.aquilafunds.com or by
calling 800-437-1020 (toll-free).
TO BE UPDATED:
[Bar Chart]
Annual Total Returns
Class Y Shares
1999-2008
10% 10.25% 9.20%
XXXX XXXX
8% XXXX XXXX
XXXX XXXX
6% XXXX XXXX
XXXX 4.59% XXXX 5.14%
4% XXXX XXXX XXXX XXXX 3.94% 3.78%
XXXX XXXX XXXX XXXX XXXX 2.77 XXXX 2.99
2% XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
0% -1.73 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX -1.03
XXXX XXXX
-2 XXXX XXXX
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Calendar Years
During the 10-year period shown in the bar chart, the highest return for a
quarter was 4.50% (quarter ended September 30, 2002) and the lowest return for a
quarter was -3.17% (quarter ended September 30, 2008).
TO BE UPDATED:
Average Annual Total Returns for
the Periods Ended December 31, 2008
1 Year 5 Years 10 Years
---------------------------------------------------------------- ------------------- ---------------------- ------------------
---------------------------------------------------------------- ------------------- ---------------------- ------------------
Class Returns Before Taxes:
Class A (5.17)% 1.50% 3.35%
Class C (3.00)%(2) 1.47% 2.89%
Class Y (1.03)% 2.47% 3.93%
---------------------------------------------------------------- ------------------- ---------------------- ------------------
---------------------------------------------------------------- ------------------- ---------------------- ------------------
Class A Returns After Taxes:
3
On Distributions (5.14)% 1.50% 3.32%
On Distributions and Redemption (1.01)% 1.85% 3.45%
---------------------------------------------------------------- ------------------- ---------------------- ------------------
---------------------------------------------------------------- ------------------- ---------------------- ------------------
Barclays Capital Quality Intermediate Municipal Bond Index(3) 4.49% 3.56% 4.88%
No Class I Shares were outstanding during these periods. The table shows the
effect of taxes on the Trust's returns by presenting after-tax returns for Class
A Shares. (After-tax returns for Class C Shares and Class Y Shares will vary.)
These returns are calculated using the highest individual Federal income and
capital gains tax rates in effect at the time of each distribution and
redemption, but do not reflect state and local taxes. A "return after taxes on
distributions and redemptions" may sometimes be higher than the other two return
figures; this happens when there is a capital loss on redemption, giving rise to
a tax benefit to the shareholder. Actual after-tax returns will depend on your
specific situation and may differ from those shown. The after-tax returns shown
will be irrelevant to investors owning shares through tax-deferred accounts,
such as IRAs or 401(k) plans. The total returns reflect reinvestment of
dividends and distributions.
1. The average annual total returns shown for Class A shares reflect the
maximum 4% sales load.
2. The average annual total return for Class C Shares for one year assumes
redemption at the end of the year and payment of 1% CDSC.
3. The Barclays Capital Quality Intermediate Municipal Bond Index (formerly
known as the Lehman Brothers Quality Intermediate Municipal Bond Index)
consists of an unmanaged mix of investment-grade intermediate-term
municipal securities of issuers throughout the United States. Because of
the relatively short duration of the Trust's portfolio, management believes
the Intermediate Index to be appropriate, although the average maturity of
the Trust's portfolio is somewhat longer than that of the index and the
Trust's portfolio may accordingly experience somewhat greater volatility.
Management
Investment Adviser and Administrator
Aquila Investment Management LLC ("AIM")
Sub-Adviser
FAF Advisors, Inc. ("FAF")
Portfolio Manager -- Mr. Michael Hamilton, Director and Senior Portfolio Manager
of FAF. He has been employed by the parent company of FAF and its predecessors
since 1989. He has been associated with the Trust since 1994.
Purchase and Sale of Trust Shares
You may purchase, redeem or exchange shares of the Trust on any day the New York
Stock Exchange is open for business. You may purchase, redeem or exchange Class
A Shares or Class C shares either through a financial advisor or directly from
the Trust. The minimum initial purchase into the Trust is $1,000, and $50 if an
automatic investment program is established. There is no minimum for subsequent
investments. Class Y Shares and Class I Shares can be purchased only through
financial intermediaries.
Tax Information
The Trust's distributions of its net investment income from Oregon Obligations
are generally exempt from regular federal and Oregon state income tax. A portion
of these distributions, however, may be subject to the federal alternative
minimum tax. It is possible that a portion of the Trust's dividends will be
subject to Federal and Oregon income taxes. There may be distributions of
capital gains which will be taxable.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the Trust through a broker-dealer or other financial
intermediary (such as a bank or financial advisor), the Trust and its
distributor may pay the intermediary for the sale of Trust shares and related
services. These payments may create a conflict of interest by influencing the
broker-dealer or other financial intermediary to recommend the Trust over
another investment. Ask your financial advisor or visit your financial
intermediary's website for more information.
4
TAX-FREE TRUST OF OREGON
Prospectus | February 1, 2010
Ticker: Class A-ORTFX Class C-ORTCX Class I ORTIX Class Y ORTYX
Investment Objective
The Trust's objective, which is a fundamental policy, is to provide you as high
a level of current income exempt from Oregon state and regular Federal income
taxes as is consistent with preservation of capital.
Fees and Expenses of the Trust
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Trust. You may qualify for sales charge discounts if you and
your family invest, or agree to invest in the future, at least $25,000 in the
Trust or in other funds in the Aquila Group of Funds. More information about
these and other discounts, as well as eligibility requirements for each share
class, is available from your financial advisor and in "Alternative Investment
Plans on page *** of the Trust's prospectus, "What are the sales charges for
purchases of Class A Shares on page ** of the prospectus and "Reduced sales
charges for Certain Purchase of Class A Shares" on page ***of the prospectus.
Class I Shares and Class Y Shares are purchased through financial
intermediaries.
Shareholder Fees (fees paid directly from your investment)
TO BE UPDATED
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Class A Class C Class I Class Y
Shares Shares Shares Shares
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Maximum Sales Charge (Load) Imposed on Purchases (as a 4.00% None None None
percentage of offering price);.................................
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Maximum Deferred Sales Charge (Load) (as a percentage of None(1) 1.00% None None
the lesser of redemption value or purchase price)..............
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Maximum Sales Charge (Load) Imposed on Reinvested None None None None
Dividends or Distributions (as a percentage of offering
price).........................................................
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Redemption Fees.................................................None......... None None None
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Annual Trust Operating Expenses (Expenses that you pay
each year as a percentage of your investment)
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Management Fee..................................................0.40%........ 0.40% 0.40% 0.40%
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Distribution (12b-1) Fee........................................0.15%........ 0.75% 0.15%(2) None
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Service Fee.....................................................None......... 0.25%
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Other Expenses(3)...............................................0.21%........ 0.21% 0.38% 0.21%
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Total Annual Trust
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
Operating Expenses(3)...........................................0.76%........ 1.61% 0.93% 0.61%
--------------------------------------------------------------- -------------- ---------------- ----------------- --------------
(1) Purchases of $1 million or more have no sales charge but a contingent
deferred sales charge of up to 1% for redemptions within two years of
purchase and up to 0.50 of 1% for redemptions during the third and fourth
years after purchase.
(2) Current rate; up to 0.25% can be authorized.
(3) Does not reflect an offset in Trust expenses received in the year ended
September 30, 2009 for uninvested cash balances; when included. total
annual Trust operating expenses were 0.74% for Class A Shares and 1.59% for
Class C Shares, 0.59% for Class Y Shares.
Example
This Example is intended to help you compare the cost of investing in the Trust
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Trust for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year, that you reinvest all dividends and
distributions, and that the Trust's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
TO BE UPDATED
1 year 3 years 5 years 10 years
---------------------------- ------------------- -------------------- --------------------- -------------------------
---------------------------- ------------------- -------------------- --------------------- -------------------------
Class A Shares.......... $475 $633 $805 $1,305
---------------------------- ------------------- -------------------- --------------------- -------------------------
---------------------------- ------------------- -------------------- --------------------- -------------------------
Class C Shares.......... $264 $508 $876 $1,473(1)
---------------------------- ------------------- -------------------- --------------------- -------------------------
---------------------------- ------------------- -------------------- --------------------- -------------------------
Class I Shares.......... $95 $296 $515 $1,143
---------------------------- ------------------- -------------------- --------------------- -------------------------
---------------------------- ------------------- -------------------- --------------------- -------------------------
Class Y Shares.......... $62 $195 $340 $762
---------------------------- ------------------- -------------------- --------------------- -------------------------
You would pay the following expenses if you did not redeem your Class C Shares:
-------------------------- --------------------- -------------------- --------------------- -------------------------
Class C Shares........ $164 $508 $876 $1,473(1)
-------------------------- --------------------- -------------------- --------------------- -------------------------
(1) Six years after the date of purchase, Class C Shares automatically convert
to Class A Shares. Over time, long-term Class C Shareholders could pay the
economic equivalent of an amount that is more than the maximum front-end
sales charge allowed under applicable regulations because of the 12b-1 fee
and service fee.
Portfolio Turnover
The Trust pays transaction costs, such as commissions, when it buys and sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when Trust
shares are held in a taxable account. These costs, which are not reflected in
annual Trust operating expenses or in the example, affect the Trust's
performance. During the most recent fiscal year, the Trust's portfolio turnover
rate was ***** of the average value of its portfolio.
Principal Investment Strategies
The Trust invests in tax-free municipal obligations which pay interest exempt
from Oregon state and regular Federal income taxes. We call these "Oregon
Obligations." In general, all or almost all of these obligations are issued by
the State of Oregon, its counties and various other local authorities. At least
80% of the Trust's assets will always consist of such obligations of these
issuers. These obligations can be of any maturity, but the Trust's average
portfolio maturity has traditionally been between 10 and 18 years.
At the time of purchase, the Trust's Oregon Obligations must be of investment
grade quality. This means that they must either
* be rated within the four highest credit ratings assigned by nationally
recognized statistical rating organizations or,
* if unrated, be determined to be of comparable quality by the Trust's
Sub-Adviser, FAF Advisors, Inc.
The Sub-Adviser selects obligations for the Trust's portfolio to best achieve
the Trust's objective by considering various characteristics including quality,
maturity and coupon rate.
The Trust may use futures and options thereon to "hedge" or protect its
portfolio from adverse movements in securities prices and interest rates.
Principal Risks
Loss of money is a risk of investing in the Trust.
The Trust's assets, being primarily or entirely Oregon issues, are subject to
economic and other conditions affecting Oregon. Adverse local events, such as a
downturn in the Oregon economy, could affect the value of the Trust's portfolio.
(See "What are the main risk factors and special considerations specifically
relating to investment in Oregon Issuers?" in the Trust's prospectus.)
There are two types of risk associated with any fixed-income debt securities
such as Oregon Obligations: interest rate risk and credit risk.
* Interest rate risk relates to fluctuations in market value arising from
changes in prevailing interest rates. If interest rates rise, the value of
debt securities, including Oregon Obligations, will normally decline. If
the value of Oregon Obligations held by the Trust declines, the net asset
value of your shares in the Trust will also decline. Oregon Obligations
with longer maturities generally have a more pronounced reaction to
interest rate changes than shorter-term securities.
* Credit risk relates to the ability of the particular issuers of the Oregon
Obligations the Trust owns to make periodic interest payments as scheduled
and ultimately repay principal at maturity.
There are risks in using futures and options for hedging purposes.
An investment in the Trust is not a deposit in FAF Advisors, Inc., any of its
bank or non-bank affiliates or any other bank, and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
The Trust is classified as a "non-diversified" investment company under the
Investment Company Act of 1940 (the "1940 Act"). Thus, compared with
"diversified" funds, it may invest a greater percentage of its assets in
obligations of a particular issuer. In general, the more the Trust invests in
the securities of specific issuers, the more the Trust is exposed to risks
associated with investments in those issuers.
Trust Performance
The following bar chart and table provide some indication of the potential risks
of investing in the Trust. The Trust's past performance (before and after taxes)
is not necessarily an indication of how the Trust will perform in the future.
Updated performance information is available at www.aquilafunds.com or by
calling 800-437-1020 (toll-free).
TO BE UPDATED:
[Bar Chart]
Annual Total Returns
Class Y Shares
1999-2008
10% 10.25% 9.20%
XXXX XXXX
8% XXXX XXXX
XXXX XXXX
6% XXXX XXXX
XXXX 4.59% XXXX 5.14%
4% XXXX XXXX XXXX XXXX 3.94% 3.78%
XXXX XXXX XXXX XXXX XXXX 2.77 XXXX 2.99
2% XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX
0% -1.73 XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX -1.03
XXXX XXXX
-2 XXXX XXXX
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Calendar Years
During the 10-year period shown in the bar chart, the highest return for a
quarter was 4.50% (quarter ended September 30, 2002) and the lowest return for a
quarter was -3.17% (quarter ended September 30, 2008).
TO BE UPDATED:
Average Annual Total Returns for
the Periods Ended December 31, 2008
1 Year 5 Years 10 Years
---------------------------------------------------------------- ------------------- ---------------------- ------------------
---------------------------------------------------------------- ------------------- ---------------------- ------------------
Class Returns Before Taxes:
Class A (5.17)% 1.50% 3.35%
Class C (3.00)%(2) 1.47% 2.89%
Class Y (1.03)% 2.47% 3.93%
---------------------------------------------------------------- ------------------- ---------------------- ------------------
---------------------------------------------------------------- ------------------- ---------------------- ------------------
Class A Returns After Taxes:
On Distributions (5.14)% 1.50% 3.32%
On Distributions and Redemption (1.01)% 1.85% 3.45%
---------------------------------------------------------------- ------------------- ---------------------- ------------------
---------------------------------------------------------------- ------------------- ---------------------- ------------------
Barclays Capital Quality ntermediate Municipal Bond Index(3) 4.49% 3.56% 4.88%
No Class I Shares were outstanding during these periods. The table shows the
effect of taxes on the Trust's returns by presenting after-tax returns for Class
A Shares. (After-tax returns for Class C Shares and Class Y Shares will vary.)
These returns are calculated using the highest individual Federal income and
capital gains tax rates in effect at the time of each distribution and
redemption, but do not reflect state and local taxes. A "return after taxes on
distributions and redemptions" may sometimes be higher than the other two return
figures; this happens when there is a capital loss on redemption, giving rise to
a tax benefit to the shareholder. Actual after-tax returns will depend on your
specific situation and may differ from those shown. The after-tax returns shown
will be irrelevant to investors owning shares through tax-deferred accounts,
such as IRAs or 401(k) plans. The total returns reflect reinvestment of
dividends and distributions.
1. The average annual total returns shown for Class A shares reflect the
maximum 4% sales load.
2. The average annual total return for Class C Shares for one year assumes
redemption at the end of the year and payment of 1% CDSC.
3. The Barclays Capital Quality Intermediate Municipal Bond Index (formerly
known as the Lehman Brothers Quality Intermediate Municipal Bond Index)
consists of an unmanaged mix of investment-grade intermediate-term
municipal securities of issuers throughout the United States. Because of
the relatively short duration of the Trust's portfolio, management believes
the Intermediate Index to be appropriate, although the average maturity of
the Trust's portfolio is somewhat longer than that of the index and the
Trust's portfolio may accordingly experience somewhat greater volatility.
Management
Investment Adviser and Administrator
Aquila Investment Management LLC ("AIM")
Sub-Adviser
FAF Advisors, Inc. ("FAF")
Portfolio Manager -- Mr. Michael Hamilton, Director and Senior Portfolio Manager
of FAF. He has been employed by the parent company of FAF and its predecessors
since 1989. He has been associated with the Trust since 1994.
Purchase and Sale of Trust Shares
You may purchase, redeem or exchange shares of the Trust on any day the New York
Stock Exchange is open for business. You may purchase, redeem or exchange Class
A Shares or Class C shares either through a financial advisor or directly from
the Trust. The minimum initial purchase into the Trust is $1,000, and $50 if an
automatic investment program is established. There is no minimum for subsequent
investments. Class Y Shares and Class I Shares can be purchased only through
financial intermediaries.
Tax Information
The Trust's distributions of its net investment income from Oregon Obligations
are generally exempt from regular federal and Oregon state income tax. A portion
of these distributions, however, may be subject to the federal alternative
minimum tax. It is possible that a portion of the Trust's dividends will be
subject to Federal and Oregon income taxes. There may be distributions of
capital gains which will be taxable.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the Trust through a broker-dealer or other financial
intermediary (such as a bank or financial advisor), the Trust and its
distributor may pay the intermediary for the sale of Trust shares and related
services. These payments may create a conflict of interest by influencing the
broker-dealer or other financial intermediary to recommend the Trust over
another investment. Ask your financial advisor or visit your financial
intermediary's website for more information.
Investment of the Trust's Assets
"Is the Trust right for me?"
The shares of the Trust are designed to be a suitable investment for
individuals, corporations, institutions and fiduciaries who seek income exempt
from Oregon state and regular Federal income taxes.
Oregon Obligations
The Trust invests in Oregon Obligations, which are a type of municipal
obligation. They pay interest which bond counsel or other appropriate counsel
deems to be exempt from regular Federal and State of Oregon income taxes. They
include obligations of Oregon issuers and certain non-Oregon issuers, of any
maturity.
The obligations of non-Oregon issuers that the Trust can purchase as Oregon
Obligations are those issued by or under the authority of Guam, the Northern
Mariana Islands, Puerto Rico and the Virgin Islands. Interest paid on these
obligations is currently exempt from regular Federal and Oregon income taxes.
Municipal Obligations
Municipal obligations are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies and
instrumentalities to obtain funds for public purposes.
There are two principal classifications of municipal obligations: "notes" and
"bonds." Notes generally have maturities of one year or less, while bonds are
paid back over longer periods.
The various public purposes for which municipal obligations are issued include:
* obtaining funds for general operating expenses,
* refunding outstanding obligations,
* obtaining funds for loans to other public institutions and facilities, and
* funding the construction of highways, bridges, schools, hospitals,
housing, mass transportation, streets and water and sewer works.
Municipal obligations include:
* tax, revenue or bond anticipation notes,
* construction loan notes,
* project notes, which sometimes carry a U.S. government guarantee,
* municipal lease/purchase agreements, which are similar to installment
purchase contracts for property or equipment, and
* floating and variable rate demand notes.
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Clackamas County School Districts
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State of Oregon
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Portland International Airport
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TAX-FREE TRUST OF OREGON
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City of Portland
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City of Salem Utilities
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Oregon Health and Science University
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Eugene Water & Electric Board
The Trust invests in tax-free municipal securities, primarily the kinds of
obligations issued by various communities and political subdivisions within
Oregon. Most of these securities are used in general to finance construction of
long-term municipal projects; examples are pictured above. The municipal
obligations that financed these particular projects were included in the Trust's
portfolio as of December 31, 2009 and together represented approximately 20% of
the Trust's portfolio. Since the portfolio is subject to change, the Trust may
not necessarily own these specific securities at the time of the delivery of
this Prospectus.
"Explain further how interest rate risk and credit risk may affect the value of
the Trust's investments and their yields."
Change in prevailing interest rates is the most common factor that affects the
value of the obligations in the Trust's portfolio. Any such change may have
different effects on short-term and long-term Oregon Obligations. Long-term
obligations (which usually have higher yields) may fluctuate in value more than
short-term ones. Thus, the Trust may shorten the average maturity of its
portfolio when it believes that prevailing interest rates may rise. While this
strategy may promote one part of the Trust's objective, preservation of capital,
it may also result in a lower level of income.
An additional aspect of credit risk that is related to but distinct from the
direct risk of nonpayment by an issuer is that market perceptions may develop,
based on the determinations of a rating agency or otherwise, of deterioration in
an issuer's credit, and these may tend to depress the market value of the
issuer's outstanding debt obligations. Other market conditions may ameliorate
this effect; for example, in a period of rising demand for, and/or diminishing
supply of, Oregon Obligations, the market value of an Oregon Obligation may
remain relatively firm even in the face of a lowered credit rating for an
issuer. Nevertheless, deterioration in creditworthiness tends as a general
matter to be reflected over time in lower market values.
"What are the main risk factors and special considerations specifically relating
to investment in Oregon Issuers?"
The following is a discussion of the general factors that might influence the
ability of Oregon issuers to repay principal and interest when due on Oregon
Obligations that the Trust owns. The Trust has derived this information from
sources that are generally available to investors and believes it to be
accurate, but it has not been independently verified and it may not be complete.
Oregon's recession, which essentially started in the first quarter of 2008, has
spread to all sectors of the economy. The same factors weighing on the US are
present in Oregon. Oregon's housing market was a bit late to the correction
phase and may lag the nation in bottoming out and correcting. This recession
has taken away jobs at a very fast and deep pace. The second quarter of 2009
marked the third consecutive quarter of above six percent job losses.
The major risks facing the Oregon economy are:
Contagion of the credit crunch and financial market instability. With the
freezing up of credit markets, broad based borrowing and lending is very
expensive or non-existent. Consumer spending has been greatly curtailed. If the
credit markets do not return soon to some sort of state of normalcy, the current
recession could be much deeper and longer than presently projected. Oregon will
suffer the consequences along with the rest of the nation.
Prolonged housing market instability. Generally, analysts believe that the
housing market has yet to hit bottom, at least in terms of price declines.
Though Oregon has been hit hard through this downturn, Oregon's housing market
is relatively better off compared to California, Nevada, Florida, and Arizona.
Coupled with the recessionary state of the economy, the rise in mortgage rates
and heightened credit standards will keep demand for housing relatively low.
Rather than the correction of the housing bubble further hurting the Oregon
housing market, it has been the deepening recession that caused further home
price declines and rising foreclosures.
The relative effectiveness of nearly-global government stimulus. The level of
government response to the current recession has never been greater.
Furthermore, the coordination of central bank actions throughout the world was
similarly unprecedented. While the intent was for significant stabilization and
growth, it is unknown if these will come to pass.
The return of federal timber payments to Oregon counties. Included in the
federal bailout was a provision to reinstate federal timber payments for four
years. Oregon counties will receive $254 million, down from the previous $282
million level and will be phased out over the four year window. While this
temporary reinstatement helps cover short-term budgets for Oregon counties,
finding or replacing this dwindling revenue source will be imperative as any
loss of public services could have adverse impacts on economic activity.
The extent of the global downturn triggered by the U.S. slowdown. The U.S.
economy has been an important engine of growth for the global economy. As the
U.S. economic woes continue, the whole world is feeling the impact. First,
European economic growth slowed considerably, even contracting in places. Then
Asian economies began slowing due to their large exposure, via trade, to the
U.S. economy. China is a top importer of Oregon products and any slowing of the
Chinese economy will adversely impact Oregon exports. To the extent that Oregon
major trading partners take longer to recovery compared to the US economy, this
could extend the downturn in Oregon.
National and regional energy prices. The over 60 percent drop in oil prices is
bringing relief to both business and households. The near-term outlook is also
for lower regional prices for natural gas and electricity. This comes at a
welcomed time when businesses are looking for cost savings. The benefit from
lower energy prices is most likely short-lived as the underlying drivers of
demand will return once the world economies rebound from this recession.
In addition to general obligation bonds, the State and its political
subdivisions issue revenue obligations payable from specific projects or
sources, including lease rentals. There can be no assurance that a material
downturn in the State's economy, with resulting impact on the financial strength
of State and local entities, will not adversely affect the ability of obligors
of the obligations held in the Trust's portfolio to make the required payments
on these obligations, and consequently, the market value of such obligations.
The principal sources of State tax revenues are the personal income and
corporate income taxes. Oregon does not have a sales tax; however, the issue of
a sales tax is brought before the Oregon voters frequently. Oregon has a very
friendly initiative process; any registered Oregon voter may submit a proposed
initiative. In recent years, Oregon has seen active use of the initiative and
referendum process, with initiative measures being proposed on a variety of
constitutional and statutory topics. Three such initiatives voted on in the
1990s have dramatically changed the landscape for local government forcing more
fiscal dependence on the State. Certain municipal securities held by the Trust
may rely in whole or in part for repayment on ad valorem property taxes. There
are limits under Oregon State law on the issuance of bonds supported by such
taxes. In recent years several voter initiatives have also amended the State
Constitution to "freeze" or roll back such taxes. School districts had been
reliant on ad valorem property taxes as their major source of revenue. These
initiatives created the need for the school districts to go to the State for
more funding. Whereas, the State has been able to fund the minimum needs, the
revenue sources for the State are much more volatile revenue than are property
taxes.
An increase in Oregon Income Tax adopted in 2009 to close a budget gap is
subject to litigation and a referendum in January, 2010. The outcome of these
matters cannot be predicted.
There is a relatively inactive market for municipal bonds of Oregon issuers
other than the general obligations of the State itself and certain other limited
segments of the market. Consequently, the market price of such other bonds may
have a higher degree of volatility and it may be difficult to execute sales of
blocks of such bonds. If the Trust were forced to sell a large volume of these
bonds for any reason, such as redemptions of a large number of its shares,
there is a risk that the large sale itself might adversely affect the value of
the Trust's portfolio.
Risks relation to Futures and Options
A risk of using futures and options to attempt to protect against the price
volatility of the Trust's Oregon Obligations is that the Sub-Adviser could be
incorrect in its expectations as to the extent of various interest rate
movements or the time span within which the movements take place. For example,
if the Trust sold a future in anticipation of an increase in interest rates and
the interest rates went down instead, the Trust would lose money on the sale.
Another risk of using futures or options on them arises because of the imperfect
correlation between movement in the price of the future and movements in the
prices of Oregon Obligations which are the subject of the hedge.
Trust Management
"How is the Trust managed?"
Aquila Investment Management LLC, 380 Madison Avenue, Suite 2300, New York, NY
10017, the Manager, is the Trust's investment adviser under an Advisory and
Administration Agreement. Its investment advisory duties, including portfolio
management, have been delegated to the Sub-Adviser, FAF Advisors, Inc., under a
sub-advisory agreement described below. The Manager is also responsible for
administrative services, including providing for the maintenance of the
headquarters of the Trust, overseeing relationships between the Trust and the
service providers to the Trust and providing other administrative services.
The Sub-Adviser provides the Trust with local advisory services.
Under the Sub-Advisory Agreement, the Sub-Adviser provides for investment
supervision, including supervising continuously the investment program of the
Trust and the composition of its portfolio, determining what securities will be
purchased or sold by the Trust, and arranging for the purchase and the sale of
securities held in the portfolio of the Trust; and, at the Sub-Adviser's
expense, providing for pricing of the Trust's portfolio daily.
During the fiscal year ended September 30, 2009, the Trust accrued management
fees to the Manager at the annual rate of 0.40 of 1% of its average annual net
assets.
A discussion regarding the Trustees' basis for approving the annual renewal of
the Advisory and Administration Agreement and the Sub-Advisory Agreement is
available in the Trust's annual report to shareholders for the period ended
September 30, 2009.
Information about the Manager and the Sub-Adviser
The Trust's Manager is a wholly-owned subsidiary of Aquila Management
Corporation ("AMC"), founder of each fund in the Aquila Group of Funds, which
consists of three money-market funds, seven tax-free municipal bond funds, a
high income corporate bond fund and an equity fund. As of December 31, 2009,
these funds had aggregate assets of approximately $___ billion, of which
approximately $___ billion consisted of assets of the tax-free municipal bond
funds. AMC's address is the same as that of the Manager. AMC, which was founded
in 1984, is owned, directly, and through certain trusts, by members of the
family of Mr. Lacy B. Herrmann. As a result of transactions completed in 2009 no
individual holds with the power to vote, directly or indirectly, more than 24.9%
of the voting shares of AMC. Performance of the Advisory and Administration
Agreement is guaranteed by AMC.
The Sub-adviser, FAF Advisors, Inc. is a registered investment adviser and
subsidiary of U.S. Bank National Association. U.S. Bank National Association is
a separate entity and a wholly owned subsidiary of U.S. Bancorp ("USB") 800
Nicollett Mall, Minneapolis, Minnesota 55402. USB is the 6th largest commercial
bank in the United States. The company operates 2,850 banking offices, 5,173
ATMs in 24 states, and provides a comprehensive line of banking, brokerage,
insurance, investment, mortgage, trust and payment services products to
consumers, businesses and institutions. The company is headquartered in
Minneapolis, Minnesota and primarily serves the Midwest and West. At September
30, 2009, on a pro forma combined basis, USB and its consolidated subsidiaries
had consolidated assets of approximately $265.1 billion, consolidated deposits
of $169.8 billion and shareholder equity of $25.2 billion.
Mr. Michael Hamilton, with the position of Director and Senior Portfolio
Manager, is the officer of the Sub-Adviser who manages the Trust's portfolio. He
has been employed by the parent company of the Sub-Adviser and its predecessors
since 1989. He has been associated with the Trust since 1994, assisting in
administration and credit analysis. Mr. Hamilton has managed municipal bond
common trust funds, individual municipal bond portfolios, taxable portfolios,
and money market funds. He holds a B.A. from The College of Idaho and an M.B.A.
from Western Washington University.
The SAI provides additional information about the portfolio manager's
compensation, other accounts managed by the portfolio manager and the portfolio
manager's ownership of securities of the Trust.
Net Asset Value per Share
The net asset value of the shares of each of the Trust's classes of shares is
determined as of 4:00 p.m., New York time, on each day that the New York Stock
Exchange is open (a "business day"), by dividing the value of the Trust's net
assets (which means the value of the assets less liabilities) allocable to each
class by the total number of shares of such class outstanding at that time. In
general, net asset value of the Trust's shares is based on portfolio market
value, except that Oregon Obligations maturing in 60 days or less are generally
valued at amortized cost. Any securities or assets for which such market
quotations are not readily available are valued at their fair value as
determined in good faith under procedures subject to the general supervision and
responsibility of the Trust's Board of Trustees. The price at which a purchase
or redemption of shares is effected is based on the net asset value next
calculated after your purchase or redemption order is received in proper form.
The New York Stock Exchange annually announces the days on which it will not be
open. The most recent announcement indicates that it will not be open on the
following days: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, the Exchange may close on days not included in that
announcement.
Purchases
"Are there alternative purchase plans?"
The Trust provides individuals with alternative ways to purchase shares through
four separate classes of shares (Classes A, C, I and Y). Although the classes
have different sales charge structures and ongoing expenses, they all represent
interests in the same portfolio of Oregon Obligations. An investor should choose
the class that best suits the investor's circumstances and needs.
"In which states can I buy shares of the Trust?"
An investor who is domiciled in Oregon or in one of the other states listed
below can purchase shares of the Trust. An investor domiciled in states other
than those listed should not purchase shares of the Trust.
Also, if an investor is not domiciled in Oregon, dividends from the Trust may be
subject to state income taxes of the state in which the investor is domiciled.
Therefore, one should consult a tax adviser before buying shares of the Trust.
On the date of this Prospectus, Class A Shares and Class C Shares are available
only in:
* Oregon * Arizona * California
* Colorado * Connecticut * Florida * Hawaii * Idaho
* Illinois * Minnesota * Missouri * Nevada
* New Mexico * New Jersey * New York
* Pennsylvania * Texas * Washington * Wisconsin
On the date of this Prospectus, Class Y Shares and Class I Shares are available
only in:
* Oregon * Arizona * California * Colorado * Connecticut *
Florida * Hawaii * Idaho * Illinois * Minnesota * Missouri
* Nevada * New Mexico * New York * Pennsylvania *
Washington * Wisconsin
The Trust and the Distributor may reject any order for the purchase of shares.
"How much money do I need to invest?"
Class A and Class C Shares
Option I
* Initially, $1,000, except that there is no minimum amount for purchase of
shares through certain financial intermediaries as discussed below.
* Subsequently, any amount (for investments in shares of the same class).
To qualify for purchases of Class A Shares or Class C Shares with no minimum,
(i) the shares must be purchased on behalf of a beneficial owner who has entered
into a comprehensive fee or other advisory fee arrangement with the financial
intermediary or an affiliate or associated person of the financial intermediary,
and (ii) the financial intermediary must have entered into an agreement with the
Distributor authorizing the sale of Trust shares.
Option II
* $50 or more if an Automatic Investment Program is established.
* Subsequently, any amount you specify of $50 or more.
* You are not permitted to maintain both an Automatic Investment Program and
an Automatic Withdrawal Plan simultaneously.
Class I and Class Y Shares
Class I or Class Y Shares may be purchased only through a financial
intermediary. Financial intermediaries can set their own requirements for
initial and subsequent investments.
"How do I purchase shares?"
You may purchase Class A or Class C Shares:
* through an investment broker or dealer, or a bank or other financial
intermediary, that has a sales agreement with the Distributor, Aquila
Distributors, Inc., in which case that institution will take action on your
behalf, and you will not personally perform the steps indicated below; or
* directly through the Distributor, by mailing payment to the Trust's Agent,
PNC Global Investment Servicing.
Except as provided in the Statement of Additional Information, under the caption
"Purchase, Redemption and Pricing of Shares," an investment must be drawn in
United States dollars on a United States commercial bank, savings bank or credit
union or a United States branch of a foreign commercial bank (each of which is a
"Financial Institution").
The price an investor will pay is net asset value plus a sales charge for Class
A Shares and net asset value for Class C, I and Y Shares. (See "What price will
I pay for the Trust's shares?") A broker/dealer may charge a service or
processing fee in connection with purchases; such a fee will be in addition to
the price of the shares.
Opening a Class A or Class C Share Account
* Make out a check for the investment amount payable to Tax-Free Trust of
Oregon.
* Complete a New Account Application, which is available with the Prospectus or
upon request, indicating the features you wish to authorize.
* Send your check and completed New Account Application to your dealer or to the
Trust's Agent, PNC Global Investment Servicing.
Adding to a Class A or Class C Share Account
By Wire By Check
* Telephone the Agent (toll-free) at 800-437-1000 * Make out a check for the investment amount payable
(individual shareholders) or 877-953-6932 to Tax-Free Trust of Oregon.
(broker/dealers) to advise us that you would like to
purchase shares of the Trust by wire transfer. * Fill out the pre-printed stub attached to the
Trust's confirmations or supply the name(s) of account
* Instruct your bank to transfer funds by wire to the owner(s), the account number, and the name of the
following account: Trust.
Bank Name: PNC Bank, Philadelphia, PA * Send your check and account information to your
ABA Number: 031-0000-53 dealer or to the Trust's Agent, PNC Global Investment
Account Name: Aquila Group of Funds Servicing.
Account No.: 85-0242-8425
Further Credit: Tax-Free Trust of Oregon,
Name of Shareholder and Account Number.
Unless you indicate otherwise, your investment will be made in Class A Shares.
Opening or Adding to a Class I or Class Y Share Account
An investor may open a Class I or Class Y Share account or make additional
investments in Class I or Class Y Shares only through a financial intermediary.
"Can I transfer funds electronically?"
You can have funds transferred electronically into a Class A or Class C Share
account, in amounts of $50 or more, from your Financial Institution if it is a
member of the Automated Clearing House. You may make investments through two
electronic transfer features, "Automatic Investment" and "Telephone Investment."
* Automatic Investment: You can authorize a pre-determined amount to be
regularly transferred from your account.
* Telephone Investment: You can make single investments of up to $50,000 by
telephone instructions to the Agent.
Before you can transfer funds electronically, the Trust's Agent must have your
completed New Account Application authorizing these features. Or, if you
initially decide not to choose these conveniences and then later wish to do so,
you must complete a Ready Access Features Form which is available from the
Distributor or Agent, or if your account is set up so that your broker or dealer
makes these sorts of changes, ask your broker or dealer to make them. The Trust
may modify or terminate these investment methods or charge a service fee, upon
30 days' written notice to shareholders.
Systematic Payroll Investments
You can make systematic investments in either Class A Shares or Class C Shares
each pay period if your employer has established a Systematic Payroll Investment
Plan with the Trust. To participate in the payroll plan, you must make your own
arrangements with your employer's payroll department, which may include
completing special forms. Additionally, the Trust requires that you complete the
New Account Application. Once your New Account Application is received by the
Trust and a new account is opened, under the payroll plan your employer will
deduct a preauthorized amount from each payroll check. This amount will then be
sent directly to the Trust for purchase of shares at the then current offering
price, which includes any applicable sales charge. You will receive a
confirmation from the Trust for each transaction. Should you wish to change the
dollar amount or end future systematic payroll investments, you must notify your
employer directly. Changes may take up to ten days.
Automatic investment, telephone investment and systematic payroll investments
are not available for Classes I and Y.
Redeeming An Investment
Redeeming Class A and Class C Shares
You may redeem some or all of your Class A or Class C Shares by a request to the
Agent. Shares will be redeemed at the next net asset value determined after your
request has been received in proper form.
There is no minimum period for investment in the Trust, except for shares
recently purchased by check or by Automatic or Telephone Investment as discussed
below.
If you own both Class A Shares and Class C Shares and do not specify which class
you wish to redeem, we will redeem your Class A Shares.
Certain shares are subject to a contingent deferred sales charge, or CDSC. These
are:
*-Class C Shares held for less than 12 months (from the date of purchase);
and
*-CDSC Class A Shares (as described below).
Upon redemption, enough additional shares will be redeemed to pay for any
applicable CDSC.
A redemption may result in a tax liability for you.
"How can I redeem my investment in Class A or Class C Shares?"
By mail, send instructions to: By telephone, call: By FAX, send instructions to:
PNC Global Investment Servicing. 800-437-1000 508-599-1838
Attn: Aquila Group of Funds toll-free
101 Sabin Street
Pawtucket, RI 02860-1427
For liquidity and convenience, the Trust offers expedited redemption.
Expedited Redemption Methods
(Non-Certificate Shares Only)
You may request expedited redemption for any shares not issued in certificate
form in two ways:
1. By Telephone. The Agent will take instructions from anyone by telephone to
redeem shares and make payments:
a) to a Financial Institution account you have previously specified; or
b) by check in the amount of $50,000 or less, mailed to the name and
address on the account from which you are redeeming, provided that
neither the name nor the address has changed during the prior 30 days.
You may only redeem by check via telephone request once in any
seven-day period.
Telephoning the Agent
Whenever you telephone the Agent, please be prepared to supply:
account name(s) and number
name of the caller
the social security number registered to the account
personal identification.
Note: Check the accuracy of your confirmation statements immediately upon
receipt. The Trust, the Agent, and the Distributor are not responsible for
losses resulting from unauthorized telephone transactions if the Agent follows
reasonable procedures designed to verify a caller's identity. The Agent may
record calls.
2. By FAX or Mail. You may request redemption payments to a predesignated
Financial Institution account by a letter of instruction sent to the Agent, PNC
Global Investment Servicing, 101 Sabin Street, Pawtucket, RI 02860-1427 or by
FAX at 508-599-1838. The letter, signed by the registered shareholder(s) (no
signature guarantee is required), must indicate:
account name(s)
account number
amount to be redeemed
any payment directions.
To have redemption proceeds sent directly to a Financial Institution account,
you must complete the Expedited Redemption section of the New Account
Application or a Ready Access Features Form. You will be required to provide (1)
details about your Financial Institution account, (2) signature guarantees and
(3) possible additional documentation.
The name(s) of the shareholder(s) on the Financial Institution account must be
identical to the name(s) on the Trust's records of your account.
You may change your designated Financial Institution account at any time by
completing and returning a revised Ready Access Features Form.
Regular Redemption Method
(Certificate and Non-Certificate Shares)
Certificate Shares. Mail to the Trust's Agent: (1) blank (unsigned) certificates
for Class A Shares to be redeemed, (2) redemption instructions and (3) a stock
assignment form.
To be in "proper form," items (2) and (3) above must be signed by the registered
shareholder(s) exactly as the account is registered. For a joint account, both
shareholder signatures are necessary.
For your protection, mail certificates separately from signed redemption
instructions. We recommend that certificates be sent by registered mail, return
receipt requested.
We may require additional documentation for certain types of shareholders, such
as corporations, partnerships, trustees or executors, or if redemption is
requested by someone other than the shareholder of record.
Signature_Guarantees. If sufficient documentation is on file, we do not require
a signature guarantee for redemptions of certificate or non-certificate shares
up to $50,000, payable to the record holder, and sent to the address of record.
In all other cases, signatures must be guaranteed.
Your signature may be guaranteed by any:
member of a national securities exchange
U.S. bank or trust company
state-chartered savings bank
federally chartered savings and loan association
foreign bank having a U.S. correspondent bank; or
participant in the Securities Transfer Association Medallion Program
("STAMP"), the Stock Exchanges Medallion Program ("SEMP") or the New
York Stock Exchange, Inc. Medallion Signature Program("MSP").
A notary public is not an acceptable signature guarantor.
Non-Certificate Shares. You must use the Regular Redemption Method if you have
not chosen Expedited Redemption. To redeem by this method, send a letter of
instruction to the Trust's Agent, which includes:
account name(s)
account number
dollar amount or number of shares to be redeemed or a statement that
all shares held in the account are to be redeemed
payment instructions (we normally mail redemption proceeds to your
address as registered with the Trust)
signature(s) of the registered shareholder(s); and
signature guarantee(s), if required, as indicated above after
"Certificate Shares."
"When will I receive the proceeds of my redemption of Class A or Class C
Shares?"
Redemption proceeds are normally sent on the next business day following receipt
of your redemption request in proper form. Except as described below, payments
will normally be sent to your address of record within seven days.
Redemption Method of Payment Charges
Under $1,000. Check. None.
$1,000 or more. Check, or wired or transferred through the None.
Automated Clearing House to your Financial
Institution account, if you so requested on your
New Account Application or Ready Access Features
Form.
Through a broker/dealer. Check or wire, to your broker/dealer. None. However, your
broker/dealer may charge
a fee.
Although the Trust does not currently intend to, it can charge up to $5.00 per
wire redemption, after written notice to shareholders who have elected this
redemption procedure. Upon 30 days' written notice to shareholders the Trust may
modify or terminate the use of the Automated Clearing House to make redemption
payments at any time or charge a service fee, although no such fee is presently
contemplated. If any such changes are made, the Prospectus will be supplemented
to reflect them.
The Trust can redeem your shares if their value totals less than $500 as a
result of redemptions or failure to meet and maintain the minimum investment
level under an Automatic Investment program. Before such a redemption is made,
we will send you a notice giving you 60 days to make additional investments to
bring your account up to the minimum.
"Are there any reinvestment privileges?"
If you reinvest proceeds of redemption within 120 days of the redemption you
will not have to pay any additional sales charge on the reinvestment and the
Distributor will refund to you any CDSC deducted at the time of redemption by
adding it to the amount of your reinvestment. You must reinvest in the same
class as the shares redeemed. You may exercise this privilege only once a year,
unless otherwise approved by the Distributor.
Reinvestment will not alter the tax consequences of your original redemption.
"Is there an Automatic Withdrawal Plan?"
An Automatic Withdrawal Plan, which is only available for Class A Shares, allows
you to receive a monthly or quarterly check in a stated amount, not less than
$50.
Redeeming Class I and Class Y Shares
You may redeem all or any part of your Class I or Class Y Shares at the net
asset value next determined after receipt in proper form of your redemption
request by your financial intermediary. Redemption requests for Class I and
Class Y Shares must be made through a financial intermediary and cannot be made
directly through the Trust's Agent. Financial intermediaries may charge a fee
for effecting redemptions. There is no minimum period for any investment in the
Trust. The Trust does not impose redemption fees or penalties on redemption of
Class I or Class Y Shares. A redemption may result in a transaction taxable to
the redeeming investor.
General
The Trust may delay payment for redemption of shares recently purchased by check
(including certified, cashier's or official bank check), Automatic Investment or
Telephone Investment for up to 15 days after purchase; however, payment for
redemption will not be delayed after (i) the check or transfer of funds has been
honored, or (ii) the Agent receives satisfactory assurance that the check or
transfer of funds will be honored. Possible delays can be eliminated by paying
for purchased shares with wired funds or Federal Reserve drafts.
The Trust has the right to postpone payment or suspend redemption rights during
certain periods. These periods may occur (i) when the New York Stock Exchange is
closed for other than weekends and holidays, (ii) when the Securities and
Exchange Commission (the "SEC") restricts trading on the New York Stock
Exchange, (iii) when the SEC determines that an emergency exists which causes
disposal of, or determination of the value of, portfolio securities to be
unreasonable or impracticable, and (iv) during such other periods as the SEC may
permit.
Redemption proceeds may be paid in whole or in part by distribution of the
Trust's portfolio securities ("redemption in kind") in conformity with SEC
rules. This method will only be used if the Board of Trustees determines that
payments partially or wholly in cash would be detrimental to the best interests
of the remaining shareholders.
Alternative Purchase Plans
"How do the different arrangements for the four classes of shares affect the
cost of buying, holding and redeeming shares, and what else should I know about
the four classes?"
In this Prospectus the Trust provides you with four ways to invest in the Trust
through four separate classes of shares. All classes represent interests in the
same portfolio of Oregon Obligations. The classes of shares differ in their
sales charge structures and ongoing expenses, as described below. An investor
should choose the class that best suits the investor's circumstances and needs.
Class A Shares Class C Shares
"Front-Payment Class" "Level-Payment Class"
Initial Sales Charge Class A Shares are offered at net None. Class C Shares are offered at
asset net asset value with no sales charge
value plus a maximum sales charge of payable at the time of purchase.
4%, paid at the time of purchase.
Thus, your investment is reduced by
the applicable sales charge.
Contingent None (except for A CDSC of 1% is imposed upon the
Deferred Sales Charge certain purchases of $1 million or redemption of Class C Shares held for
("CDSC") more). less than 12 months. No CDSC applies
to Class C Shares acquired through
the reinvestment of dividends or
distributions.
Distribution and Service A distribution fee of 0.15 of 1% is There is a level charge for
Fees imposed on the average annual net distribution and service fees for six
assets represented by the Class A years after the date of purchase at
Shares. the aggregate annual rate of 1% of
the average net assets represented by
the Class C Shares.
Other Information The initial sales charge is waived or Class C Shares, together with a
reduced in some cases. Larger pro-rata portion of all Class C
purchases qualify for lower sales Shares acquired through reinvestment
charges. of dividends and other distributions
paid in additional Class C Shares,
automatically convert to Class A
Shares after six years.
Class Y Shares Class I Shares
"Institutional Class" "Financial Intermediary Class"
Initial Sales Charge None. Financial intermediaries None. Financial intermediaries may charge a
may charge a fee for purchase of fee for purchase of shares.
shares.
Contingent Deferred None. None.
Sales Charge ("CDSC")
Distribution and None. Distribution fee of up to 0.25 of 1% of
Service Fees average annual net assets allocable to Class I
Shares, currently up to 0.15 of 1% of such net
assets, and a service fee of up to 0.25 of 1%
of such assets.
"What price will I pay for the Trust's shares?"
Class A Shares Offering Price Class C, I and Y Shares Offering Price
Net asset value per share Net asset value per share.
plus the applicable sales
charge.
An Investor will receive that day's offering price on purchase orders, including
Telephone Investments and investments by mail, received in proper form prior to
4:00 p.m. New York time by the Agent or, where applicable, by the financial
intermediary. Otherwise, orders will be filled at the next determined offering
price. Financial intermediaries are required to submit orders promptly,
provided, however, that if a financial intermediary imposes an earlier cutoff
time than 4:00 p.m. for the receipt of orders, the intermediary will submit
orders received after its earlier cutoff time after 4:00 p.m. Those orders will
receive the next determined offering price. Purchase orders received on a
non-business day, including those for Automatic Investment, will be executed on
the next succeeding business day. The sale of shares will be suspended (1)
during any period when net asset value determination is suspended or (2) when
the Distributor judges it is in the Trust's best interest to do so.
"What are the sales charges for purchases of Class A Shares?"
The following table shows the amount of sales charge incurred for each new
purchase by a "single purchaser" of Class A Shares. A "single purchaser" is:
* an individual;
* an individual, together with his or her spouse, and/or any children under
21 years of age purchasing shares for their accounts;
* a trustee or other fiduciary purchasing shares for a single trust estate or
fiduciary account; or
* a government, municipality or tax-exempt entity that meets the requirements
for qualification under Section 501 of the Internal Revenue Code.
You are entitled to substantial reductions in sales charges based on aggregate
holdings of Class A Shares of the Trust and Class A Shares of any of the other
funds in the Aquila Group of Funds that you or other members of your immediate
family already own at the time of your purchase. Be sure you tell your broker or
dealer about all of those holdings so that any applicable reduction in sales
charges on your purchase can be correctly computed. You will need to produce
proof of such ownership in the form of account statements relating to any
account at any financial intermediary that you or any member of your immediate
family own that holds any such Class A Shares.
A "single purchaser" will pay a sales charge based on the value at the time of
purchase of his or her aggregate holdings of Class A Shares of the Trust and
Class A Shares of any of the other funds in the Aquila Group of Funds in
accordance with the following table:
I II III
Sales Charge as
Sales Charge as Approximate
Amount of Purchase Percentage of Public Percentage of Amount
and Value of All Class A Shares Offering Price Invested
Held by a Single Purchaser
Less than $25,000 4.00% 4.17%
$25,000 but less than $50,000 3.75% 3.90%
$50,000 but less than $100,000 3.50% 3.63%
$100,000 but less than $250,000 3.25% 3.36%
$250,000 but less than $500,000 3.00% 3.09%
$500,000 but less than $1,000,000 2.50% 2.56%
For purchases of $1 million or more see "Sales Charges for Purchases of $1
Million or More."
For example:
If you invest $10,000 (Column I), your sales charge ($10,000 x .04 = $400)
would be 4.00% or $400 (Column II).
The value of your account would be equivalent to the ($10,000 - $400 = $9,600)
amount of your investment less the sales charge.
(The initial value of your account would be
$10,000 - $400 = $9,600.)
The sales charge as a percentage of the reduced value ($400 / $9,600 = .0416666
of your account would be 4.17% (Column III). or 4.17%)
Sales Charges for Purchases of $1 Million or More
You will not pay a sales charge at the time of purchase when you purchase "CDSC
Class A Shares." CDSC Class A Shares are:
(i) Class A Shares issued in a single purchase of $1 million or more by a
single purchaser; and
(ii) Class A Shares issued when the value of the purchase, together with
the value of shares of the Trust or any other fund in the Aquila Group
of Funds that are owned by the purchaser and are either CDSC Class A
Shares or Class A Shares on which a sales charge was paid, is $1
million or more.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during the four years
after you purchase them, you may have to pay a special CDSC upon redemption.
The amount of the CDSC, calculated based on the lesser of net asset value at the
time of purchase or at the time of redemption, depends on the value of your
holdings of CDSC Class A Shares at the time of redemption, according to the
following table:
During First Two Years After During Third and Fourth Years
Value of Holdings Purchase After Purchase
$1 million and up to $2.5 million 1% 0.50%
Over $2.5 million and up to $5 0.50% in year 1 0
million 0.25% in year 2 0
Over $5 million 0 0
However, it is not the Trust's intention ever to charge the shareholder (impose
a CDSC) more than the commission amount that was paid to the broker/dealer in
connection with the purchase transaction.
This special charge also applies to CDSC Class A Shares purchased without a
sales charge pursuant to a Letter of Intent.
The CDSC will be waived for:
* - Redemption following the death of the shareholder or beneficial
owner.
* - Redemption by the Trust when an account falls below the minimum
required account size.
* - Redemption by an investor who purchased $1 million or more without
an initial sales charge if the securities dealer of record waived its
commission in connection with the purchase, with notice to the
investor and the Trust at the time of purchase.
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales charge in accordance with
the above schedule when making subsequent purchases of Class A Shares.
Letters of Intent
A "single purchaser" may also qualify for reduced sales charges, in accordance
with the above schedule, after a written Letter of Intent (included in the New
Account Application) is received by the Distributor.
Other
Class A Shares may be purchased without a sales charge by current and former
Trustees and officers of any funds in the Aquila Group of Funds, the directors,
officers and certain employees, former employees and representatives of the
Manager, the Distributor, the sub-adviser of any fund in the Aquila Group of
Funds and the parents and/or affiliates of such companies, selected broker
dealers, their officers and employees and other investment professionals,
certain persons connected with firms providing legal, advertising or public
relations assistance, certain family members of, and plans for the benefit of,
the foregoing and plans for the benefit of trust or similar clients of banking
institutions over which these institutions have full investment authority, if
the Distributor has an agreement relating to such purchases. In addition,
acquisitions of shares by reinvestment of dividends or in exchanges (with
certain exceptions) do not incur a sales charge.
The foregoing information about breakpoints in, or elimination of, sales charges
is also available free of charge in a clear and prominent format on our website
at www.aquilafunds.com. Hyperlinks at our website will facilitate your access to
the information.
"What are the sales, service and distribution charges for Class C Shares?"
* No sales charge at time of purchase.
* Fees for service and distribution at a combined annual rate of 1% of
average annual net assets of the Trust represented by Class C Shares.
* After six years, Class C Shares automatically convert to Class A Shares,
which bear a lower distribution fee and no service fee.
The Trust will not accept purchase orders for Class C Shares on behalf of an
individual investor (not including dealer "street name" or omnibus accounts) in
an amount of $500,000 or more or if the purchase order would bring the value of
the account over $500,000. This is because it will generally be more
advantageous for such a purchase by an individual to be invested in the Trust's
Class A Shares instead.
Redemption of Class C Shares
* 1% charge if redeemed within the first 12 months after purchase. This
contingent deferred sales charge, or CDSC, is calculated based on the
lesser of the net asset value at the time of purchase or at the time of
redemption.
* No CDSC applies if Class C Shares are held for 12 months after purchase.
* Shares acquired by reinvestment of dividends or distributions are not
subject to any CDSC.
* The CDSC will be waived for redemption following the death of the
shareholder or beneficial owner and for redemption by the Trust when an
account falls below the minimum required size.
Broker/Dealer Compensation - Class C Shares
The Distributor will pay 1% of the sale price to any broker/dealer executing a
Class C Share purchase.
General
Certain financial intermediaries may charge additional fees in connection with
transactions in Trust shares. The Manager or the Distributor may make payments
or provide non-cash compensation out of their own resources to securities
dealers and other financial intermediaries for providing services intended to
result in the sale of Trust shares or for shareholder servicing activities. The
compensation is discretionary and may be available only to selected selling and
servicing agents. See "Additional Information" below and the SAI for discussions
of marketing support payments.
Exchange Privilege
Generally, you can exchange Class A or Class C Shares of this Trust into the
tax-free municipal bond funds, the high-income corporate bond fund and the
equity fund (together with the Trust, the "Bond or Equity Funds") and
money-market funds (the "Money-Market Funds") in the Aquila Group of Funds
(collectively, the "Aquila Funds") for shares of the same class of any other
Bond or Equity Fund, or for Original Shares of any Money-Market Fund, without
the payment of a sales charge or any other fee. The exchange privilege is also
available to Class I or Class Y Shares to the extent that other Aquila Funds are
made available to its customers by an investor's financial intermediary. All
exchanges of Class I and Class Y Shares must be made through the investor's
financial intermediary.
Because excessive trading in Trust shares can be harmful to the Trust and its
other shareholders, the right is reserved to revise or terminate the exchange
privilege, to limit the number of exchanges or to reject any exchange if (i) the
Trust or any of the other Aquila Funds believe that it or they would be harmed
or be unable to invest effectively or (ii) it or they receive or anticipate
receiving simultaneous orders that may significantly affect the Trust or any
other Aquila Fund.
Frequent Trading
As stated above, the Trust and the Distributor may reject any order for the
purchase of shares. For example, because frequent movement of assets into and
out of the Trust by market timers or other investors may disrupt the management
of the Trust and increase its expenses, the Board of Trustees of the Trust has
determined that the Trust may reject purchase orders, on a temporary or
permanent basis, from investors that the Trust is able to determine are
exhibiting a pattern of frequent or short-term trading in Trust shares. The
Trust may not be able to detect frequent trading by the underlying owners of
shares held in omnibus accounts and therefore may not be able effectively to
prevent frequent trading in those accounts. Accordingly, there is no guarantee
that the Trust will be successful in identifying all investors who engage in
excessive trading activity or in curtailing that activity. The Trust's policy on
frequent trading extends to purchases through exchanges. (See "Exchange
Privilege" above.)
"What about confirmations and share certificates?"
A statement will be mailed to you confirming each purchase or redemption of
Class A or Class C Shares of the Trust. Additionally, your account at the Agent
will be credited or debited in full and fractional shares (rounded to the
nearest 1/1000th of a share). Financial intermediaries will confirm purchases of
Class I or Class Y Shares. The Trust will not issue certificates for Class C,
Class I or Class Y Shares.
"Is there a Distribution Plan or a Services Plan?"
The Trust has adopted a Distribution Plan (the "Plan") under the Investment
Company Act of 1940's Rule 12b-1 in order to:
(i) permit the Trust to finance activities primarily intended to result in the
sale of its shares;
(ii) permit the Manager or Sub-Adviser to make payment for distribution expenses
out of its own funds; and
(iii) protect the Trust against any claim that some of the expenses which it
pays or may pay might be considered to be sales-related and therefore come
within the purview of the Rule.
Pursuant to the Plan, the Trust makes payments with respect to Class A, Class C
and Class I Shares under agreements to certain broker/dealers and other
qualified recipients.
For any fiscal year, these payments may not exceed 0.15 of 1% for Class A
Shares, 0.75 of 1% for Class C Shares, and .25 of 1% (currently up to 0.15 of
1%) for Class I Shares of the average annual net assets represented by each such
class. Payments with respect to each class are made only out of the Trust's
assets allocable to that class. Because these distribution fees are paid out of
assets on an ongoing basis, over time these fees will increase the cost of your
investment; they may cost you more than paying other types of sales charges.
Whenever the Trust makes Class A payments, the aggregate annual rate of the
management fee otherwise payable by the Trust is reduced from 0.50 of 1% to 0.40
of 1% of the Trust's average annual net assets.
Shareholder Services Plan for Class C Shares
The Trust's Shareholder Services Plan authorizes it to pay a service fee under
agreements to certain qualified recipients who have agreed to provide personal
services to Class C shareholders and/or maintain their accounts. The Plan also
authorizes an identical arrangement with respect to Class I Shares. For any
fiscal year, such fees may not exceed 0.25 of 1% of the average annual net
assets represented by the applicable class of shares. Payment is made only out
of the Trust's assets represented by the shares of the applicable class.
Service fees with respect to Class C Shares will be paid to the Distributor.
Additional Information
The Distributor and/or its related companies may pay compensation (out of their
own assets and not as an additional charge to the Trust) to certain
broker/dealers and other financial intermediaries ("financial advisors") in
connection with the sale or retention of Trust shares or certain shareholder
servicing and/or certain recordkeeping/sub-transfer agency services. For
example, the Distributor and/or its related companies may pay compensation to
financial advisors for administrative, sub-accounting or shareholder transaction
processing services above and beyond such costs which would normally be paid by
the Trust, assistance in training and education and/or other forms of marketing
support, including costs related to providing the Trust with "shelf space."
Payments made to financial advisors may be based on a fixed dollar amount and/or
one or more of the following factors: gross sales, current assets, number of
accounts attributable to or maintained by the financial advisor and/or
reimbursement for marketing expenses of the financial advisor. Some of these
amounts may be significant to the Distributor, although they may be small
compared to amounts a financial advisor may receive from other distributors.
Nonetheless, the prospect of receiving additional compensation may provide
financial advisors with an incentive to favor sales of shares of the Trust over
other investment options. To obtain more information on how additional
compensation may have influenced your advisor's recommendation of the Trust ask
your financial advisor. For more information, please see the Trust's SAI.
"Transfer on Death" Registration
If you own Class A or Class C Shares, the Trust generally permits "transfer on
death" ("TOD") registration of shares, so that on the death of the shareholder
the shares are transferred to a designated beneficiary or beneficiaries. Ask the
Agent or your broker/dealer for the Transfer on Death Registration Request Form.
With it you will receive a copy of the TOD Rules of the Aquila Group of Funds,
which specify how the registration becomes effective and operates. By opening a
TOD Account, you agree to be bound by the TOD Rules. An investor in Class I or
Class Y should discuss the availability of TOD registration with the investor's
financial intermediary (broker/dealer, etc.)
Dividends and Distributions
"How are dividends and distributions determined?"
The Trust pays dividends and other distributions with respect to each class of
shares. The Trust calculates its dividends and other distributions with respect
to each class at the same time and in the same manner. Net income for dividend
purposes includes all interest income accrued by the Trust since the previous
dividend declaration less expenses paid or accrued. Net income also includes any
original issue discount, which occurs if the Trust purchases an obligation for
less than its face amount. The discount from the face amount is treated as
additional income earned over the life of the obligation. Because the Trust's
income varies, so will the Trust's dividends. There is no fixed dividend rate.
It is expected that most of the Trust's dividends will be comprised of interest
income. The dividends and distributions of each class can vary due to certain
class-specific charges. The Trust will declare all of its net income as
dividends on every day, including weekends and holidays, on those shares
outstanding for which payment was received by the close of business on the
preceding business day.
Redeemed shares continue to earn dividends through and including the earlier of:
1. the day prior to the day when redemption proceeds are mailed, wired
or transferred by the Automated Clearing House or the Agent or paid by
the Agent to a financial intermediary; or
2. the third business day after the day the net asset value of the
redeemed shares was determined.
The Trust's present policy is to pay dividends so they will be received or
credited by approximately the first day of each month.
"How are dividends and distributions paid?"
Class A and Class C Shares
Dividends and distributions on Class A or Class C Shares will automatically be
reinvested in full and fractional shares of the Trust of the same class at net
asset value as of the payment date for the dividend or distribution unless you
elect otherwise.
You may choose to have all or any part of your dividends or distributions paid
in cash. You can elect to have the cash portion of your dividends or
distributions deposited, without charge, by electronic funds transfers into your
account at a financial institution, if it is a member of the Automated Clearing
House.
You can make any of these elections on the New Account Application, by a Ready
Access Features Form or by a letter to the Agent. Your election to receive some
or all of your dividends and distributions in cash will be effective as of the
next payment of dividends after it has been received in proper form by the
Agent. It will continue in effect until the Agent receives written notification
of a change.
Whether your dividends and distributions are received in cash or reinvested, you
will receive a monthly statement indicating the current status of your
investment account with the Trust.
If you do not comply with laws requiring you to furnish taxpayer identification
numbers and report dividends, the Trust may be required to impose backup
withholding at a rate of 28% upon payment of redemptions to you and on capital
gains distributions (if any) and any other distributions that do not qualify as
"exempt-interest dividends."
The Trust reserves the right to change the dividend and distribution payment
option on your account to "reinvest" if mail sent to the address on your account
is returned by the post office as "undeliverable" and you have elected to have
your account dividends and/or distributions paid in cash. In such event, the
Trust would then purchase additional shares of the Trust with any dividend or
distribution payments that are "undeliverable." In order to change the option
back to "cash," you would need to send the Agent written instructions as
described above.
Class I and Class Y Shares
All arrangements for the payment of dividends and distributions with
respect to Class I and Class Y Shares, including reinvestment of dividends, must
be made through financial intermediaries.
Tax Information
Net investment income includes income from Oregon Obligations in the portfolio
that the Trust allocates as "exempt-interest dividends." Such dividends are
exempt from regular Federal income tax. The Trust will allocate exempt-interest
dividends by applying one designated percentage to all income dividends it
declares during its tax year. It will normally make this designation in the
first month following its fiscal year end for dividends paid in the prior year.
It is possible that a portion of the distributions paid by the Trust in excess
of its net tax-exempt income will be subject to Federal and Oregon income taxes.
During the last calendar year, the Trust's dividends consisted of the following
(no Class I Shares were outstanding):
Calendar Year 12/31/09
Exempt-Interest Capital Ordinary Income Dividends
Dividends Gains Dividends
Class A Shares ____% ____% ____%
Class C Shares ____% ____% ____%
Class Y Shares ____% ____% ____%
Net capital gains of the Trust, if any, realized through October 31st of each
year and not previously paid out will be paid out after that date. The Trust may
also pay supplemental distributions after the end of its fiscal year. Capital
gains and any other taxable dividends declared in October, November or December
and paid to you in January (whether received in cash or reinvested in shares)
are taxable for Federal income tax purposes as if received in December. If net
capital losses are realized in any year, they are charged against capital and
not against net investment income, which is distributed regardless of gains or
losses.
The Trust intends to qualify during each fiscal year under the Internal Revenue
Code to pay exempt-interest dividends to its shareholders. Exempt-interest
dividends derived from net income earned by the Trust on Oregon Obligations will
be excludable from gross income of the shareholders for regular Federal income
tax purposes. Capital gains dividends are not included in "exempt-interest
dividends." Although exempt-interest dividends are not subject to regular
Federal income tax, each taxpayer must report the total amount of tax-exempt
interest (including exempt-interest dividends from the Trust) received or
acquired during the year. Exempt-interest dividends are taken into account in
determining the taxable portion of any Social Security or Railroad Retirement
benefit you or your spouse receives.
Oregon Obligations acquired by the Trust after April 30, 1993 for less than face
or redemption value and subsequently disposed of at a gain will result in
"market discount" gain up to the face or redemption value, which will be
ordinary income attributable to such market discount. Those gains will be
taxable to you as ordinary income, if distributed. Alternatively, the Trust
could elect to accrue such market discount as ordinary income during the period
it holds such Oregon Obligations.
If the Trust acquires Oregon Obligations at a premium over the principal amount,
the Trust must amortize the premium over the remaining period to maturity using
the earliest call date on a yield to maturity basis. The bond premium
amortization will reduce the basis in determining the tax consequences on a
subsequent disposition. Bond premium amortization reduces the amount of
exempt-interest dividends that may be designated by the Trust and could result
in taxable ordinary dividend income and/or return of capital and a reduction in
basis of shares.
Capital gains dividends (net long-term gains over net short-term losses (which
generally may exclude post-October 31 capital losses for this purpose)) which
the Trust distributes and so designates are reportable by shareholders as
taxable gains from the sale or exchange of a capital asset held for more than a
year. This is the case whether the shareholder reinvests the distribution in
shares of the Trust or receives it in cash, regardless of the length of time the
investment is held.
Short-term gains, when distributed, are taxed to shareholders as ordinary
income. Capital losses of the Trust which are not offset by capital gains are
not distributed but are carried forward by the Trust to offset gains in later
years and reduce future capital gains dividends and amounts taxed to
shareholders.
The Trust's gains or losses on sales of Oregon Obligations will be deemed long-
or short-term depending upon the length of time the Trust holds these
obligations.
You will receive information on the tax status of the Trust's dividends and
distributions annually.
Special Tax Matters
Under the Internal Revenue Code, interest on loans incurred by shareholders to
enable them to purchase or carry shares of the Trust may not be deducted for
regular Federal tax purposes. In addition, under rules used by the Internal
Revenue Service for determining when borrowed funds are deemed used for the
purpose of purchasing or carrying particular assets, the purchase of shares of
the Trust may be considered to have been made with borrowed funds even though
the borrowed funds are not directly traceable to the purchase of shares.
If you, or someone related to you, is a "substantial user" of facilities
financed by industrial development or private activity bonds, you should consult
your own tax adviser before purchasing shares of the Trust.
Interest from all Oregon Obligations is tax-exempt for purposes of computing the
shareholder's regular tax. However, interest from so-called private activity
bonds issued after August 7, 1986, constitutes a tax preference for both
individuals and corporations and thus will enter into a computation of the
alternative minimum tax ("AMT"). Whether or not that computation will result in
a tax will depend on the entire content of your return. The Trust will not
invest more than 20% of its assets in the types of Oregon Obligations that pay
interest subject to AMT. An adjustment required by the Internal Revenue Code
will tend to make it more likely that corporate shareholders will be subject to
AMT. They should consult their tax advisers.
"What should I know about Oregon taxes?"
Distributions of interest income made by the Trust from Oregon Obligations will
generally be treated for purposes of the Oregon personal income tax imposed on
individuals in the same manner as they are treated for Federal income tax
purposes. Individual shareholders of the Trust resident in Oregon generally will
not be subject to Oregon personal income tax on distributions received from the
Trust to the extent such distributions are attributable to interest income on
Oregon Obligations. Distributions attributable to interest income on Oregon
Obligations may generally be the ratio of distributions of interest income from
Oregon Obligations to the total distributions on such shares for the year. Other
distributions from the Trust, including capital gains dividends, will generally
not be exempt from Oregon personal income tax.
Distributions of interest income by the Trust attributable to Oregon
Obligations, or of obligations of any other state or political subdivision of a
state, are not exempt from the Oregon corporation excise tax. Corporations and
other entities subject to the Oregon corporation excise tax should consult their
tax advisers before investing in the Trust.
Shareholders of the Trust should consult their tax advisers about these and
other state and local tax consequences of their investment in the Trust.
TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Trust's
financial performance for the past five years of the Trust's operations. Certain
information reflects financial results for a single Trust share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the Trust (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait, Weller & Baker LLP
(independent registered public accounting firm), whose report, along with the
Trust's financial statements, is included in the annual report, is incorporated
by reference into the SAI and is available upon request. No Class I Shares were
outstanding during the periods shown.
TO BE UPDATED:
Class A
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Year Ended September 30,
-----------------------------------------------------------
2008 2007 2006 2005 2004
------ ------ ------ ------ ------
Net asset value, beginning of period................ $10.68 $10.84 $10.91 $11.01 $11.04
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income .......................... 0.42++ 0.41+ 0.41+ 0.42+ 0.44+
Net gain (loss) on securities (both
realized and unrealized).................... (0.58) (0.16) (0.05) (0.10) (0.01)
------ ------ ------ ------ ------
Total from investment operations................ (0.16) 0.25 0.36 0.32 0.43
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income............ (0.41) (0.41) (0.41) (0.41) (0.44)
Distributions from capital gains................ -- * (0.02) (0.01) (0.02)
------ ------ ------ ------ ------
Total distributions............................. (0.41) (0.41) (0.43) (0.42) (0.46)
------ ------ ------ ------ ------
Net asset value, end of period...................... $10.11 $10.68 $10.84 $10.91 $11.01
====== ====== ====== ====== ======
Total return (not reflecting sales charge).......... (1.58)% 2.37% 3.42% 2.98% 3.97%
Ratios/supplemental data
Net assets, end of period (in millions)......... $ 324 $ 336 $ 359 $ 369 $ 367
Ratio of expenses to average net assets ........ 0.76% 0.75% 0.75% 0.77% 0.72%
Ratio of net investment income to average
net assets.................................. 3.89% 3.77% 3.82% 3.79% 4.02%
Portfolio turnover rate ........................ 15% 22% 16% 14% 11%
The expense ratios after giving effect to the expense offset for uninvested cash
balances were:
Ratio of expenses to average net assets......... 0.74% 0.74% 0.74% 0.76% 0.71%
----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
* Less than $0.01 per share.
Class C
-----------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------
2008 2007 2006 2005 2004
------- ------- ------- ------- -------
Net asset value, beginning of period ........... $ 10.68 $ 10.84 $ 10.90 $ 11.00 $ 11.03
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ........................ 0.33++ 0.32+ 0.32+ 0.32+ 0.35+
Net gain (loss) on securities (both
realized and unrealized) ................... (0.59) (0.16) (0.04) (0.09) (0.02)
------- ------- ------- ------- -------
Total from investment operations ............. (0.26) 0.16 0.28 0.23 0.33
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income ......... (0.32) (0.32) (0.32) (0.32) (0.34)
Distributions from capital gains ............. -- * (0.02) (0.01) (0.02)
------- ------- ------- ------- -------
Total distributions .......................... (0.32) (0.32) (0.34) (0.33) (0.36)
------- ------- ------- ------- -------
Net asset value, end of period ................. $ 10.10 $ 10.68 $ 10.84 $ 10.90 $ 11.00
======= ======= ======= ======= =======
Total return (not reflecting sales charge) ..... (2.51)% 1.51% 2.64% 2.10% 3.09%
Ratios/supplemental data
Net assets, end of period (in millions) ...... $ 17.7 $ 25.3 $ 32.9 $ 41.9 $ 41.4
Ratio of expenses to average net assets ...... 1.61% 1.60% 1.60% 1.62% 1.57%
Ratio of net investment income to
average net assets ......................... 3.04% 2.92% 2.97% 2.94% 3.17%
Portfolio turnover rate ...................... 15% 22% 16% 14% 11%
The expense ratios after giving effect to the expense offset for uninvested cash
balances were:
Ratio of expenses to average net assets ...... 1.59% 1.59% 1.59% 1.61% 1.56%
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
* Less than $0.01 per share.
Class Y
-----------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------
2008 2007 2006 2005 2004
------- ------- ------- ------- -------
Net asset value, beginning of period ........ $ 10.68 $ 10.84 $ 10.90 $ 11.00 $ 11.03
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ..................... 0.43++ 0.43+ 0.43+ 0.43+ 0.46+
Net gain (loss) on securities (both
realized and unrealized) ................ (0.58) (0.16) (0.04) (0.09) (0.02)
------- ------- ------- ------- -------
Total from investment operations .......... (0.15) 0.27 0.39 0.34 0.44
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income ...... (0.43) (0.43) (0.43) (0.43) (0.45)
Distributions from capital gains .......... -- * (0.02) (0.01) (0.02)
------- ------- ------- ------- -------
Total distributions ....................... (0.43) (0.43) (0.45) (0.44) (0.47)
------- ------- ------- ------- -------
Net asset value, end of period .............. $ 10.10 $ 10.68 $ 10.84 $ 10.90 $ 11.00
======= ======= ======= ======= =======
Total return (not reflecting sales charge) .. (1.52)% 2.52% 3.67% 3.11% 4.13%
Ratios/supplemental data
Net assets, end of period (in millions) ... $ 58.4 $ 49.2 $ 43.9 $ 36.0 $ 37.0
Ratio of expenses to average net assets ... 0.61% 0.60% 0.60% 0.62% 0.57%
Ratio of net investment income to
average net assets ...................... 4.04% 3.92% 3.97% 3.95% 4.17%
Portfolio turnover rate ................... 15% 22% 16% 14% 11%
The expense ratios after giving effect to the expense offset for uninvested cash
balances were:
Ratio of expenses to average net assets ... 0.59% 0.59% 0.59% 0.61% 0.56%
----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
* Less than $0.01 per share.
[Inside Back cover]
Founders
Lacy B. Herrmann, Chairman Emeritus
Aquila Management Corporation
Manager
Aquila Investment Management LLC
380 Madison Avenue, Suite 2300 * New York, New York 10017
Investment Sub-Adviser
FAF Advisors, Inc.
555 S.W. Oak Street * Portland, Oregon 97204
Board of Trustees
James A. Gardner, Chair
Diana P. Herrmann, Vice Chair
Gary C. Cornia
Edmund P. Jensen
John W. Mitchell
Ralph R. Shaw
Nancy Wilgenbusch
Officers
Diana P. Herrmann, President
Maryann Bruce, Senior Vice President
Sally J. Church, Vice President
Christine L. Neimeth, Vice President
Robert W. Anderson, Chief Compliance Officer
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
PNC Global Investment Servicing
101 Sabin Street
Pawtucket, Rhode Island 02860
Custodian
JPMorgan Chase Bank, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
Independent Registered Public Accounting Firm
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400 * Philadelphia, Pennsylvania 19103
Counsel
Butzel Long, a professional corporation
380 Madison Avenue * New York, New York 10017
Back Cover
This Prospectus concisely states information about the Trust that you should
know before investing. A Statement of Additional Information about the Trust
(the "SAI") has been filed with the Securities and Exchange Commission. The SAI
contains information about the Trust and its management not included in this
Prospectus. The SAI is incorporated by reference in its entirety in this
Prospectus and is therefore legally a part of this Prospectus. Only when you
have read both this Prospectus and the SAI are all material facts about the
Trust available to you.
You can get additional information about the Trust's investments in the Trust's
annual and semi-annual reports to shareholders. In the Trust's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Trust's performance during its last fiscal year.
You can get the SAI and the Trust's annual and semi-annual reports without
charge upon request by calling 800-437-1020 (toll-free) or by visiting the
Trust's website at www.aquilafunds.com.
In addition, you can review and copy information about the Trust (including the
SAI) at the Public Reference Room of the SEC in Washington, D.C. Information on
the operation of the Public Reference Room is available by calling 202-942-8090.
Reports and other information about the Trust are also available on the EDGAR
Database at the SEC's Internet site at http://www.sec.gov. Copies of this
information can be obtained, for a duplicating fee, by E-mail request to
publicinfo@sec.gov or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
The file number under which the Trust is registered with the SEC under the
Investment Company Act of 1940 is 811-4503.
TAX-FREE TRUST
OF OREGON
[LOGO] A tax-free
income investment
Aquila Group of Funds
PROSPECTUS
To make shareholder account inquiries, call
the Trust's Shareholder Servicing Agent at:
800-437-1000 toll-free
or you can write to
PNC Global Investment Servicing
101 Sabin Street
Pawtucket, RI 02860-1427
Ticker Symbol CUSIP #
Class A Shares ORTFX 876932104
Class C Shares ORTCX 876932203
Class I Shares ORTIX 876932401
Class Y Shares ORTYX 876932302
This Prospectus should be read and retained for future reference
Tax-Free Trust of Oregon
380 Madison Avenue Suite 2300
New York, NY 10017
800-437-1020
212-697-6666
Statement of Additional Information February 1, 2010
This Statement of Additional Information (the "SAI") is not a Prospectus.
The SAI should be read in conjunction with the Prospectus.
The Prospectus may be obtained from the Trust's Distributor,
Aquila Distributors, Inc.
380 Madison Avenue, Suite 2300, New York, NY 10017
800-437-1020 toll-free
or 212-697-6666
Financial Statements
The financial statements for the Trust for the year ended September 30,
2009, which are contained in the Annual Report for that fiscal year, are hereby
incorporated by reference into this SAI. Those financial statements have been
audited by Tait, Weller & Baker LLP, independent registered public accounting
firm, whose report thereon is incorporated herein by reference. The Annual
Report of the Trust can be obtained without charge by calling the toll-free
number listed above. The Annual Report will be delivered with the SAI.
TABLE OF CONTENTS
Trust History........................................................._
Investment Strategies and Risks......................................._
Trust Policies........................................................_
Management of the Trust..............................................__
Ownership of Securities..............................................__
Investment Advisory and Other Services...............................__
Brokerage Allocation and Other Practices.............................__
Capital Stock........................................................__
Purchase, Redemption, and Pricing of Shares..........................__
Additional Tax Information...........................................__
Underwriters.........................................................__
Appendix A...........................................................__
Tax-Free Trust of Oregon
Statement of Additional Information
Trust History
The Trust is a series of The Cascades Trust, a Massachusetts business
trust (the "Business Trust"), formed in 1985 under the name Tax-Free Trust of
Oregon. On August 10, 1989, the name of the Business Trust was changed to The
Cascades Trust. The Business Trust presently has only one active series, the
original series, which continues to be called Tax-Free Trust of Oregon.
The Trust is an open-end, non-diversified management investment
company.
Investment Strategies and Risks
Ratings
The ratings assigned by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's ("S&P") and Fitch Ratings ("Fitch"), nationally recognized
statistical rating organizations, represent their respective opinions of the
quality of the municipal bonds and notes which they undertake to rate. It should
be emphasized, however, that ratings are general and not absolute standards of
quality. Consequently, obligations with the same maturity, stated interest rate
and rating may have different yields, while obligations of the same maturity and
stated interest rate with different ratings may have the same yield.
Rating agencies consider municipal obligations that have only the
fourth highest credit rating to be of medium quality. Thus, they may present
investment risks which do not exist with more highly rated obligations. Such
obligations possess less attractive investment characteristics. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case for
higher-grade bonds.
See Appendix A to this SAI for further information about the ratings of
these organizations that apply to the various rated Oregon Obligations which the
Trust may purchase.
The table below gives information as to the percentage of Trust net
assets invested as of September 30, 2008, in Oregon Obligations in the various
rating categories:
Highest rating (1)....................................................... ___%
Second highest rating (2).................................................___%
Third highest rating (3)..................................................___%
Fourth highest rating (4).................................................___%
Not rated:................................................................___%
----
100.0%
(1) Aaa of Moody's or AAA of S&P or Fitch.
(2) Aa of Moody's or AA of S&P or Fitch.
(3) A of Moody's, S&P or Fitch.
(4) Baa of Moody's or BBB of S&P or Fitch.
Municipal Bonds
The two principal classifications of municipal bonds are "general
obligation" bonds and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith, credit and unlimited taxing power for the
payment of principal and interest. Revenue or special tax bonds are payable only
from the revenues derived from a particular facility or class of facilities or
projects or, in a few cases, from the proceeds of a special excise or other tax,
but are not supported by the issuer's power to levy unlimited general taxes.
There are, of course, variations in the security of municipal bonds, both within
a particular classification and between classifications, depending on numerous
factors. The yields of municipal bonds depend on, among other things, general
financial conditions, general conditions of the municipal bond market, the size
of a particular offering, the maturity of the obligation and the rating of the
issue.
Since the Trust may invest in industrial development bonds or private
activity bonds, the Trust may not be an appropriate investment for entities that
are "substantial users" of facilities financed by those bonds or for investors
who are "related persons" of such users. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such investor or his or
her immediate family (spouse, brothers, sisters and lineal descendants) owns
directly or indirectly in the aggregate more than 50 percent of the equity of a
corporation or is a partner of a partnership which is a "substantial user" of a
facility financed from the proceeds of those bonds. A "substantial user" of such
facilities is defined generally as a "non-exempt person who regularly uses a
part of a facility" financed from the proceeds of industrial development or
private activity bonds.
As indicated in the Prospectus, there are certain Oregon Obligations
the interest on which is subject to the Federal alternative minimum tax on
individuals. While the Trust may purchase these obligations, it may, on the
other hand, refrain from purchasing particular Oregon Obligations due to this
tax consequence. Also, as indicated in the Prospectus, the Trust will not
purchase obligations of Oregon issuers the interest on which is subject to
regular Federal income tax. The foregoing may reduce the number of issuers of
obligations that are available to the Trust.
Additional Information about the State of Oregon and Oregon Issuers
In addition to the material in the Prospectus the following is a brief summary
of the complex factors affecting the financial situation in Oregon. This
information is derived from sources that are generally available to investors
and is based in part on information obtained from various state and local
agencies in Oregon. It should be noted that the creditworthiness of obligations
issued by local Oregon issuers may be unrelated to the creditworthiness of
obligations issued by the State of Oregon, and that there is no obligation on
the part of Oregon to make payment on such local obligations in the event of
default.
Budgetary Process. The finances of the State are managed on a biennial basis. A
biennium begins July 1 and ends June 30 of odd-numbered years. After reviewing
and revising the Governor's proposed budget, the Legislative Assembly then
passes separate appropriation bills to provide expenditure authority. The
Governor may veto an entire bill or may veto individual items in a bill without
affecting any other provisions in such bill. An appropriation bill may not
contain provisions on any subject other than appropriations. The Governor's veto
may be overridden by a two-thirds vote of the Legislative Assembly, although
additional legislation may be adopted in subsequent special sessions.
Because the Oregon Legislative Assembly meets in regular session for
approximately six months of each biennium, provision is made for interim funding
through the Legislative Emergency Board. The Emergency Board is authorized to
make allocations of General Fund monies to State agencies from moneys
appropriated to it by the Legislative Assembly as a part of the State's regular
budgeting process. The Emergency Board may also authorize increases in
expenditure limitations from Other or Federal Funds (dedicated or continuously
appropriated funds), and may take other actions to meet emergency needs when the
Legislative Assembly is not in session. The Legislative Assembly may also meet
in special session during the biennium to adjust the budget in accordance with
any significant revenue shortfall.
A central feature of the budgeting process in the State is the constitutional
requirement that the budget be in balance at the end of each biennium. The State
may not budget a deficit and is required to alleviate any revenue shortfalls
within each biennium. Article IX, section 6 of the Oregon Constitution states
that "whenever the expenses, of any fiscal year, shall exceed the income, the
Legislative Assembly shall provide for levying a tax, for the ensuing fiscal
year, sufficient, with other sources of income, to pay the deficiency, as well
as the estimated expense of the ensuing fiscal year." Article IX, section 2 of
the Oregon Constitution states that "The Legislative Assembly shall provide for
raising revenue sufficiently to defray the expenses of the State for each fiscal
year, and also a sufficient sum to pay the interest of each State debt, if there
be any. The State has several basic tools available to balance the budget
including, but not limited to, tax increases, fee increases, and expenditure
reductions. Since other provisions of the Oregon Constitution limit the ability
of the Legislative Assembly to raise taxes, bills to increase taxes must be
approved by a three-fifths vote of each house of the Legislative Assembly and
may be referred to the voters. The Legislative Assembly does not always increase
taxes to balance the budget. Instead, the Legislative Assembly may balance the
budget by increasing fees (bills to increase fees do not require three-fifths
approval) or by reducing expenditures.
Revenue and Expenditures. The Oregon Biennial budget is a two-year fiscal plan
balancing proposed spending against expected revenues. The total budget consists
of four segments distinguished by source of revenue: programs supported by
General Fund revenues; programs supported by Other Funds (dedicated fund)
revenues, lottery funds, and Federal Funds. In its 2009 Regular Session, the
Oregon Legislative Assembly approved General Fund and Lottery appropriations
totaling approximately $14.2 billion for the 2009-2011 biennium. The Legislative
Assembly enacted two bills during the 2009 Regular Session that would increase
personal and corporate income taxes beginning with the 2009 tax year. Opponents
of the tax increases have submitted sufficient qualified signatures to refer
each increase to a special election to be held just prior to the publication of
this document, January 26, 2010.
The State of Oregon has two Reserve Funds, the Education Stability Fund (ESF)
and the Oregon Rainy Day Fund (RDF). The ESF receives 18% of the net proceeds
from the State Lottery. The Legislative Assembly can appropriate all or a
portion of the money for public education expenditures. The RDF was initially
funded by the retention of the corporate kicker, the difference between actual
receipts from corporate and excise taxes and the estimated collection during the
2005-2007 biennium. Future deposits to the RDF will be made up to an amount
equaling up to one percent of the States General Fund appropriations for a
biennium. If 3/5ths of the Legislative Assembly approves the Assembly can
appropriate up to two-thirds of the money from the RDF if: (1) General Fund
moneys in the next biennium will be at least three percent below the current
biennium appropriations; (2) nonfarm employment has declined for two consecutive
quarters in the last twelve months or (3) general fund revenues have dropped at
least two percent below the current close of session forecast.
Debt Administration and Limitation. Oregon statutes give the State Treasurer
authority to review and approve the terms and conditions of sale for State
agency bonds. The Governor, by statute, seeks the advice of the State Treasurer
when recommending the total biennial bonding level for State programs. Agencies
may not request that the Treasurer issue bonds or certificates of participation
unless so authorized in the "biennial bonding bill." Statutes contain management
and reporting requirements for state agencies on proposed and outstanding debt.
A variety of general obligation and revenue bond programs have been approved in
Oregon to finance public purpose programs and projects. General obligation bond
authority requires voter approval or a constitutional amendment, while revenue
bonds may be issued under statutory authority. However, under the Oregon
Constitution the state may issue up to $50,000 of general obligation debt
without specific voter approval. The State Legislative Assembly has the right to
place limits on general obligation bond programs which are more restrictive than
those approved by the voters. General obligation authorizations are normally
expressed as a percentage of statewide value of taxable property. Revenue bonds
usually are limited by the Legislative Assembly to a specific dollar amount.
The authorized general obligation debt is broken down into two categories,
general fund supported and fully self supporting. Examples of General Fund
supported are Higher Education Facility, Pollution Control, School Bond Guaranty
program, and Pension Obligation bonds. Fully self supporting include Veterans
Welfare, Higher Education, Pollution Control, Water resources, Elderly &
Disabled Housing, and Alternate Energy project bonds. Facilities acquired under
the pollution control program are required to conservatively appear to be at
least 70 percent self-supporting and self-liquidating from revenue, gifts,
federal government grants, user charges, assessments, and other fees, therefore
they can be found under both categories. As of June 2009, the total balance of
general obligation bonds was $4.62 billion. As of June 2009 the debt service
requirements for general obligation bonds, including interest of approximately
$3.0 billion, was $7.62 billion.
In November 1998, voters approved the Oregon School Bond Guaranty Act. This law
authorizes the state to use its full faith, credit and unlimited taxing power
pledge to guarantee the timely payment for qualifying school district general
obligation bonds. As of June 2009 the state has guaranteed approximately $3.2
billion through this program.
Throughout the biennium, the General Fund experiences regular mismatches in the
timing of revenue receipts and required expenditures. In the past the state had
used interfund borrowings to correct these mismatches. The Legislature
authorized the use of Tax anticipation notes as a short term borrowing tool to
help manage the State's cash. The Tax anticipation notes are full faith and
credit obligations of the State, to which the State pledges all available funds.
Revenue bonds are accounted for through direct revenue and conduit revenue
bonds. Examples of direct revenue include lottery, transportation, highway user
tax, single and multi-family housing and economic development. Conduit revenue
includes industrial development revenue bonds ("IDBs"), Oregon Facilities
Authority ("OFA") revenue bonds and some multi-family housing revenue bonds. The
IDBs are issued to finance the expansion, enhancement, or relocation of private
industry in the State. Before such bonds are issued, the project application
must be reviewed and approved by both the Oregon State Treasury and the Oregon
Economic Development Commission. Strict guidelines for eligibility have been
developed to ensure that the program meets a clearly defined development
objective. IDBs issued by the State are secured solely by payments from the
private company and there is no obligation, either actual or implied, to provide
state funds to secure the bonds. OFA is a public corporation created in 1989 to
assist with the assembling and financing of lands for health care, housing,
educational and cultural uses, and for the construction and financing of
facilities for such uses. The authority reviews proposed projects and makes
recommendations to the State Treasurer as to the issuance of bonds to finance
proposed projects. The State has no financial obligation for these bonds, which
are secured solely by payments from the entities for which projects were
financed.
The State is statutorily authorized to enter into financing agreements though
the issuance of certificates of participation. Certificates of participation
have been used for the acquisition of computer systems by the Department of
Transportation, Department of Administrative Services, and the Oregon University
System. Also, certificates of participation have been used for the acquisition,
construction, or remodeling of buildings by the Departments of Administrative
Services, Fish and Wildlife, Agriculture, Oregon University System, Forestry,
Military, Corrections, the State Fair, Public Employees Retirement System, and
Oregon Youth Authority. Further, certificates of participation were used in the
acquisition of telecommunication systems by the Department of Administrative
Services and the Adult & Family Services Division. As of June 2009, the
certificates of participation debt totaled $1.3 billion.
In order to balance the budget for the 2001-2003 biennium the Legislature
authorized the issuance of approximately $431.5 million in bonds subject to
appropriation. As of June 2009, $280.08 million were outstanding. The State does
not have authority to issue more of these bonds.
The Treasurer on behalf of the State may also issue Federally taxable bonds in
those situations where securing a Federal tax exemption is unlikely or
undesirable; regulate "current" as well as "advance" refunding bonds; enter into
financing agreements, including lease purchase agreements, installment sales
agreements and loan agreements to finance real or personal property; and approve
certificates of participation with respect to the financing agreements. Amounts
payable by the State under a financing agreement are limited to funds
appropriated or otherwise made available by the Legislative Assembly for such
payment. The principal amount of such financing agreements is treated as bonds
subject to maximum annual bonding levels established by the Legislative Assembly
under Oregon statutes.
The State Constitution reserves to the people of the State (1) the initiative
power to amend the State constitution or to enact State legislation by placing
measures on the statewide general election ballot for consideration by the
voters and (2) the referendum power to approve or reject at an election any act
passed by the Legislative Assembly that does not become effective earlier than
90 days after the end of the legislative session. The complete picture as to the
fiscal impact of these initiatives may take years to resolve. One case in point
is in November 2004 Oregonians passed citizen initiative "Measure 37", an
initiative designed to entitle certain landowners either compensation for the
decline in value of their property as the result of certain land use regulations
or to have the property released from restrictions. Claimants had approximately
two years to file a claim at the end of the initial period the State had
received more than 6,800 Measure 37 claims. The State estimates that the
compensation requested under those claims exceeded $19 billion. The State did
not pay any compensation and denied claims or waived regulations for the claims
submitted. Then in the 2007 General Election Oregonians essentially modified
Measure 37 with Measure 49. Measure 49 basically stated that Measure 37
claimants are not entitled to monetary compensation, rather relief would be
granted through "home site approvals", which allowed the rights to build up to
three home sites or conditionally four to ten home sites. Measure 49 also
allowed for development rights to be transferred, reserves the claims process
for future land use and a methodology for determining the value of the
compensation. Numerous claims have been filed regarding the State's actions in
waiving or denying the Measure 37 claims. The State contends that Measure 49
makes most Measure 37 claims moot, however it will take some time for the
judicial system to work through the claims.
Frequently the State is subject to cases challenging expenditure reductions. It
is difficult to gauge the exact impact to the State and it is likely that as
future expenditure reductions go into effect, further lawsuits will be filed.
When-Issued and Delayed Delivery Obligations
The Trust may buy Oregon Obligations on a when-issued or delayed
delivery basis. The purchase price and the interest rate payable on the Oregon
Obligations are fixed on the transaction date. At the time the Trust makes the
commitment to purchase Oregon Obligations on a when-issued or delayed delivery
basis, it will record the transaction and thereafter reflect the value each day
of such Oregon Obligations in determining its net asset value. The Trust will
make commitments for such when-issued transactions only when it has the
intention of actually acquiring the Oregon Obligations.
Determination of the Marketability of Certain Securities
In determining marketability of floating and variable rate demand notes
and participation interests (including municipal lease/purchase obligations) the
Board of Trustees will consider the Sub-Adviser's opinion as to marketability of
the issue and other factors that may be applicable to any particular issue.
Futures Contracts and Options
The Trust is permitted to buy and sell futures contracts relating to
municipal security indices ("Municipal Security Index Futures") and to U.S.
Government securities ("U.S. Government Securities Futures," together referred
to as "Futures"), and exchange-traded options based on Futures as a possible
means of protecting the asset value of the Trust during periods of changing
interest rates. The following discussion is intended to explain briefly the
workings of Futures and options on them.
Unlike when the Trust purchases or sells an Oregon Obligation, no price
is paid or received by the Trust upon the purchase or sale of a Future.
Initially, however, when such transactions are entered into, the Trust will be
required to deposit with the futures commission merchant ("broker") an amount of
cash or Oregon Obligations equal to a varying specified percentage of the
contract amount. This amount is known as initial margin. Subsequent payments,
called variation margin, to and from the broker, will be made on a daily basis
as the price of the underlying index or security fluctuates making the Future
more or less valuable, a process known as marking to market. Insolvency of the
broker may make it more difficult to recover initial or variation margin.
Changes in variation margin are recorded by the Trust as unrealized gains or
losses. Margin deposits do not involve borrowing by the Trust and may not be
used to support any other transactions. At any time prior to expiration of the
Future, the Trust may elect to close the position by taking an opposite position
which will operate to terminate the Trust's position in the Future. A final
determination of variation margin is then made. Additional cash is required to
be paid by or released to the Trust and it realizes a gain or a loss. Although
Futures by their terms call for the actual delivery or acceptance of cash, in
most cases the contractual obligation is fulfilled without having to make or
take delivery. All transactions in the futures markets are subject to
commissions payable by the Trust and are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are traded.
Although the Trust intends to buy and sell Futures only on an exchange where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market will exist for any particular Future at any particular
time. In such event, or in the event of an equipment failure at a clearing
house, it may not be possible to close a futures position.
Municipal Security Index Futures are futures contracts based on an
index of municipal bonds. Daily values are assigned to the bonds included in the
index based on the independent assessment of a pricing service, and the value of
the index fluctuates with changes in those constituent values. The two parties
to the contract agree to take or make delivery of a cash amount based on the
difference between the value of the index on the last trading day of the
contract and the price at which the contract was originally struck.
The Municipal Security Index Futures contract is traded on the CBT.
Like other contract markets, the CBT assures performance under futures contracts
through a clearing corporation, a nonprofit organization managed by the exchange
membership which is also responsible for handling daily accounting of deposits
or withdrawals of margin.
There are as of the date of this Statement of Additional Information
U.S. Government Securities Futures contracts based on long-term Treasury bonds,
Treasury notes, GNMA Certificates and three-month Treasury bills. U.S.
Government Securities Futures have traded longer than Municipal Security Index
Futures, and the depth and liquidity available in the trading markets for them
are in general greater.
Call Options on Futures Contracts. The Trust may also purchase and sell
exchange-traded call and put options on Futures. The purchase of a call option
on a Future is analogous to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the Future
upon which it is based, or upon the price of the underlying debt securities, it
may or may not be less risky than ownership of the futures contract or
underlying debt securities. Like the purchase of a futures contract, the Trust
may purchase a call option on a Future to hedge against a market advance when
the Trust is not fully invested.
The writing of a call option on a Future constitutes a partial hedge
against declining prices of the securities which are deliverable upon exercise
of the Future. If the price at expiration of the Future is below the exercise
price, the Trust will retain the full amount of the option premium which
provides a partial hedge against any decline that may have occurred in the
Trust's portfolio holdings.
Put Options on Futures Contracts. The purchase of put options on a
Future is analogous to the purchase of protective put options on portfolio
securities. The Trust may purchase a put option on a Future to hedge the Trust's
portfolio against the risk of rising interest rates.
The writing of a put option on a Future constitutes a partial hedge
against increasing prices of the securities which are deliverable upon exercise
of the Future. If the Future price at expiration is higher than the exercise
price, the Trust will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of securities which
the Trust intends to purchase.
The writer of an option on a Future is required to deposit initial and
variation margin pursuant to requirements similar to those applicable to
Futures. Premiums received from the writing of an option will be included in
initial margin. The writing of an option on a Future involves risks similar to
those relating to Futures.
Risk Factors in Futures Transactions and Options
One risk in employing Futures or options on Futures to attempt to
protect against the price volatility of the Trust's Oregon Obligations is that
the Sub-Adviser could be incorrect in its expectations as to the extent of
various interest rate movements or the time span within which the movements take
place. For example, if the Trust sold a Future in anticipation of an increase in
interest rates, and then interest rates went down instead, the Trust would lose
money on the sale.
Another risk as to Futures or options on them arises because of the
imperfect correlation between movement in the price of the Future and movements
in the prices of the Oregon Obligations which are the subject of the hedge. The
risk of imperfect correlation increases as the composition of the Trust's
portfolio diverges from the municipal securities included in the applicable
index or from the securities underlying the U.S. Government Securities Futures.
The price of the Future or option may move more than or less than the price of
the Oregon Obligations being hedged. If the price of the Future or option moves
less than the price of the Oregon Obligations which are the subject of the
hedge, the hedge will not be fully effective but, if the price of the Oregon
Obligations being hedged has moved in an unfavorable direction, the Trust would
be in a better position than if it had not hedged at all. If the price of the
Oregon Obligations being hedged has moved in a favorable direction, this
advantage will be partially offset by the Future or option. If the price of the
Future or option has moved more than the price of the Oregon Obligations, the
Trust will experience either a loss or gain on the Future or option which will
not be completely offset by movements in the price of the Oregon Obligations
which are the subject of the hedge. To compensate for the imperfect correlation
of movements in the price of the Oregon Obligations being hedged and movements
in the price of the Futures or options, the Trust may buy or sell Futures or
options in a greater dollar amount than the dollar amount of the Oregon
Obligations being hedged if the historical volatility of the prices of the
Oregon Obligations being hedged is less than the historical volatility of the
debt securities underlying the hedge. It is also possible that, where the Trust
has sold Futures or options to hedge its portfolio against decline in the
market, the market may advance and the value of the Oregon Obligations held in
the Trust's portfolio may decline. If this occurred the Trust would lose money
on the Future or option and also experience a decline in value of its portfolio
securities.
Where Futures or options are purchased to hedge against a possible
increase in the price of Oregon Obligations before the Trust is able to invest
in them in an orderly fashion, it is possible that the market may decline
instead; if the Trust then decides not to invest in the Oregon Obligations at
that time because of concern as to possible further market decline or for other
reasons, the Trust will realize a loss on the Futures or options that is not
offset by a reduction in the price of the Oregon Obligations which it had
anticipated purchasing.
The particular municipal securities comprising the index underlying
Municipal Security Index Futures will vary from the bonds held by the Trust. The
correlation of the hedge with such bonds may be affected by disparities in the
average maturity, ratings, geographical mix or structure of the Trust's
investments as compared to those comprising the Index, and general economic or
political factors. In addition, the correlation between movements in the value
of the Municipal Security Index may be subject to change over time, as additions
to and deletions from the Municipal Security Index alter its structure. The
correlation between U.S. Government Securities Futures and the municipal bonds
held by the Trust may be adversely affected by similar factors and the risk of
imperfect correlation between movements in the prices of such Futures and the
prices of municipal obligations held by the Trust may be greater.
Trading in Municipal Security Index Futures may be less liquid than
trading in other Futures. The trading of Futures and options is also subject to
certain market risks, such as inadequate trading activity or limits on upward or
downward price movements which could at times make it difficult or impossible to
liquidate existing positions.
Regulatory Aspects of Futures and Options
The Trust will, due to requirements under the Investment Company Act of
1940 (the "1940 Act"), deposit in a segregated account Oregon Obligations
maturing in one year or less or cash, in an amount equal to the fluctuating
market value of long Futures or options it has purchased, less any margin
deposited on long positions.
The Trust must operate as to its long and short positions in Futures in
conformity with restrictions it has committed to pursuant to a rule (the "CFTC
Rule") adopted by the Commodity Futures Trading Commission ("CFTC") under the
Commodity Exchange Act (the "CEA") to be eligible for the exclusion provided by
the CFTC Rule from qualification as a "commodity pool operator" (as defined
under the CEA). Under these restrictions the Trust will not, as to any
positions, whether long, short or a combination thereof, enter into Futures or
options for which the aggregate initial margins and premiums paid for options
exceed 5% of the fair market value of its assets. Under the restrictions, the
Trust also must, as to its short positions, use Futures and options solely for
bona-fide hedging purposes within the meaning and intent of the applicable
provisions under the CEA. As to the Trust's long positions which are used as
part of its portfolio strategy and are incidental to its activities in the
underlying cash market, the "underlying commodity value" (see below) of its
Futures must not exceed the sum of (i) cash set aside in an identifiable manner,
or short-term U.S. debt obligations or other U.S. dollar-denominated high
quality short-term money market instruments so set aside, plus any funds
deposited as margin; (ii) cash proceeds from existing investments due in 30 days
and (iii) accrued profits held at the futures commission merchant. (There is
described above the segregated account which the Trust must maintain as to its
Futures and options activities due to requirements other than those described in
this paragraph; the Trust will, as to long positions, be required to abide by
the more restrictive of the two requirements.) The "underlying commodity value"
of a Future or option is computed by multiplying the size of the Future by the
daily settlement price of the Future or option.
The "sale" of a Future means the acquisition by the Trust of an
obligation to deliver an amount of cash equal to a specified dollar amount times
the difference between the value of the index or government security at the
close of the last trading day of the Future and the price at which the Future is
originally struck (which the Trust anticipates will be lower because of a
subsequent rise in interest rates and a corresponding decline in the index
value). This is referred to as having a "short" Futures position. The "purchase"
of a Future means the acquisition by the Trust of a right to take delivery of
such an amount of cash. In this case, the Trust anticipates that the closing
value will be higher than the price at which the Future is originally struck.
This is referred to as having a "long" futures position. No physical delivery of
the bonds making up the index or the U.S. government securities, as the case may
be, is made as to either a long or a short futures position.
Trust Policies
Investment Restrictions
The Trust has a number of policies concerning what it can and cannot
do. Those that are called fundamental policies cannot be changed unless the
holders of a "majority" (as defined in the 1940 Act) of the Trust's outstanding
shares vote to change them. Under the 1940 Act, the vote of the holders of a
"majority" of the Trust's outstanding shares means the vote of the holders of
the lesser of (a) 67% or more of the dollar value of the Trust's shares present
at a meeting or represented by proxy if the holders of more than 50% of the
dollar value of its shares are so present or represented; or (b) more than 50%
of the dollar value of the Trust's outstanding shares. Those fundamental
policies not set forth in the Prospectus are set forth below:
1. The Trust invests only in certain limited securities.
The Trust cannot buy any securities other than Oregon Obligations
(discussed under "Investment of the Trust's Assets" in the Prospectus and in
"Investment Strategies and Risks" in the SAI), Municipal Security Index Futures,
U.S. Government Securities Futures and options on such Futures; therefore the
Trust cannot buy any voting securities, any commodities or commodity contracts
other than Municipal Security Index Futures and U.S. Government Securities
Futures, any mineral related programs or leases, any shares of other investment
companies or any warrants, puts, calls or combinations thereof other than on
Futures.
The Trust cannot purchase or hold the securities of any issuer if, to
its knowledge, Trustees, Directors or officers of the Fund, its Adviser or
Sub-Adviser who individually own beneficially more than 0.5% of the securities
of that issuer, together own in the aggregate more than 5% of such securities.
The Trust cannot buy real estate or any non-liquid interests in real
estate investment trusts; however, it can buy any securities which it can
otherwise buy even though the issuer invests in real estate or has interests in
real estate.
2. The Trust does not buy for control.
The Trust cannot invest for the purpose of exercising control or
management of other companies.
3. The Trust does not sell securities it does not own or borrow from brokers to
buy securities.
Thus, it cannot sell short or buy on margin; however, the Trust can
make margin deposits in connection with the purchase or sale of Municipal
Security Index Futures, U.S. Government Securities Futures and options on them,
and can pay premiums on these options.
4. The Trust is not an underwriter.
The Trust cannot engage in the underwriting of securities, that is, the
selling of securities for others. Also, it cannot invest in restricted
securities. Restricted securities are securities which cannot freely be sold for
legal reasons.
5. The Trust has industry investment requirements.
The Trust cannot buy the obligations of issuers in any one industry if
more than 25% of its total assets would then be invested in securities of
issuers of that industry; the Trust will consider that a non-governmental user
of facilities financed by industrial development bonds is an issuer in an
industry.
6. The Trust cannot make loans.
The Trust can buy those Oregon Obligations which it is permitted to
buy; this is investing, not making a loan. The Trust cannot lend its portfolio
securities.
7. The Trust can borrow only in limited amounts for special purposes.
The Trust can borrow from banks for temporary or emergency purposes but
only up to 10% of its total assets. It can mortgage or pledge its assets only in
connection with such borrowing and only up to the lesser of the amounts borrowed
or 5% of the value of its total assets. However, this shall not prohibit margin
arrangements in connection with the purchase or sale of Municipal Security Index
Futures, U.S. Government Securities Futures or options on them, or the payment
of premiums on those options. Interest on borrowings would reduce the Trust's
income.
Except in connection with borrowings, the Trust will not issue senior
securities.
The Trust will not purchase any Oregon Obligations, Futures or options
on Futures while it has any outstanding borrowings which exceed 5% of the value
of its total assets.
8. The Trust's investment in obligations subject to the Federal alternative
minimum tax is limited.
As a fundamental policy, at least 80% of the Trust's net assets will be
invested in Oregon Obligations the income paid upon which will not be subject to
the alternative minimum tax; accordingly, the Trust can invest up to 20% of its
net assets in obligations that are subject to the Federal alternative minimum
tax.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities for a year and
dividing it by the monthly average value of such securities during the year,
excluding certain short-term securities. Since the turnover rate of the Trust
will be affected by a number of factors, the Trust is unable to predict what
rate the Trust will have in any particular period or periods, although such rate
is not expected to exceed 100%. However, the turnover rate could be
substantially higher or lower in any particular period.
Management of the Trust
The Board of Trustees
The business and affairs of the Trust are managed under the direction
and control of its Board of Trustees. The Board of Trustees has authority over
every aspect of the Trust's operations, including approval of the advisory and
any sub-advisory agreements and their annual renewal, the contracts with all
other service providers and payments under the Trust's Distribution Plan and
Shareholder Services Plan.
The Trust has an Audit Committee, consisting of all of the Trustees who
are "independent" and are not "interested persons" of the Trust. The Committee
determines what independent registered public accounting firm will be selected
by the Board of Trustees, reviews the methods, scope and result of audits and
the fees charged, and reviews the adequacy of the Trust's internal accounting
procedures and controls. The Audit Committee held five meetings during the last
fiscal year.
The Trust has a Nominating Committee, consisting of all of the
non-interested Trustees. The Nominating Committee held one meeting during the
last fiscal year. The committee will consider nominees recommended by the
shareholders who may send recommendations to the committee in care of the
Manager at 380 Madison Avenue, New York, NY 10017.
Trustees and Officers
The following material includes information about each Trustee, officer
and Trustee Emeritus of the Trust. All shares of the Trust listed as owned by
the Trustees are Class A Shares unless indicated otherwise.
Number of
Positions Held Portfolios Other Directorships
with in Fund Held by Trustee
Trust and Complex (The position held is
Name, Address(1) Length of Principal Occupation(s) Overseen a directorship unless
and Date of Birth Service(2) During Past 5 Years by Trustee indicated otherwise.)
------------------ ------------ ------------------- ---------- ---------------------
Interested
Trustees(3)
Diana P. Herrmann Vice Chair of Vice Chair and Chief Executive 12 ICI Mutual Insurance Company
New York, NY the Board of Officer of Aquila Management
(02/25/58) Trustees since Corporation, Founder of the
2003, Aquila Group of Funds(4) and
President parent of Aquila Investment
since 1998 and Management LLC, Manager since
Trustee since 2004, President since 1997,
1994 Chief Operating Officer,
1997-2008, 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, President and Manager of
the Manager since 2003, and
Chief Operating Officer of the
Manager, 2003-2008; Chair, Vice
Chair, President, Executive
Vice President and/or Senior
Vice President of funds in the
Aquila Group of Funds since
1986; Director of the
Distributor since 1997;
Governor, Investment Company
Institute (a trade organization
for the U.S. mutual fund
industry dedicated to
protecting shareholder
interests and educating the
public about investing) for
various periods, 2004-2009, and
head of its Small Funds
Committee, 2004-2009; active in
charitable and volunteer
organizations.
John W. Mitchell Trustee since Principal of M & H Economic 1 Oregon Mutual Insurance;
Portland, OR 1999 Consultants; Economist, Western Western Capital Corporation
(07/13/44) Region, for U. S. Bancorp
1998-2007; Chief Economist,
U.S. Bancorp, Portland, Oregon,
1983-1998; member, Oregon
Governor's Council of Economic
Advisors, 1984-1998; Chairman,
Oregon Governor's Technical
Advisory Committee for Tax
Review in 1998.
Non-interested Trustees
James A. Gardner Chair of the President, Gardner Associates, 1 None
Terrebonne, OR Board of an investment and real estate
(07/22/43) Trustees since firm, since 1989; Founding
2005 and Partner and Chairman, Ranch of
Trustee since the Canyons, a real estate
1986 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.
Gary C. Cornia Trustee since Dean, Marriott School of 5 Lincoln Institute of
Orem, UT 2002 Management, Brigham Young Land Policy, Cambridge,
(06/24/48) University, since 2008; MA
Director, Romney Institute of
Public Management, Marriott
School of Management, 2004-2008;
Professor, Marriott School of
Management, 1980-present; Past
President, the National Tax
Association; Fellow, Lincoln
Institute of Land Policy,
2002-present; Associate Dean,
Marriott School of Management,
Brigham Young University,
1991-2000; member, Utah
Governor's Tax Review Committee
since 1993.
Edmund P. Jensen Trustee since President and CEO, VISA 1 BMG-Seltec, a software
Portland, OR 2003 International, 1994-1999; Vice company;
(04/13/37) Chairman and Chief Operating CreditCards.com, a
Officer, US Bancorp, 1974-1994. credit card search
company.
Ralph R. Shaw Trustee since President, Shaw Management 1 Schnitzer Steel
Portland, OR 2000 Company, an investment Industries, Inc.,
(08/23/38) counseling firm, 1980-present; Telestream, Inc., BMG
General Partner, Shaw Venture Seltec Corporation,
Partners, 1983-2005; Shaw Rentrak Corporation,
Venture Partners II, 1987-2005; One-to-One Interactive,
and Shaw Venture Partners III, Optimum Energy Co.
1994-2005 (US Bancorp, parent of
the Sub-Adviser, was a limited
partner in these three ventures).
Nancy Wilgenbusch Trustee since President Emerita since 2008 and 1 West Coast Bank; Cascade
Marylhurst, OR 2002 President 1984-2008, Marylhurst Corporation, a leading
(09/17/47) University; member, former international
Chair, Portland Branch of the manufacturer of lift
Federal Reserve Bank of San truck attachments.
Francisco; active board member
of a number of civic
organizations.
Other Individuals
Trustees Emeritus((5))
Lacy B. Herrmann Founder and Founder and Chairman of the N/A N/A
New York, NY Chairman Board, Aquila Management
(05/12/29) Emeritus Corporation, the sponsoring
since 2005; organization and parent of the
Chairman of Manager or Administrator and/or
the Board of Adviser or Sub-Adviser to each
Trustees fund of the Aquila Group of
1985-2004 and Funds; Chairman of the Manager
Trustee, or Administrator and/or Adviser
1985-2005 or Sub-Adviser to each since
2004; Founder and Chairman
Emeritus of each fund in the
Aquila Group of Funds;
previously Chairman and a
Trustee of each fund in the
Aquila Group of Funds since its
establishment until 2004 or
2005; Director of the
Distributor since 1981 and
formerly Vice President or
Secretary, 1981-1998; Director
or trustee, Premier VIT,
1994-2009; Director or trustee
of Oppenheimer Quest Value Funds
Group, Oppenheimer Small Cap
Value Fund, Oppenheimer Midcap
Fund, 1987-2009, and Oppenheimer
Rochester Group of Funds,
1995-2009; Trustee Emeritus,
Brown University and the Hopkins
School; active in university,
school and charitable
organizations.
Vernon R. Alden Trustee Retired; former director or N/A N/A
Boston, MA Emeritus since trustee of various Fortune 500
(04/07/23) 2006 companies, including
Colgate-Palmolive and McGraw
Hill; formerly President of
Ohio University and Associate
Dean of the Harvard University
Graduate School of Business
Administration; Trustee,
Narragansett Insured Tax-Free
Income Fund, 1992-2006,
Tax-Free Trust of Oregon,
1988-2001 and 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,
1989-2001; Trustee Emeritus,
Tax-Free Trust of Oregon since
2006; member of several
Japan-related advisory
councils, including Chairman of
the Japan Society of Boston;
trustee of various cultural,
educational and civic
organizations.
David B. Frohnmayer Trustee President, University of Oregon N/A N/A
Eugene, OR Emeritus since since 1994; former Dean of the
(07/09/40) 2003 University of Oregon Law School
and former Attorney General of
the State of Oregon; Trustee,
Tax-Free Trust of Oregon,
1997-2003.
Patricia L. Moss Trustee President and Chief Executive N/A N/A
Bend, OR Emeritus since Officer, Cascade Bancorp and
(07/23/53) 2005 Bank of the Cascades since 1998;
Trustee, Tax-Free Trust of
Oregon, 2002-2005; active in
community and educational
organizations.
Officers
Charles E. Executive Vice Executive Vice President of all N/A N/A
Childs, III President funds in the Aquila Group of
New York, NY since 2003 Funds and the Manager and the
(04/01/57) Manager's parent since 2003;
Executive Vice President and
Chief Operating Officer of the
Manager and the Manager's parent
since 2008; formerly Senior Vice
President, corporate
development, 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.
Maryann Bruce Senior Vice President, Aquila Distributors, N/A N/A
Cornelius, NC President Inc., since 2008; Senior Vice
(04/01/60) since 2009 President of each of the equity
and bond funds in the Aquila
Group of Funds since 2009;
Executive Managing Director,
Evergreen Investments,
2004-2007, President, Evergreen
Investment Services, Inc.,
1999-2007; President and CEO,
Allstate Financial Distributors,
Inc., 1998-1999; Senior Vice
President and Director Financial
Institution Division,
OppenheimerFunds, Inc.,
1990-1998, Regional Vice
President, 1987-1990; Vice
President and Mutual Fund
Marketing Manager, J.C. Bradford
& Company, 1982-1987.
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.
Robert W. Anderson Chief Chief Compliance Officer of the N/A N/A
New York, NY (08/23/40) Compliance Trust and each of the other
Officer since funds in the Aquila Group of
2004 and Funds, the Manager and the
Assistant Distributor since 2004,
Secretary Compliance Officer of the
since 2000 Manager or its predecessor and
current parent 1998-2004;
Assistant Secretary of the
Aquila Group of Funds since 2000.
Joseph P. DiMaggio Chief Chief Financial Officer of each N/A N/A
New York, NY Financial fund in the Aquila Group of
(11/06/56) Officer since Funds since 2003 and Treasurer
2003 and since 2000.
Treasurer
since 2000
Edward M. W. Hines Secretary Shareholder of Butzel Long, a N/A N/A
New York, NY since 1985 professional corporation,
(12/16/39) counsel to the Trust, since
2007; Partner of Hollyer Brady
Barrett & Hines LLP, its
predecessor as counsel,
1989-2007; Secretary of each
fund in the Aquila Group of
Funds.
John M. Herndon Assistant Assistant Secretary of each fund N/A N/A
New York, NY (12/17/39) Secretary in the Aquila Group of Funds
since 1995 since 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 each fund N/A N/A
New York, NY Treasurer in the Aquila Group of Funds
(11/02/66) since 2000 since 2000; Assistant Vice
President of the Manager or its
predecessor and current parent
since 1998; Fund Accountant for
the Aquila Group of Funds,
1995-1998.
(1) The mailing address of each Trustee and officer is c/o Tax-Free Trust of
Oregon, 380 Madison Avenue, New York, NY 10017.
(2) 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.
(3) Ms. Herrmann is an interested person of the Trust as an officer of the
Trust, as a director, officer and shareholder of the Manager's corporate parent,
as an officer and Manager of the Manager, and as a shareholder and director of
the Distributor. Ms. Herrmann is the daughter of Lacy B. Herrmann, the Founder
and Chairman Emeritus of the Trust. Mr. Mitchell is an interested person as a
security holder of the Sub-Adviser's parent.
(4) 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 Municipal Bond
Funds"; Aquila Rocky Mountain Equity Fund is an equity fund; and Aquila Three
Peaks High Income Fund is a high income corporate bond fund; considered
together, these 12 funds are called the "Aquila Group of Funds."
(5) A Trustee Emeritus may attend Board meetings but has no voting power.
Securities Holdings of the Trustees
-----------------------------------
(as of 12/31/09)
TO BE UPDATED
Dollar Range of Aggregate Dollar Range of Ownership in
Name of Ownership in Tax-Free the Aquila Group of Funds
Trustee Trust of Oregon(1) Overseen by Trustee(1)
------- --------------- -------------------
Interested Trustees
Diana P. Herrmann C E
John W. Mitchell D D
Non-interested Trustees
James A. Gardner C C
Gary C. Cornia D E
Edmund P. Jensen C C
Ralph R. Shaw C C
Nancy Wilgenbusch C C
(1) A. None
B. $1-$10,000
C. $10,001-$50,000
D. $50,001-$100,000
E. over $100,000
None of the non-interested Trustees or their immediate family members
holds of record or beneficially any securities of the Manager, the Sub-Adviser
or the Distributor.
Trustee Compensation
The Trust does not currently pay fees to any of the Trust's officers or
to Trustees affiliated with the Manager or the Sub-Adviser. For its fiscal year
ended September 30, 2009, the Trust paid a total of $__________ in compensation
and reimbursement of expenses to the Trustees. No other compensation or
remuneration of any type, direct or contingent, was paid by the Trust to its
Trustees.
The Trust is one of the twelve funds in the Aquila Group of Funds,
which consists of three money-market funds, seven tax-free municipal bond funds,
a high-income corporate bond fund and an equity fund. The following table lists
the compensation of all non-interested Trustees who received compensation from
the Trust and the compensation they received during the Trust's fiscal year from
other funds in the Aquila Group of Funds. None of such Trustees has any pension
or retirement benefits from the Trust or any of the other funds in the Aquila
Group of Funds.
TO BE UPDATED
Compensation
from all Number of
funds in the boards on
Compensation Aquila which the
From the Group of Trustee now
Name Trust Funds serves
James A.
Gardner $39,000 $39,000 1
Gary C.
Cornia $22,000 $65,000 5
Edmund P.
Jensen $20,500 $20,500 1
John W.
Mitchell $21,000 $21,000 1
Ralph R.
Shaw $29,000 $29,000 1
Nancy
Wilgenbusch $20,500 $20,500 1
Class A Shares may be purchased without a sales charge by the Trust's
Trustees and officers. (See "Reduced Sales Charges for Certain Purchases of
Class A Shares," below).
Ownership of Securities
On January ___, 2010, the following persons held 5% or more of any
class of the Trust's outstanding shares. On the basis of information received
from these institutional holders, the Trust's management believes that all of
the shares indicated are held by them for the benefit of clients.
TO BE UPDATED:
Name and Address
of the Holder of
Record Number of Shares Percent of Class
Merrill Lynch Pierce Fenner & Smith
4800 Deer Lake Drive East 109,828 Class C Shares 6.70%
Jacksonville, FL 298,249 Class Y Shares 5.21%
South Valley Bank and Trust
P.O. Box 1784
Medford, OR 308,203 Class Y Shares 5.39%
Charles Schwab and Company
101 Montgomery Street
San Francisco, CA 720,110 Class Y Shares 12.59%
US Bank National Association
P.O. Box 1787
Milwaukee, WI 430,296 Class Y Shares 7.52%
Additional 5% shareholders
The Trust's management is not aware of any other person beneficially owning more
than 5% of any class of its outstanding shares as of such date.
Management Ownership
As of the date of this SAI, all of the Trustees and officers of the
Trust as a group owned less than 1% of its outstanding shares.
Investment Advisory and Other Services
Additional Information about the Manager, the Sub-Adviser, and the Distributor
Management Fees
During the fiscal years ended September 30, 2009, 2008 and 2007 the
Trust incurred management fees (investment advisory fees) as follows:
2009 $_________
2008 $1,648,873
2007 $1,691,629
The management fee is treated as a Trust expense and, as such, is allocated to
each class of shares based on the relative net assets of that class.
Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300, New York, NY
10017 is the Trust's Distributor. The Distributor currently handles the
distribution of the shares of twelve funds (three money-market funds, seven
tax-free municipal bond funds, a high-income corporate bond fund and an equity
fund), including the Trust. Under the Distribution Agreement, the Distributor is
responsible for the payment of certain printing and distribution costs relating
to prospectuses and reports as well as the costs of supplemental sales
literature, advertising and other promotional activities.
The shares of the Distributor are owned 24% by Diana P. Herrmann, 74%
by Mr. Herrmann and other members of his immediate family, and the balance by
Aquila Management Corporation.
The Advisory and Administration Agreement
The Advisory and Administration Agreement provides that, subject to the
direction and control of the Board of Trustees of the Trust, the Manager shall:
(i) supervise continuously the investment program of the Trust and
the composition of its portfolio;
(ii) determine what securities shall be purchased or sold by the
Trust;
(iii) arrange for the purchase and the sale of securities held in the
portfolio of the Trust; and
(iv) at its expense provide for pricing of the Trust's portfolio daily
using a pricing service or other source of pricing information
satisfactory to the Trust and, unless otherwise directed by the Board
of Trustees, provide for pricing of the Trust's portfolio at least
quarterly using another such source satisfactory to the Trust.
The Advisory and Administration Agreement provides that, subject to the
termination provisions described below, the Manager may at its own expense
delegate to a qualified organization ("Sub-Adviser"), affiliated or not
affiliated with the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a written
agreement (the "Sub-Advisory Agreement") approved as provided in Section 15 of
the 1940 Act. The Manager has delegated all of such functions to the Sub-Adviser
in the Sub-Advisory Agreement.
The Advisory and Administration Agreement also provides that, subject
to the direction and control of the Board of Trustees of the Trust, the Manager
shall provide all administrative services to the Trust other than those relating
to its investment portfolio which have been delegated to a Sub-Adviser of the
Trust under the Sub-Advisory Agreement; as part of such administrative duties,
the Manager shall:
(i) provide office space, personnel, facilities and equipment for the
performance of the following functions and for the maintenance of the
headquarters of the Trust;
(ii) oversee all relationships between the Trust and any sub-adviser,
transfer agent, custodian, legal counsel, auditors and principal
underwriter, including the negotiation of agreements in relation
thereto, the supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters which are
necessary or desirable for the effective operation of the Trust and for
the sale, servicing or redemption of the Trust's shares;
(iii) either keep the accounting records of the Trust, including the
computation of net asset value per share and the dividends (provided
that if there is a Sub-Adviser, daily pricing of the Trust's portfolio
shall be the responsibility of the Sub-Adviser under the Sub-Advisory
Agreement) or, at its expense and responsibility, delegate such duties
in whole or in part to a company satisfactory to the Trust;
(iv) maintain the Trust's books and records, and prepare (or assist
counsel and auditors in the preparation of) all required proxy
statements, reports to the Trust's shareholders and Trustees, reports
to and other filings with the Securities and Exchange Commission and
any other governmental agencies, and tax returns, and oversee the
insurance relationships of the Trust;
(v) prepare, on behalf of the Trust and at the Trust's expense, such
applications and reports as may be necessary to register or maintain
the registration of the Trust and/or its shares under the securities or
"Blue-Sky" laws of all such jurisdictions as may be required from time
to time; and
(vi) respond to any inquiries or other communications of shareholders
of the Trust and broker/dealers, or if any such inquiry or
communication is more properly to be responded to by the Trust's
shareholder servicing and transfer agent or distributor, oversee such
shareholder servicing and transfer agent's or distributor's response
thereto.
The Advisory and Administration Agreement contains provisions relating
to compliance of the investment program, responsibility of the Manager for any
investment program managed by it, allocation of brokerage, and responsibility
for errors that are substantially the same as the corresponding provisions in
the Sub-Advisory Agreement.
The Advisory and Administration Agreement provides that the Manager
shall, at its own expense, pay all compensation of Trustees, officers, and
employees of the Trust who are affiliated persons of the Manager.
The Trust bears the costs of preparing and setting in type its
prospectuses, statements of additional information and reports to its
shareholders, and the costs of printing or otherwise producing and distributing
those copies of such prospectuses, statements of additional information and
reports as are sent to its shareholders. All costs and expenses not expressly
assumed by the Manager under the agreement or otherwise by the Manager,
administrator or principal underwriter or by any sub-adviser shall be paid by
the Trust, including, but not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and expenses of its
Trustees other than those affiliated with the Manager or such sub-adviser,
administrator or principal underwriter except for certain expenses of those who
are officers of the Trust; (v) legal and audit expenses; (vi) custodian and
transfer agent, or shareholder servicing agent, fees and expenses; (vii)
expenses incident to the issuance of its shares (including issuance on the
payment of, or reinvestment of, dividends); (viii) fees and expenses incident to
the registration under Federal or State securities laws of the Trust or its
shares; (ix) expenses of preparing, printing and mailing reports and notices and
proxy material to shareholders of the Trust; (x) all other expenses incidental
to holding meetings of the Trust's shareholders; and (xi) such non-recurring
expenses as may arise, including litigation affecting the Trust and the legal
obligations for which the Trust may have to indemnify its officers and Trustees.
The Advisory and Administration Agreement provides that it may be
terminated by the Manager at any time without penalty upon giving the Trust
sixty days' written notice (which notice may be waived by the Trust) and may be
terminated by the Trust at any time without penalty upon giving the Manager
sixty days' written notice (which notice may be waived by the Manager), provided
that such termination by the Trust shall be directed or approved by a vote of a
majority of its Trustees in office at the time or by a vote of the holders of a
majority (as defined in the 1940 Act) of the voting securities of the Trust
outstanding and entitled to vote. The specific portions of the Advisory and
Administration Agreement which relate to providing investment advisory services
will automatically terminate in the event of the assignment (as defined in the
1940 Act) of the Advisory and Administration Agreement, but all other provisions
relating to providing services other than investment advisory services will not
terminate, provided however, that upon such an assignment the annual fee payable
monthly and computed on the net asset value of the Trust as of the close of
business each business day shall be reduced to the annual rate of 0.26 of 1%
from current fees of 0.40 of 1% of such net asset value.
The Sub-Advisory Agreement
The services of the Sub-Adviser are rendered under the Sub-Advisory
Agreement between the Manager and the Sub-Adviser, which provides, subject to
the control of the Board of Trustees, for investment supervision and at the
Sub-Adviser's expense for pricing of the Trust's portfolio daily using a pricing
service or other source of pricing information satisfactory to the Trust and,
unless otherwise directed by the Board of Trustees, for pricing of the Trust's
portfolio at least quarterly using another such source satisfactory to the
Trust.
The Sub-Advisory Agreement provides that any investment program
furnished by the Sub-Adviser shall at all times conform to, and be in accordance
with, any requirements imposed by: (1) the 1940 Act and any rules or regulations
in force thereunder; (2) any other applicable laws, rules and regulations; (3)
the Declaration of Trust and By-Laws of the Trust as amended from time to time;
(4) any policies and determinations of the Board of Trustees of the Trust; and
(5) the fundamental policies of the Trust, as reflected in its registration
statement under the 1940 Act or as amended by the shareholders of the Trust.
The Sub-Advisory Agreement provides that the Sub-Adviser shall give to
the Manager, as defined therein, and to the Trust the benefit of its best
judgment and effort in rendering services hereunder, but the Sub-Adviser shall
not be liable for any loss sustained by reason of the adoption of any investment
policy or the purchase, sale or retention of any security, whether or not such
purchase, sale or retention shall have been based upon (i) its own investigation
and research or (ii) investigation and research made by any other individual,
firm or corporation, if such purchase, sale or retention shall have been made
and such other individual, firm or corporation shall have been selected in good
faith by the Sub-Adviser.
The Sub-Advisory Agreement provides that nothing in it shall prevent
the Sub-Adviser or any affiliated person (as defined in the 1940 Act) of the
Sub-Adviser from acting as investment adviser or manager for any other person,
firm or corporation and shall not in any way limit or restrict the Sub-Adviser
or any such affiliated person from buying, selling or trading any securities for
its own or their own accounts or for the accounts of others for whom it or they
may be acting, provided, however, that the Sub-Adviser expressly represents
that, while acting as Sub-Adviser, it will undertake no activities which, in its
judgment, will adversely affect the performance of its obligations to the Trust
under the Agreement. It is agreed that the Sub-Adviser shall have no
responsibility or liability for the accuracy or completeness of the Trust's
Registration Statement under the 1940 Act and the Securities Act of 1933, except
for information supplied by the Sub-Adviser for inclusion therein. The
Sub-Adviser shall promptly inform the Trust as to any information concerning the
Sub-Adviser appropriate for inclusion in such Registration Statement, or as to
any transaction or proposed transaction, which might result in an assignment (as
defined in the 1940 Act) of the Agreement. To the extent that the Manager is
indemnified under the Trust's Declaration of Trust with respect to the services
provided by the Sub-Adviser, the Manager agrees to provide the Sub-Adviser the
benefits of such indemnification.
The Sub-Advisory Agreement contains provisions regarding brokerage
described below under "Brokerage Allocation and Other Practices."
The Sub-Advisory Agreement provides that the Sub-Adviser agrees to
maintain, and to preserve for the periods prescribed, such books and records
with respect to the portfolio transactions of the Trust as are required by
applicable law and regulation, and agrees that all records which it maintains
for the Trust on behalf of the Manager shall be the property of the Trust and
shall be surrendered promptly to the Trust or the Manager upon request. The
Sub-Adviser agrees to furnish to the Manager and to the Board of Trustees of the
Trust such periodic and special reports as each may reasonably request.
The Sub-Advisory Agreement provides that the Sub-Adviser shall bear all
of the expenses it incurs in fulfilling its obligations under the Agreement. In
particular, but without limiting the generality of the foregoing: the
Sub-Adviser shall furnish the Trust, at the Sub-Adviser's expense, all office
space, facilities, equipment and clerical personnel necessary for carrying out
its duties under the Agreement. The Sub-Adviser shall supply, or cause to be
supplied, to any investment adviser, administrator or principal underwriter of
the Trust all necessary financial information in connection with such adviser's,
administrator's or principal underwriter's duties under any agreement between
such adviser, administrator or principal underwriter and the Trust. The
Sub-Adviser will also pay all compensation of the Trust's officers, employees,
and Trustees, if any, who are affiliated persons of the Sub-Adviser.
The Sub-Advisory Agreement provides that it shall, unless terminated as
therein provided, continue in effect from year to year so long as such
continuance is specifically approved at least annually (1) by a vote of the
Trust's Board of Trustees, including a vote of a majority of the Trustees who
are not parties to the Agreement or "interested persons" (as defined in the 1940
Act) of any such party, with votes cast in person at a meeting called for the
purpose of voting on such approval, or (2) by a vote of the holders of a
"majority" (as so defined) of the dollar value of the outstanding voting
securities of the Trust and by such a vote of the Trustees.
The Sub-Advisory Agreement provides that it may be terminated by the
Sub-Adviser at any time without penalty upon giving the Manager and the Trust
sixty days' written notice (which notice may be waived). It may be terminated by
the Manager or the Trust at any time without penalty upon giving the Sub-Adviser
sixty days' written notice (which notice may be waived by the Sub-Adviser),
provided that such termination by the Trust shall be directed or approved by a
vote of a majority of its Trustees in office at the time or by a vote of the
holders of a majority (as defined in the 1940 Act) of the dollar value of the
voting securities of the Trust outstanding and entitled to vote. The
Sub-Advisory Agreement will automatically terminate in the event of its
assignment (as defined in the 1940 Act) or the termination of the Investment
Advisory Agreement.
Information about the Manager and the Sub-Adviser
The Trust's Manager is a wholly-owned subsidiary of Aquila Management
Corporation ("AMC"), founder of each fund in the Aquila Group of Funds, which
consists of three money-market funds, seven tax-free municipal bond funds, a
high income corporate bond fund and an equity fund. As of December 31, 2008,
these funds had aggregate assets of approximately $4.6 billion, of which
approximately $2.2 billion consisted of assets of the tax-free municipal bond
funds. AMC's address is the same as that of the Manager. AMC, which was founded
in 1984, is owned, directly, and through certain trusts, by members of the
family of Mr. Lacy B. Herrmann. As a result of transactions completed in 2009 no
individual holds with the power to vote, directly or indirectly, more than 24.9%
of the voting shares of the Manager. Performance of the Advisory and
Administration Agreement is guaranteed by AMC.
Additional Information about the Portfolio Manager
Michael Hamilton is the portfolio manager responsible for the
day-to-day management of the Trust.
Mr. Hamilton manages four other investment company portfolios ( the
Funds) with assets of $320,000,000 as of October 31,2009. He manages no other
pooled investment vehicles. He manages 9 other accounts with an aggregate value
of $189,176,000 as of October 31, 2009.
The compensation paid by the client varies, based on whether it is
managed in a professional or personal capacity. Generally, compensation by these
clients and the funds is computed as a percentage of assets under management. No
account or fund has performance-based fees. While fees are payable to the
investment adviser of the investment companies other than the Trust at a greater
rate than with respect to the Trust, the Sub-Adviser considers that they are in
general more complex to manage and receive more extensive administrative and
other services under their agreements than the Trust, and accordingly the fee
differences by themselves do not present a conflict of interest.
In general, it is unlikely that the Trust's opportunities or the
execution of its investment program may be compromised or limited by the
investments of the other accounts, except that there may be occurrences where a
scarcity of bonds of Oregon issuers hinders the execution of the Trust's
investment program. The minimum block sizes and maturity requirements of
purchases for the Trust typically differ from the investment requirements of
other accounts managed by the portfolio manager.
There are three elements to portfolio manager compensation.
Base Pay. Base pay is determined based upon an analysis of the
portfolio manager's general performance, experience, and market levels of base
pay for such position.
Annual Cash Incentive. Mr. Hamilton is paid an annual incentive based
upon investment performance, generally over the past one- and three-year
periods. The maximum potential annual cash incentive is equal to a multiple of
base pay, determined based upon Mr. Hamilton's performance and experience, and
market levels of base pay for such position.
The portion of the maximum potential annual cash incentive that is paid
out is based upon performance of the Funds, including the Trust, which Mr.
Hamilton manages relative to the portfolio's appropriate Lipper industry peer
group, a subjective component equal to 25% of the maximum potential annual cash
incentive, and 11% for contributions to two other Funds. Generally, the
threshold for payment of an annual cash incentive is median performance versus
the peer group, and the maximum annual cash incentive is attained at top
quartile performance versus the Lipper industry peer group, subject to the 25%
subjective component.
Investment performance is measured on a gross basis for the portfolio
result and for the Lipper industry peer group.
Long Term Incentive Payments. Long-term incentive payments are paid to
portfolio managers on an annual basis based upon general performance and
expected contributions to the success of FAF Advisors, Inc. Long-term incentive
payments are compromised of two components: (i) FAF Advisors phantom options,
restricted stock units, and performance equity and (ii) U.S Bancorp options and
restricted stock.
As of October 31, 2009 the range of the value of securities in the
Trust beneficially owned by Mr. Hamilton was $1-$10,000.
Underwriting Commissions
During the fiscal years listed, the aggregate dollar amount of sales
charges on sales of Class A shares of the Trust and the amount retained by the
Distributor, respectively, were as follows:
Sales Charges Retained by Distributor
2009 $ _______ $ _______
2008 $ 630,700 $ 122,859
2007 $ 466,823 $ 97,262
In connection with sales of Class A Shares, the Distributor pays a
portion of the sales charge on such shares to dealers in the form of discounts
and to brokers in the form of agency commissions (together, "Commissions"), in
amounts that vary with the size of the sales charge as follows:
Amount of Purchase and Value of All
Class A Shares Held by a Single Sales Charge as Percentage of Public Commissions as Percentage of
Purchaser Offering Price Offering Price
Less than $25,000 4.00% 3.00%
$25,000 but less than $50,000 3.75% 3.00%
$50,000 but less than $100,000 3.50% 2.75%
$100,000 but less than $250,000 3.25% 2.75%
$250,000 but less than $500,000 3.00% 2.50%
$500,000 but less than $1,000,000 2.50% 2.25%
Distribution Plan
The Trust's Distribution Plan has four parts, relating respectively to
distribution payments with respect to Class A Shares (Part I), to distribution
payments relating to Class C Shares (Part II), to distribution payments relating
to Class I Shares (Part III) and to certain defensive provisions (Part IV).
For purposes of Parts I, II and III, the Distributor will consider
shares which are not Qualified Holdings of broker/dealers unaffiliated with the
Manager, Sub-Adviser or Distributor to be Qualified Holdings of the Distributor
and will authorize Permitted Payments to the Distributor with respect to such
shares whenever Permitted Payments are being made under the Plan.
Provisions Relating to Class A Shares (Part I)
Part I of the Plan applies only to the Front-Payment Class Shares
("Class A Shares") of the Trust (regardless of whether such class is so
designated or is redesignated by some other name).
As used in Part I of the Plan, "Qualified Recipients" shall mean
broker/dealers or others selected by Aquila Distributors, Inc. (the
"Distributor"), including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into written
agreements in connection with Part I ("Class A Plan Agreements") and which have
rendered assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Front-Payment Class Shares or
servicing of shareholder accounts with respect to such shares. "Qualified
Holdings" shall mean, as to any Qualified Recipient, all Front-Payment Class
Shares beneficially owned by such Qualified Recipient, or beneficially owned by
its brokerage customers, other customers, other contacts, investment advisory
clients, or other clients, if the Qualified Recipient was, in the sole judgment
of the Distributor, instrumental in the purchase and/or retention of such shares
and/or in providing administrative assistance or other services in relation
thereto.
Subject to the direction and control of the Trust's Board of Trustees,
the Trust may make payments ("Class A Permitted Payments") to Qualified
Recipients, which Class A Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing agent, which may
not exceed, for any fiscal year of the Trust (as adjusted for any part or parts
of a fiscal year during which payments under the Plan are not accruable or for
any fiscal year which is not a full fiscal year), 0.15 of 1% of the average
annual net assets of the Trust represented by the Front-Payment Class Shares.
Such payments shall be made only out of the Trust's assets allocable to the
Front-Payment Class Shares.
The Distributor shall have sole authority (i) as to the selection of
any Qualified Recipient or Recipients; (ii) not to select any Qualified
Recipient; and (iii) as to the amount of Class A Permitted Payments, if any, to
each Qualified Recipient provided that the total Class A Permitted Payments to
all Qualified Recipients do not exceed the amount set forth above. The
Distributor is authorized, but not directed, to take into account, in addition
to any other factors deemed relevant by it, the following: (a) the amount of the
Qualified Holdings of the Qualified Recipient; (b) the extent to which the
Qualified Recipient has, at its expense, taken steps in the shareholder
servicing area with respect to holders of Front-Payment Class Shares, including
without limitation, any or all of the following activities: answering customer
inquiries regarding account status and history, and the manner in which
purchases and redemptions of shares of the Trust may be effected; assisting
shareholders in designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated accounts; furnishing
(either alone or together with other reports sent to a shareholder by such
person) monthly and year-end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy statements, annual
reports, updating prospectuses and other communications from the Trust to its
shareholders; receiving, tabulating and transmitting to the Trust proxies
executed by shareholders with respect to meetings of shareholders of the Trust;
and providing such other related services as the Distributor or a shareholder
may request from time to time; and (c) the possibility that the Qualified
Holdings of the Qualified Recipient would be redeemed in the absence of its
selection or continuance as a Qualified Recipient. Notwithstanding the foregoing
two sentences, a majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the above limits
accrued to a Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all Qualified Recipients,
the difference will not be carried over to subsequent years.
While Part I is in effect, the Trust's Distributor shall report at
least quarterly to the Trust's Trustees in writing for their review on the
following matters: (i) all Class A Permitted Payments made under the Plan, the
identity of the Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the Manager,
Sub-Adviser or Distributor paid or accrued during such quarter. In addition, if
any such Qualified Recipient is an affiliated person, as that term is defined in
the 1940 Act, of the Trust, Manager, Sub-Adviser or Distributor, such person
shall agree to furnish to the Distributor for transmission to the Board of
Trustees of the Trust an accounting, in form and detail satisfactory to the
Board of Trustees, to enable the Board of Trustees to make the determinations of
the fairness of the compensation paid to such affiliated person, not less often
than annually.
Part I originally went into effect when it was approved (i) by a vote
of the Trustees, including the Independent Trustees, with votes cast in person
at a meeting called for the purpose of voting on Part I of the Plan; and (ii) by
a vote of holders of at least a "majority" (as so defined) of the dollar value
of the outstanding voting securities of the Front-Payment Class Shares class (or
of any predecessor class or category of shares, whether or not designated as a
class) and a vote of holders of at least a "majority" (as so defined) of the
dollar value of the outstanding voting securities of the Level-Payment Class
Shares and/or of any other class whose shares are convertible into Front-Payment
Class Shares. Part I has continued, and will, unless terminated as hereinafter
provided, continue in effect from year to year so long as such continuance is
specifically approved at least annually by the Trust's Trustees and its
Independent Trustees with votes cast in person at a meeting called for the
purpose of voting on such continuance. Part I may be terminated at any time by
the vote of a majority of the Independent Trustees or by the vote of the holders
of a "majority" (as defined in the 1940 Act) of the dollar value of the
outstanding voting securities of the Trust to which Part I applies. Part I may
not be amended to increase materially the amount of payments to be made without
shareholder approval of the class or classes of shares affected by Part I as set
forth in (ii) above, and all amendments must be approved in the manner set forth
in (i) above.
In the case of a Qualified Recipient which is a principal underwriter
of the Trust, the Class A Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be approved in
accordance with, and contain the provisions required by, the Rule. In the case
of Qualified Recipients which are not principal underwriters of the Trust, the
Class A Plan Agreements with them shall be (i) their agreements with the
Distributor with respect to payments under the Trust's Distribution Plan in
effect prior to April 1, 1996 or (ii) Class A Plan Agreements entered into
thereafter.
Provisions Relating to Class C Shares (Part II)
Part II of the Plan applies only to the Level-Payment Shares Class
("Class C Shares") of the Trust (regardless of whether such class is so
designated or is redesignated by some other name).
As used in Part II of the Plan, "Qualified Recipients" shall mean
broker/dealers or others selected by the Distributor, including but not limited
to any principal underwriter of the Trust, with which the Trust or the
Distributor has entered into written agreements in connection with Part II
("Class C Plan Agreements") and which have rendered assistance (whether direct,
administrative, or both) in the distribution and/or retention of the Trust's
Level-Payment Class Shares or servicing of shareholder accounts with respect to
such shares. "Qualified Holdings" shall mean, as to any Qualified Recipient, all
Level-Payment Class Shares beneficially owned by such Qualified Recipient, or
beneficially owned by its brokerage customers, other customers, other contacts,
investment advisory clients, or other clients, if the Qualified Recipient was,
in the sole judgment of the Distributor, instrumental in the purchase and/or
retention of such shares and/or in providing administrative assistance or other
services in relation thereto.
Subject to the direction and control of the Trust's Board of Trustees,
the Trust may make payments ("Class C Permitted Payments") to Qualified
Recipients, which Class C Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing agent, which may
not exceed, for any fiscal year of the Trust (as adjusted for any part or parts
of a fiscal year during which payments under the Plan are not accruable or for
any fiscal year which is not a full fiscal year), 0.75 of 1% of the average
annual net assets of the Trust represented by the Level-Payment Class Shares.
Such payments shall be made only out of the Trust's assets allocable to the
Level-Payment Class Shares. The Distributor shall have sole authority (i) as to
the selection of any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) as to the amount of Class C Permitted Payments,
if any, to each Qualified Recipient provided that the total Class C Permitted
Payments to all Qualified Recipients do not exceed the amount set forth above.
The Distributor is authorized, but not directed, to take into account, in
addition to any other factors deemed relevant by it, the following: (a) the
amount of the Qualified Holdings of the Qualified Recipient; (b) the extent to
which the Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of Level- Payment Class
Shares, including without limitation, any or all of the following activities:
answering customer inquiries regarding account status and history, and the
manner in which purchases and redemptions of shares of the Trust may be
effected; assisting shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel and facilities
to establish and maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for the wiring of
funds; transmitting and receiving funds in connection with customer orders to
purchase or redeem shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in shareholder
designated accounts; furnishing (either alone or together with other reports
sent to a shareholder by such person) monthly and year-end statements and
confirmations of purchases and redemptions; transmitting, on behalf of the
Trust, proxy statements, annual reports, updating prospectuses and other
communications from the Trust to its shareholders; receiving, tabulating and
transmitting to the Trust proxies executed by shareholders with respect to
meetings of shareholders of the Trust; and providing such other related services
as the Distributor or a shareholder may request from time to time; and (c) the
possibility that the Qualified Holdings of the Qualified Recipient would be
redeemed in the absence of its selection or continuance as a Qualified
Recipient. Notwithstanding the foregoing two sentences, a majority of the
Independent Trustees (as defined below) may remove any person as a Qualified
Recipient. Amounts within the above limits accrued to a Qualified Recipient but
not paid during a fiscal year may be paid thereafter; if less than the full
amount is accrued to all Qualified Recipients, the difference will not be
carried over to subsequent years.
While Part II is in effect, the Trust's Distributor shall report at
least quarterly to the Trust's Trustees in writing for their review on the
following matters: (i) all Class C Permitted Payments made under the Plan, the
identity of the Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the Manager,
Sub-Adviser or Distributor paid or accrued during such quarter. In addition, if
any such Qualified Recipient is an affiliated person, as that term is defined in
the 1940 Act, of the Trust, Manager, Sub-Adviser or Distributor such person
shall agree to furnish to the Distributor for transmission to the Board of
Trustees of the Trust an accounting, in form and detail satisfactory to the
Board of Trustees, to enable the Board of Trustees to make the determinations of
the fairness of the compensation paid to such affiliated person, not less often
than annually.
Part II originally went into effect when it was approved (i) by a vote
of the Trustees, including the Independent Trustees, with votes cast in person
at a meeting called for the purpose of voting on Part II of the Plan; and (ii)
by a vote of holders of at least a "majority" (as so defined) of the dollar
value of the outstanding voting securities of the Level-Payment Class Shares.
Part II has continued, and will, unless terminated as therein provided, continue
in effect from year to year so long as such continuance is specifically approved
at least annually by the Trust's Trustees and its Independent Trustees with
votes cast in person at a meeting called for the purpose of voting on such
continuance. Part II may be terminated at any time by the vote of a majority of
the Independent Trustees or by the vote of the holders of a "majority" (as
defined in the 1940 Act) of the dollar value of the outstanding voting
securities of the Trust to which Part II applies. Part II may not be amended to
increase materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by Part II as set forth in
(ii) above, and all amendments must be approved in the manner set forth in (i)
above.
In the case of a Qualified Recipient which is a principal underwriter
of the Trust, the Class C Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be approved in
accordance with, and contain the provisions required by, the Rule. In the case
of Qualified Recipients which are not principal underwriters of the Trust, the
Class C Plan Agreements with them shall be (i) their agreements with the
Distributor with respect to payments under the Trust's Distribution Plan in
effect prior to April 1, 1996 or (ii) Class C Plan Agreements entered into
thereafter.
Provisions Relating to Class I Shares (Part III)
Part III of the Plan applies only to the Financial Intermediary Class
Shares ("Class I Shares") of the Trust (regardless of whether such class is so
designated or is redesignated by some other name).
As used in Part III of the Plan, "Qualified Recipients" shall mean
broker/dealers or others selected by Aquila Distributors, Inc. (the
"Distributor"), including but not limited to any principal underwriter of the
Trust, with which the Trust or the Distributor has entered into written
agreements in connection with Part III ("Class I Plan Agreements") and which
have rendered assistance (whether direct, administrative, or both) in the
distribution and/or retention of the Trust's Class I Shares or servicing of
shareholder accounts with respect to such shares. "Qualified Holdings" shall
mean, as to any Qualified Recipient, all Class I Shares beneficially owned by
such Qualified Recipient, or beneficially owned by its brokerage customers,
other customers, other contacts, investment advisory clients, or other clients,
if the Qualified Recipient was, in the sole judgment of the Distributor,
instrumental in the purchase and/or retention of such shares and/or in providing
administrative assistance or other services in relation thereto.
Subject to the direction and control of the Trust's Board of Trustees,
the Trust may make payments ("Class I Permitted Payments") to Qualified
Recipients, which Class I Permitted Payments may be made directly, or through
the Distributor or shareholder servicing agent as disbursing agent, which may
not exceed, for any fiscal year of the Trust (as adjusted for any part or parts
of a fiscal year during which payments under the Plan are not accruable or for
any fiscal year which is not a full fiscal year), a rate fixed from time to time
by the Board of Trustees, initially up to 0.15 of 1% of the average annual net
assets of the Trust represented by the Class I Shares, but not more than 0.25 of
1% of such assets. Such payments shall be made only out of the Trust's assets
allocable to Class I Shares. The Distributor shall have sole authority (i) as to
the selection of any Qualified Recipient or Recipients; (ii) not to select any
Qualified Recipient; and (iii) as to the amount of Class I Permitted Payments,
if any, to each Qualified Recipient provided that the total Class I Permitted
Payments to all Qualified Recipients do not exceed the amount set forth above.
The Distributor is authorized, but not directed, to take into account, in
addition to any other factors deemed relevant by it, the following: (a) the
amount of the Qualified Holdings of the Qualified Recipient; (b) the extent to
which the Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of Class I Shares, including
without limitation, any or all of the following activities: answering customer
inquiries regarding account status and history, and the manner in which
purchases and redemptions of shares of the Trust may be effected; assisting
shareholders in designating and changing dividend options, account designations
and addresses; providing necessary personnel and facilities to establish and
maintain shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated accounts; furnishing
(either alone or together with other reports sent to a shareholder by such
person) monthly and year-end statements and confirmations of purchases and
redemptions; transmitting, on behalf of the Trust, proxy statements, annual
reports, updating prospectuses and other communications from the Trust to its
shareholders; receiving, tabulating and transmitting to the Trust proxies
executed by shareholders with respect to meetings of shareholders of the Trust;
and providing such other related services as the Distributor or a shareholder
may request from time to time; and (c) the possibility that the Qualified
Holdings of the Qualified Recipient would be redeemed in the absence of its
selection or continuance as a Qualified Recipient. Notwithstanding the foregoing
two sentences, a majority of the Independent Trustees (as defined below) may
remove any person as a Qualified Recipient. Amounts within the above limits
accrued to a Qualified Recipient but not paid during a fiscal year may be paid
thereafter; if less than the full amount is accrued to all Qualified Recipients,
the difference will not be carried over to subsequent years.
While Part III is in effect, the Trust's Distributor shall report at
least quarterly to the Trust's Trustees in writing for their review on the
following matters: (i) all Class I Permitted Payments made under the Plan, the
identity of the Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the Manager,
Sub-Adviser or Distributor paid or accrued during such quarter. In addition, if
any such Qualified Recipient is an affiliated person, as that term is defined in
the 1940 Act, of the Trust, Manager, Sub-Adviser or Distributor such person
shall agree to furnish to the Distributor for transmission to the Board of
Trustees of the Trust an accounting, in form and detail satisfactory to the
Board of Trustees, to enable the Board of Trustees to make the determinations of
the fairness of the compensation paid to such affiliated person, not less often
than annually.
Part III originally went into effect when it was approved (i) by a vote
of the Trustees, including the Independent Trustees, with votes cast in person
at a meeting called for the purpose of voting on Part III of the Plan; and (ii)
by a vote of holders of at least a "majority" (as so defined) of the dollar
value of the outstanding voting securities of the Class I Shares Class. Part III
has continued, and will, unless terminated as thereinafter provided, continue in
effect from year to year so long as such continuance is specifically approved at
least annually by the Trust's Trustees and its Independent Trustees with votes
cast in person at a meeting called for the purpose of voting on such
continuance. Part III may be terminated at any time by the vote of a majority of
the Independent Trustees or by the vote of the holders of a "majority" (as
defined in the 1940 Act) of the dollar value of the outstanding voting
securities of the Trust to which Part III applies. Part III may not be amended
to increase materially the amount of payments to be made without shareholder
approval of the class or classes of shares affected by Part III as set forth in
(ii) above, and all amendments must be approved in the manner set forth in (i)
above.
In the case of a Qualified Recipient which is a principal underwriter
of the Trust, the Class I Plan Agreement shall be the agreement contemplated by
Section 15(b) of the 1940 Act since each such agreement must be approved in
accordance with, and contain the provisions required by, the Rule. In the case
of Qualified Recipients which are not principal underwriters of the Trust, the
Class I Plan Agreements with them shall be (i) their agreements with the
Distributor with respect to payments under the Trust's Distribution Plan in
effect prior to April 1, 1996 or (ii) Class I Plan Agreements entered into
thereafter.
Defensive Provisions (Part IV)
Another part of the Plan (Part IV) states that if and to the extent
that any of the payments listed below are considered to be "primarily intended
to result in the sale of" shares issued by the Trust within the meaning of Rule
12b-1, such payments are authorized under the Plan: (i) the costs of the
preparation of all reports and notices to shareholders and the costs of printing
and mailing such reports and notices to existing shareholders, irrespective of
whether such reports or notices contain or are accompanied by material intended
to result in the sale of shares of the Trust or other funds or other
investments; (ii) the costs of the preparation and setting in type of all
prospectuses and statements of additional information and the costs of printing
and mailing all prospectuses and statements of additional information to
existing shareholders; (iii) the costs of preparation, printing and mailing of
any proxy statements and proxies, irrespective of whether any such proxy
statement includes any item relating to, or directed toward, the sale of the
Trust's shares; (iv) all legal and accounting fees relating to the preparation
of any such reports, prospectuses, statements of additional information, proxies
and proxy statements; (v) all fees and expenses relating to the registration or
qualification of the Trust and/or its shares under the securities or "Blue-Sky"
laws of any jurisdiction; (vi) all fees under the Securities Act of 1933 and the
1940 Act, including fees in connection with any application for exemption
relating to or directed toward the sale of the Trust's shares; (vii) all fees
and assessments of the Investment Company Institute or any successor
organization, irrespective of whether some of its activities are designed to
provide sales assistance; (viii) all costs of the preparation and mailing of
confirmations of shares sold or redeemed or share certificates, and reports of
share balances; and (ix) all costs of responding to telephone or mail inquiries
of investors or prospective investors.
The Plan states that while it is in effect, the selection and
nomination of those Trustees of the Trust who are not "interested persons" of
the Trust shall be committed to the discretion of such disinterested Trustees
but that nothing in the Plan shall prevent the involvement of others in such
selection and nomination if the final decision on any such selection and
nomination is approved by a majority of such disinterested Trustees.
The Plan defines as the Trust's Independent Trustees those Trustees who
are not "interested persons" of the Trust as defined in the 1940 Act and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to the Plan. The Plan, unless terminated as therein
provided, continues in effect from year to year only so long as such continuance
is specifically approved at least annually by the Trust's Board of Trustees and
its Independent Trustees with votes cast in person at a meeting called for the
purpose of voting on such continuance. In voting on the implementation or
continuance of the Plan, those Trustees who vote to approve such implementation
or continuance must conclude that there is a reasonable likelihood that the Plan
will benefit the Trust and its shareholders. The Plan may be terminated at any
time by vote of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the dollar value of the
outstanding voting securities of the Trust. The Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval and all amendments must be approved in the manner set forth above as to
continuance of the Plan.
The Plan and each Part of it shall also be subject to all applicable
terms and conditions of Rule 18f-3 under the 1940 Act as now in force or
hereafter amended. Specifically, but without limitation, the provisions of Part
IV shall be deemed to be severable, within the meaning of and to the extent
required by Rule 18f-3, with respect to each outstanding class of shares of the
Trust.
Payments Under the Plan
During the fiscal year ended September 30, 2009, payments were made
only under Part I and Part II of the Plan. All payments were to Qualified
Recipients and were for compensation. No payments were made under Part III or
Part IV of the Plan.
Payments to Qualified Recipients
During the fiscal year ended September 30, 2009, payments to Qualified
Recipients under the Plan and the amounts of such payments to the Distributor
and others were as follows:
To All Qualified Recipients To Distributor To Other Qualified Recipients
Part I $_______ $______ $_______
Part II $_______ $______ $_______
All payments to Other Qualified Recipients, most of whom are
broker/dealers, and to the Distributor, were for compensation. Payments with
respect to Class C Shares during the first year after purchase are paid to the
Distributor and thereafter to Other Qualified Recipients.
Amounts paid under the Plan as compensation to Qualified Recipients,
including the Distributor, are not based on the recipient's expenses in
providing distribution, retention and/or shareholder servicing assistance to the
Trust and, accordingly, are not regarded as reimbursement of such expenses.
Shareholder Services Plan
The Trust has adopted a Shareholder Services Plan (the "Services Plan")
to provide for the payment with respect to Class C Shares and Class I Shares of
the Trust of "Service Fees" within the meaning of the Conduct Rules of the
National Association of Securities Dealers (as incorporated in the rules of the
Financial Industry Regulatory Authority (FINRA)). The Services Plan applies only
to the Class C Shares and Class I Shares of the Trust (regardless of whether
such class is so designated or is redesignated by some other name).
Provisions for Level-Payment Class Shares (Class C Shares) (Part I)
As used in Part I of the Services Plan, "Qualified Recipients" shall
mean broker/dealers or others selected by Aquila Distributors, Inc. (the
"Distributor"), including but not limited to the Distributor and any other
principal underwriter of the Trust, who have, pursuant to written agreements
with the Trust or the Distributor, agreed to provide personal services to
shareholders of Level-Payment Class Shares and/or maintenance of Level-Payment
Class Shares shareholder accounts. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Level-Payment Class Shares beneficially owned by such
Qualified Recipient's customers, clients or other contacts. "Manager" shall mean
Aquila Investment Management LLC or any successor serving as sub-adviser or
administrator of the Trust.
Subject to the direction and control of the Trust's Board of Trustees,
the Trust may make payments ("Service Fees") to Qualified Recipients, which
Service Fees (i) may be paid directly or through the Distributor or shareholder
servicing agent as disbursing agent and (ii) may not exceed, for any fiscal year
of the Trust (as adjusted for any part or parts of a fiscal year during which
payments under the Services Plan are not accruable or for any fiscal year which
is not a full fiscal year), 0.25 of 1% of the average annual net assets of the
Trust represented by the Level-Payment Class Shares. Such payments shall be made
only out of the Trust's assets allocable to the Level-Payment Class Shares. The
Distributor shall have sole authority with respect to the selection of any
Qualified Recipient or Recipients and the amount of Service Fees, if any, paid
to each Qualified Recipient, provided that the total Service Fees paid to all
Qualified Recipients may not exceed the amount set forth above and provided,
further, that no Qualified Recipient may receive more than 0.25 of 1% of the
average annual net asset value of shares sold by such Recipient. The Distributor
is authorized, but not directed, to take into account, in addition to any other
factors deemed relevant by it, the following: (a) the amount of the Qualified
Holdings of the Qualified Recipient and (b) the extent to which the Qualified
Recipient has, at its expense, taken steps in the shareholder servicing area
with respect to holders of Level-Payment Class Shares, including without
limitation, any or all of the following activities: answering customer inquiries
regarding account status and history, and the manner in which purchases and
redemptions of shares of the Trust may be effected; assisting shareholders in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to establish and maintain
shareholder accounts and records; assisting in processing purchase and
redemption transactions; arranging for the wiring of funds; transmitting and
receiving funds in connection with customer orders to purchase or redeem shares;
verifying and guaranteeing shareholder signatures in connection with redemption
orders and transfers and changes in shareholder designated accounts; and
providing such other related services as the Distributor or a shareholder may
request from time to time. Notwithstanding the foregoing two sentences, a
majority of the Independent Trustees (as defined below) may remove any person as
a Qualified Recipient. Amounts within the above limits accrued to a Qualified
Recipient but not paid during a fiscal year may be paid thereafter; if less than
the full amount is accrued to all Qualified Recipients, the difference will not
be carried over to subsequent years. Service Fees with respect to Class C Shares
will be paid to the Distributor.
During the fiscal year ended September 30, 2009, $________ was paid to
the Distributor under Part I of the Plan.
Provisions for Financial Intermediary Class Shares (Class I Shares) (Part II)
As used in Part II of the Services Plan, "Qualified Recipients" shall
mean broker/dealers or others selected by the Distributor, including but not
limited to the Distributor and any other principal underwriter of the Trust, who
have, pursuant to written agreements with the Trust or the Distributor, agreed
to provide personal services to shareholders of Financial Intermediary Class
Shares, maintenance of Financial Intermediary Class Shares shareholder accounts
and/or pursuant to specific agreements entering confirmed purchase orders on
behalf of customers or clients. "Qualified Holdings" shall mean, as to any
Qualified Recipient, all Financial Intermediary Class Shares beneficially owned
by such Qualified Recipient's customers, clients or other contacts. "Manager"
shall mean Aquila Investment Management LLC or any successor serving as
sub-adviser or administrator of the Trust.
Subject to the direction and control of the Trust's Board of Trustees,
the Trust may make payments ("Service Fees") to Qualified Recipients, which
Service Fees (i) may be paid directly or through the Distributor or shareholder
servicing agent as disbursing agent and (ii) may not exceed, for any fiscal year
of the Trust (as adjusted for any part or parts of a fiscal year during which
payments under the Services Plan are not accruable or for any fiscal year which
is not a full fiscal year), 0.25 of 1% of the average annual net assets of the
Trust represented by the Financial Intermediary Class Shares. Such payments
shall be made only out of the Trust's assets allocable to the Financial
Intermediary Class Shares. The Distributor shall have sole authority with
respect to the selection of any Qualified Recipient or Recipients and the amount
of Service Fees, if any, paid to each Qualified Recipient, provided that the
total Service Fees paid to all Qualified Recipients may not exceed the amount
set forth above and provided, further, that no Qualified Recipient may receive
more than 0.25 of 1% of the average annual net asset value of shares sold by
such Recipient. The Distributor is authorized, but not directed, to take into
account, in addition to any other factors deemed relevant by it, the following:
(a) the amount of the Qualified Holdings of the Qualified Recipient and (b) the
extent to which the Qualified Recipient has, at its expense, taken steps in the
shareholder servicing area with respect to holders of Financial Intermediary
Class Shares, including without limitation, any or all of the following
activities: answering customer inquiries regarding account status and history,
and the manner in which purchases and redemptions of shares of the Trust may be
effected; assisting shareholders in designating and changing dividend options,
account designations and addresses; providing necessary personnel and facilities
to establish and maintain shareholder accounts and records; assisting in
processing purchase and redemption transactions; arranging for the wiring of
funds; transmitting and receiving funds in connection with customer orders to
purchase or redeem shares; verifying and guaranteeing shareholder signatures in
connection with redemption orders and transfers and changes in shareholder
designated accounts; and providing such other related services as the
Distributor or a shareholder may request from time to time. Notwithstanding the
foregoing two sentences, a majority of the Independent Trustees (as defined
below) may remove any person as a Qualified Recipient. Amounts within the above
limits accrued to a Qualified Recipient but not paid during a fiscal year may be
paid thereafter; if less than the full amount is accrued to all Qualified
Recipients, the difference will not be carried over to subsequent years. No
Class I Shares were outstanding during the fiscal year ended September 30, 2009.
General Provisions
While the Services Plan is in effect, the Trust's Distributor shall
report at least quarterly to the Trust's Trustees in writing for their review on
the following matters: (i) all Service Fees paid under the Services Plan, the
identity of the Qualified Recipient of each payment, and the purposes for which
the amounts were expended; and (ii) all fees of the Trust to the Distributor
paid or accrued during such quarter. In addition, if any Qualified Recipient is
an "affiliated person," as that term is defined in the 1940 Act, of the Trust,
Manager, Sub-Adviser or Distributor, such person shall agree to furnish to the
Distributor for transmission to the Board of Trustees of the Trust an
accounting, in form and detail satisfactory to the Board of Trustees, to enable
the Board of Trustees to make the determinations of the fairness of the
compensation paid to such affiliated person, not less often than annually.
The Services Plan has been approved by a vote of the Trustees,
including those Trustees who, at the time of such vote, were not "interested
persons" (as defined in the 1940 Act) of the Trust and had no direct or indirect
financial interest in the operation of the Services Plan or in any agreements
related to the Services Plan (the "Independent Trustees"), with votes cast in
person at a meeting called for the purpose of voting on the Services Plan. It
will continue in effect for a period of more than one year from its original
effective date only so long as such continuance is specifically approved at
least annually as set forth in the preceding sentence. It may be amended in like
manner and may be terminated at any time by vote of the Independent Trustees.
The Services Plan shall also be subject to all applicable terms and
conditions of Rule 18f-3 under the 1940 Act as now in force or hereafter
amended.
While the Services Plan is in effect, the selection and nomination of
those Trustees of the Trust who are not "interested persons" of the Trust, as
that term is defined in the 1940 Act, shall be committed to the discretion of
such disinterested Trustees. Nothing therein shall prevent the involvement of
others in such selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such disinterested
Trustees.
Codes of Ethics
The Trust, the Manager, the Sub-Adviser and the Distributor have
adopted codes of ethics pursuant to Rule 17j-1 under the 1940 Act. The codes
permit personnel of these organizations who are subject to the codes to purchase
securities, including the types of securities in which the Trust invests, but
only in compliance with the provisions of the codes.
Transfer Agent, Custodian and Independent Registered Public Accounting Firm
The Trust's Shareholder Servicing Agent (transfer agent) is PNC Global
Investment Servicing, 101 Sabin Street, Pawtucket, Rhode Island 02860-1427.
The Trust's Custodian, JPMorgan Chase Bank, N.A., 1111 Polaris Parkway,
Columbus, Ohio 43240, is responsible for holding the Trust's assets.
The Trust's independent registered public accounting firm, Tait, Weller
& Baker LLP, 1818 Market Street, Suite 2400, Philadelphia, Pennsylvania 19103,
performs an annual audit of the Trust's financial statements.
Brokerage Allocation and Other Practices
During the fiscal years ended September 30, 2009, 2008 and 2007, all of
the Trust's portfolio transactions were principal transactions and no brokerage
commissions were paid.
The following provisions regarding brokerage allocation and other
practices relating to purchases and sales of the Trust's securities are
contained in the Sub-Advisory Agreement. It provides that the Sub-Adviser shall
select such broker/dealers ("dealers") as shall, in the Sub-Adviser's judgment,
implement the policy of the Trust to achieve "best execution," i.e., prompt,
efficient, and reliable execution of orders at the most favorable net price. The
Sub-Adviser shall cause the Trust to deal directly with the selling or
purchasing principal or market maker without incurring brokerage commissions
unless the Sub-Adviser determines that better price or execution may be obtained
by paying such commissions; the Trust expects that most transactions will be
principal transactions at net prices and that the Trust will incur little or no
brokerage costs. The Trust understands that purchases from underwriters include
a commission or concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread between the bid
and asked prices. In allocating transactions to dealers, the Sub-Adviser is
authorized to consider, in determining whether a particular dealer will provide
best execution, the dealer's reliability, integrity, financial condition and
risk in positioning the securities involved, as well as the difficulty of the
transaction in question, and thus need not pay the lowest spread or commission
available if the Sub-Adviser determines in good faith that the amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by the dealer, viewed either in terms of the particular
transaction or the Sub-Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or more dealers,
the Sub-Adviser is authorized, in making such allocation, to consider whether a
dealer has provided research services, as further discussed below. Such research
may be in written form or through direct contact with individuals and may
include quotations on portfolio securities and information on particular issuers
and industries, as well as on market, economic, or institutional activities. The
Trust recognizes that no dollar value can be placed on such research services or
on execution services and that such research services may or may not be useful
to the Trust and may be used for the benefit of the Sub-Adviser or its other
clients.
Capital Stock
The Trust has four classes of shares.
* Front-Payment Class Shares ("Class A Shares") are offered to anyone
at net asset value plus a sales charge, paid at the time of purchase,
at the maximum rate of 4.0% of the public offering price, with lower
rates for larger purchases including previous purchases of Class A
Shares of the Trust or of Class A Shares of any of the other funds in
the Aquila Group of Funds. There is no sales charge on purchases of $1
million or more, but redemptions of shares so purchased are generally
subject to a contingent deferred sales charge ("CDSC"). Class A Shares
are subject to a fee under the Trust's Distribution Plan at the rate of
0.15 of 1% of the average annual net assets represented by the Class A
Shares.
* Level-Payment Class Shares ("Class C Shares") are offered to anyone
at net asset value with no sales charge payable at the time of purchase
but with a level charge for service and distribution fees for six years
after the date of purchase at the aggregate annual rate of 1% of the
average annual net assets of the Class C Shares. Six years after the
date of purchase, Class C Shares are automatically converted to Class A
Shares. If you redeem Class C Shares before you have held them for 12
months from the date of purchase you will pay a CDSC; this charge is
1%, calculated on the net asset value of the Class C Shares at the time
of purchase or at redemption, whichever is less. There is no CDSC after
Class C Shares have been held beyond the applicable period. For
purposes of applying the CDSC and determining the time of conversion,
the 12-month and six-year holding periods are considered modified by up
to one month depending upon when during a month your purchase of such
shares is made. Class C Shares are subject to a fee under the Trust's
Distribution Plan at the rate of 0.75 of 1% of the average annual net
assets represented by the Class C Shares and a service fee of 0.25 of
1% of such assets.
* Institutional Class Shares ("Class Y Shares") are offered only to
institutions acting for investors in a fiduciary, advisory, agency,
custodial or similar capacity, and are not offered directly to retail
customers. Class Y Shares are offered at net asset value with no sales
charge, no redemption fee, no contingent deferred sales charge and no
distribution fee.
* Financial Intermediary Class Shares ("Class I Shares") are offered
and sold only through financial intermediaries with which Aquila
Distributors, Inc. has entered into sales agreements, and are not
offered directly to retail customers. Class I Shares are offered at net
asset value with no sales charge and no redemption fee or contingent
deferred sales charge, although a financial intermediary may charge a
fee for effecting a purchase or other transaction on behalf of its
customers. Class I Shares may carry a distribution fee of up to 0.25 of
1% of average annual net assets allocable to Class I Shares, currently
up to 0.15 of 1% of such net assets, and a service fee of up to 0.25 of
1% of such assets.
The Trust's four classes of shares differ in their sales charge
structures and ongoing expenses, which are likely to be reflected in differing
yields and other measures of investment performance. All four classes represent
interests in the same portfolio of Oregon Obligations and have the same rights,
except that each class bears the separate expenses, if any, of its participation
in the Distribution Plan and Shareholder Services Plan and has exclusive voting
rights with respect to such participation.
At any meeting of shareholders, shareholders are entitled to one vote
for each dollar of net asset value (determined as of the record date for the
meeting) per share held (and proportionate fractional votes for fractional
dollar amounts). Shareholders will vote on the election of Trustees and on other
matters submitted to the vote of shareholders. Shares vote by classes on any
matter specifically affecting one or more classes, such as an amendment of an
applicable part of the Distribution Plan. No amendment, whether or not affecting
the rights of the shareholders, may be made to the Declaration of Trust without
the affirmative vote of the holders of a majority of the dollar value of the
outstanding shares of the Trust, except that the Trust's Board of Trustees may
change the name of the Trust.
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares and to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in the Trust. Each share represents an equal proportionate
interest in the Trust with each other share of its class; shares of the
respective classes represent proportionate interests in the Trust in accordance
with their respective net asset values. Upon liquidation of the Trust,
shareholders are entitled to share pro-rata in the net assets of the Trust
available for distribution to shareholders, in accordance with the respective
net asset values of the shares of each of the Trust's classes at that time. All
shares are presently divided into four classes; however, if they deem it
advisable and in the best interests of shareholders, the Board of Trustees of
the Trust may create additional classes of shares, which may differ from each
other as provided in rules and regulations of the Securities and Exchange
Commission or by exemptive order. The Board of Trustees may, at its own
discretion, create additional series of shares, each of which may have separate
assets and liabilities (in which case any such series will have a designation
including the word "Series"). Shares are fully paid and non-assessable, except
as set forth in the next paragraph; the holders of shares have no pre-emptive or
conversion rights, except that Class C Shares automatically convert to Class A
Shares after being held for six years.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust such as the
Trust, may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. For shareholder protection, however, an
express disclaimer of shareholder liability for acts or obligations of the Trust
is contained in the Declaration of Trust, which requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Trust or the Trustees. The Declaration of Trust provides for
indemnification out of the Trust's property of any shareholder held personally
liable for the obligations of the Trust. The Declaration of Trust also provides
that the Trust shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to the relatively remote circumstances in which
the Trust itself would be unable to meet its obligations. In the event the Trust
had two or more Series, and if any such Series were to be unable to meet the
obligations attributable to it (which, as with the Trust, is relatively remote),
the other Series would be subject to such obligations, with a corresponding
increase in the risk of the shareholder liability mentioned in the prior
sentence.
Purchase, Redemption, and Pricing of Shares
The following supplements the information about purchase, redemption
and pricing of shares set forth in the Prospectus.
Sales Charges for Purchases of $1 Million or More of Class A Shares
You will not pay a sales charge at the time of purchase when you
purchase "CDSC Class A Shares." CDSC Class A Shares include:
(i) Class A Shares issued in a single purchase of $1 million
or more by a single purchaser; and
(ii) Class A Shares issued when the value of the purchase,
together with the value (based on purchase cost or current net
asset value, whichever is higher) of shares of the Trust or
any other fund in the Aquila Group of Funds that are owned by
the purchaser and are either CDSC Class A Shares or Class A
Shares on which a sales charge was paid, is $1 million or
more.
CDSC Class A Shares do not include Class A Shares purchased without a
sales charge as described under "General" below.
Broker/Dealer Compensation - Class A Shares
Upon notice to all selected dealers, the Distributor may distribute up
to the full amount of the applicable sales charge to broker/dealers. Under the
Securities Act of 1933, broker/dealers may be deemed to be underwriters during
periods when they receive all, or substantially all, of the sales charge.
Redemption of CDSC Class A Shares
If you redeem all or part of your CDSC Class A Shares during the four
years after you purchase them, you must pay a special CDSC upon redemption.
As stated in the Prospectus it is the Trust's intention not to charge
you a CDSC that is greater than the amount of the commission that was paid to
the broker/dealer in connection with your purchase transaction. If the
broker/dealer was paid less than the maximum commission, your actual CDSC will
be reduced as indicated in the following table:
Value of Holdings At the CDSC You will Pay on Commission Paid to
Time of Purchase Redemption Broker/Dealer
$1 million and up to $2.5 million 1% in years 1 & 2 1%
0.50 of 1% in years 3 &4
None 0.25% in 4 payments over 4 years
Over $2.5 million and up to $5 0.50 of 1% in year 1 0.50%
million 0.25 of 1% in year 2
0.0 in years 3 & 4
None 0.25% in 2 payments over 2 years
Over $5 million None 0.25%
This special charge also applies to CDSC Class A Shares purchased
without a sales charge pursuant to a Letter of Intent (see "Reduced Sales
Charges for Certain Purchases of Class A Shares" below). This special charge
will not apply to shares acquired through the reinvestment of dividends or
distributions on CDSC Class A Shares or to CDSC Class A Shares held for longer
than four years. When redeeming shares, the Agent will redeem the CDSC Class A
Shares held the longest, unless otherwise instructed. If you own both CDSC and
non-CDSC Class A Shares, the latter will be redeemed first.
The Trust will treat all CDSC Class A Share purchases made during a
calendar month as if they were made on the first business day of that month at
the average cost of all purchases made during that month. Therefore, the
four-year holding period will end on the first business day of the 48th calendar
month after the date of those purchases. Accordingly, the holding period may, in
fact, be almost one month less than the full 48 depending on when your actual
purchase was made. If you exchange your CDSC Class A Shares for shares of an
Aquila money-market fund (see "Exchange Privilege" below), running of the
48-month holding period for those exchanged shares will be suspended for as long
as you hold the money-market fund shares.
Broker/Dealer Compensation - CDSC Class A Shares
The Distributor currently intends to pay any dealer executing a purchase of CDSC
Class A Shares as follows:
Amount Distributed to
Broker/Dealer as a Percentage
Amount of Purchase of Purchase Price
$1 million but less than $2.5 million 1%
$2.5 million but less than $5 million 0.50 of 1%
$5 million or more 0.25 of 1%
Reduced Sales Charges for Certain Purchases of Class A Shares
Right of Accumulation
"Single purchasers" may qualify for a reduced sales charge in
accordance with the schedule set forth in the Prospectus for Class A Shares and
Class C Shares when making subsequent purchases of Class A Shares. A reduced
sales charge applies if the cumulative value (based on purchase cost or current
net asset value, whichever is higher) of Class A Shares previously purchased
with a sales charge, together with Class A Shares of your subsequent purchase,
also with a sales charge, amounts to $25,000 or more.
Letters of Intent
"Single purchasers" may also qualify for reduced sales charges, in
accordance with the same schedule, after a written Letter of Intent (included in
the New Account Application) is received by the Distributor. The Letter of
Intent confirms that you intend to purchase, with a sales charge, within a
thirteen-month period, Class A Shares of the Trust through a single selected
dealer or the Distributor. Class A Shares of the Trust which you previously
purchased, also with a sales charge, within 90 days prior to the Distributor's
receipt of your Letter of Intent and which you still own may also be included in
determining the applicable reduction. For more information, including escrow
provisions, see the Letter of Intent provisions of the New Account Application.
General
Class A Shares may be purchased without a sales charge by:
* current and former Trustees and officers of any funds in the Aquila Group
of Funds,
* the directors, managers, officers and certain employees, former employees
and representatives of the Manager, the Distributor, and the sub-adviser of
any fund in the Aquila Group of Funds and the parents and/or affiliates of
such companies,
* selected broker dealers, their officers and employees and other investment
professionals,
* certain persons connected with firms providing legal, advertising or public
relations assistance,
* certain family members of, and plans for the benefit of, the foregoing; and
* plans for the benefit of trust or similar clients of banking institutions
over which these institutions have full investment authority, if the
Distributor has an agreement relating to such purchases.
Except for the last category, purchasers must give written assurance
that the purchase is for investment and that the Class A Shares will not be
resold except through redemption. Since there may be tax consequences of these
purchases, your tax advisor should be consulted.
Class A Shares may also be issued without a sales charge in a merger,
acquisition or exchange offer made pursuant to a plan of reorganization to which
the Trust is a party.
The Trust permits the sale of its Class A Shares at prices that reflect
the reduction or elimination of the sales charge to investors who are members of
certain qualified groups.
A qualified group is a group or association, or a category of
purchasers who are represented by a fiduciary, professional or other
representative, including a registered broker/dealer that is acting as a
registered investment adviser or certified financial planner for investors
participating in comprehensive fee programs (but not any other broker/dealer),
which
(i) satisfies uniform criteria which enable the Distributor to
realize economies of scale in its costs of distributing
shares;
(ii) gives its endorsement or authorization (if it is a group or
association) to an investment program to facilitate
solicitation of its membership by a broker or dealer; and
(iii) complies with the conditions of purchase that make up an
agreement between the Trust and the group, representative or
broker or dealer.
At the time of purchase, the Distributor must receive information
sufficient to permit verification that the purchase qualifies for a reduced
sales charge, either directly or through a broker or dealer.
Investors may exchange securities acceptable to the Manager and
Sub-Adviser for shares of the Trust. The Trust believes such exchange provides a
means by which holders of certain securities may invest in the Trust without the
expense of selling the securities in the open market. The investor should
furnish, either in writing or by FAX or e-mail, to the Manager a list with a
full and exact description (including CUSIP numbers) of all securities proposed
for exchange. The Manager will then notify the investor as to whether the
securities are acceptable and, if so, will send a letter of transmittal to be
completed and signed by the investor. The Manager has the right to reject all or
any part of the securities offered for exchange. The securities must then be
sent in proper form for transfer with the letter of transmittal to the Custodian
of the Trust's assets. The investor must certify that there are no legal or
contractual restrictions on the free transfers and sale of the securities. Upon
receipt by the Custodian of the securities and all required documents for
transfer, the securities will be valued as of the close of business on that day
in the same manner as the Trust's portfolio securities are valued each day.
Shares of the Trust having an equal net asset as of the close of the same day
will be registered in the investor's name. Applicable sales charges, if any,
will apply, but there is no charge for making the exchange and no brokerage
commission on the securities accepted, although applicable stock transfer taxes,
if any, may be deducted. The exchange of securities by the investor pursuant to
this offer may constitute a taxable transaction and may result in a gain or loss
for Federal income tax purposes. The tax treatment experienced by investors may
vary depending upon individual circumstances. Each investor should consult a tax
adviser to determine Federal, state and local tax consequences.
Additional Compensation for Financial Intermediaries
The Distributor and/or its related companies may pay compensation out of
their own assets to certain broker/dealers and other financial intermediaries
("financial advisors") above and beyond sales commissions, 12b-1 or certain
service fees and certain recordkeeping/sub-transfer agency fees paid by the
Trust, in connection with the sale, servicing or retention of Trust shares. This
compensation, which may be significant in dollar amounts to the Distributor,
could create an incentive for a financial advisor to sell Trust shares. You
should ask your financial advisor to obtain more information on how this
additional compensation may have influenced your advisor's recommendation of the
Trust.
Such additional compensation is paid out of the Distributor's (or related
company's) own resources, without additional charge to the Trust or its
shareholders. Additional cash payments may be based on a percentage of gross
sales, a percentage of assets or number of accounts maintained or serviced by
the financial advisor, and/or a fixed dollar amount, and is different for
different financial advisors.
At its discretion, the Distributor determines whether to pay additional
compensation and the amount of any such payments based on factors the
Distributor deems relevant. Factors considered by the Distributor generally
include the financial advisor's reputation, training of the financial advisor's
sales force, quality of service, ability to attract and retain assets for the
Trust, expertise in distributing a particular class of shares of the Trust,
and/or access to target markets. The Distributor may pay additional compensation
for services with respect to the Trust and other funds in the Aquila Group of
Funds without allocation for services provided to particular funds.
Typically, additional compensation in the form of education and/or
marketing support payments is made towards one or more of the following:
o assistance in training and educating the financial advisor's personnel;
o participation in the financial advisor's conferences and meetings;
o advertising of the Trust's shares;
o payment of travel expenses, including lodging, for attendance at sales
seminars by qualifying registered representatives;
o other incentives or financial assistance to financial advisors in
connection with promotional, training or educational seminars or
conferences;
o shareholder appreciation events;
o exhibit space or sponsorships at regional or national events of financial
intermediaries;
o participation in special financial advisor programs;
o continued availability of the Trust's shares through the financial
advisor's automated trading platform;
o access to the financial advisor's sales representatives and national sales
management personnel by the Distributor or Trust representatives;
o inclusion of the Trust and/or the Aquila Group of Funds on preferred or
recommended sales lists; and
o other comparable expenses at the discretion of the Distributor.
The financial advisors to whom the Distributor may pay, or has paid
additional compensation in the form of education and/or marketing support
payments since January 1, 2004, include A.G. Edwards & Sons Inc., Bank One
Securities Corp., Charles Schwab & Co., Inc., DA Davidson & Co., Edward D. Jones
& Co., Fidelity Brokerage Services LLC, First Federal Savings Bank, Invest
Financial Corporation, J.J.B. Hilliard, W.L. Lyons Inc., Legg Mason Wood Walker,
Incorporated, Merrill, Lynch, Pierce Fenner & Smith Inc., Morgan Keegan &
Company, Inc., Morgan Stanley & Co. Incorporated (including anticipated fixed
dollar payments ranging from $25,000 to $29,000 annually), National Financial
Services LLC, Pershing LLC, Piper Jaffray Inc., RBC Dain Rauscher Inc., Raymond
James Securities, Stifel, Nicolaus & Company, Inc., Stock Yards Bank & Trust
Co., The Glenview Trust Co., The Investment Center Inc., UBS Financial Services,
US Bancorp Investments, Inc., US Bank Securities, UVEST Investment Services,
Inc., Wachovia Securities, Inc., and Zions Investment Securities Inc.
The Distributor and/or related companies may compensate financial advisors
not listed above. The Distributor and/or related companies may enter into
additional compensation arrangements or change arrangements at any time without
notice.
The Distributor and/or its related companies currently compensate
financial advisors on a case by case basis. Any of the foregoing payments to be
made by the Distributor may be made instead by the Manager out of its own funds,
directly or through the Distributor.
Automatic Withdrawal Plan
You may establish an Automatic Withdrawal Plan if you own or purchase
Class A Shares or Class Y Shares of the Trust having a net asset value of at
least $5,000. The Automatic Withdrawal Plan is not available for Class C Shares
or Class I Shares.
Under an Automatic Withdrawal Plan you will receive a monthly or
quarterly check in a stated amount, not less than $50. If such a plan is
established, all dividends and distributions must be reinvested in your
shareholder account. Redemption of shares to make payments under the Automatic
Withdrawal Plan will give rise to a gain or loss for tax purposes. (See the
Automatic Withdrawal Plan provisions of the New Account Application.)
Purchases of additional Class A Shares concurrently with withdrawals
are undesirable because of sales charges when purchases are made. Accordingly,
you may not maintain an Automatic Withdrawal Plan while simultaneously making
regular purchases. While an occasional lump sum investment may be made, such
investment should normally be an amount at least equal to three times the annual
withdrawal or $5,000, whichever is less.
Share Certificates
You may obtain share certificates for full Class A Shares only if you
make a written request to the Agent. All share certificates previously issued by
the Trust represent Class A Shares. If you lose the certificates, you may incur
delay and expense when redeeming shares or having the certificates reissued.
Share certificates will not be issued:
* for fractional Class A Shares;
* if you have selected Automatic Investment or Telephone Investment for Class
A Shares;
* if you have selected Expedited Redemption. However, if you specifically
request, Class A Share certificates will be issued with a concurrent
automatic suspension of Expedited Redemption on your account; or
* for Class C Shares, Class Y Shares or Class I Shares.
Reinvestment Privilege
If you reinvest proceeds of a redemption within 120 days of the
redemption you will not have to pay any additional sales charge on the
reinvestment. You must reinvest in the same class as the shares redeemed. You
may exercise this privilege only once a year, unless otherwise approved by the
Distributor.
The Distributor will refund to you any CDSC deducted at the time of
redemption by adding it to the amount of your reinvestment. The Class C or CDSC
Class A Shares purchased upon reinvestment will be deemed to have been
outstanding from the date of your original purchase of the redeemed shares, less
the period from redemption to reinvestment.
Reinvestment will not alter the tax consequences of your original
redemption.
Exchange Privilege
Shareholders of the Trust have an exchange privilege as set forth
below. Exchanges can be made among this Trust, the other tax-free municipal bond
funds, the high-income corporate bond fund and the equity fund (together with
the Trust, the "Bond or Equity Funds") and certain money-market funds (the
"Money-Market Funds") in the Aquila Group of Funds. All of the funds have the
same Manager or Administrator and Distributor as the Trust. All exchanges are
subject to certain conditions described below. As of the date of this SAI, the
Bond or Equity Funds are Aquila Rocky Mountain Equity Fund, Aquila Three Peaks
High Income Fund, Hawaiian Tax-Free Trust, Tax-Free Trust of Oregon, Tax-Free
Trust of Arizona, Churchill Tax-Free Fund of Kentucky, Tax-Free Fund of
Colorado, Tax-Free Fund For Utah and Narragansett Insured Tax-Free Income Fund;
the Money-Market Funds are Pacific Capital Cash Assets Trust (Original Shares),
Pacific Capital Tax-Free Cash Assets Trust (Original Shares) and Pacific Capital
U.S. Government Securities Cash Assets Trust (Original Shares).
Generally, you can exchange shares of a given class of a Bond or Equity
Fund including the Trust for shares of the same class of any other Bond or
Equity Fund, or for Original Shares of any Money-Market Fund, without the
payment of a sales charge or any other fee. The exchange privilege is available
to Class I Shares to the extent that other Aquila-sponsored funds are made
available to its customers by your financial intermediary. All exchanges of
Class I Shares must be made through your financial intermediary.
Because excessive trading in Trust shares can be harmful to the Trust
and its other shareholders, the right is reserved to revise or terminate the
exchange privilege, to limit the number of exchanges or to reject any exchange
if (i) the Trust or any of the other Aquila Funds believe that it or they would
be harmed or be unable to invest effectively or (ii) it or they receive or
anticipate receiving simultaneous orders that may significantly affect the Trust
or any other Aquila Fund.
The following important information should be noted:
(1) CDSCs Upon Redemptions of Shares Acquired Through Exchanges. If you
exchange shares subject to a CDSC, no CDSC will be imposed at the time of
exchange, but the shares you receive in exchange for them will be subject to the
applicable CDSC if you redeem them before the requisite holding period
(extended, if required) has expired.
If the shares you redeem would have incurred a CDSC if you had not made
any exchanges, then the same CDSC will be imposed upon the redemption regardless
of the exchanges that have taken place since the original purchase.
(2) Extension of Holding Periods by Owning Money-Market Funds. Any
period of 30 days or more during which Money-Market Fund shares received on an
exchange of CDSC Class A Shares or Class C Shares are held is not counted in
computing the applicable holding period for CDSC Class A Shares or Class C
Shares.
(3) Originally Purchased Money-Market Fund Shares. Shares of a
Money-Market Fund (and any shares acquired as a result of reinvestment of
dividends and/or distributions on these shares) acquired directly in a purchase
(or in exchange for Money-Market Fund shares that were themselves directly
purchased), rather than in exchange for shares of a Bond or Equity Fund, may be
exchanged for shares of any class of any Bond or Equity Fund that the investor
is otherwise qualified to purchase, but the shares received in such an exchange
will be subject to the same sales charge, if any, that they would have been
subject to had they been purchased rather than acquired in exchange for
Money-Market Fund shares. If the shares received in exchange are shares that
would be subject to a CDSC if purchased directly, the holding period governing
the CDSC will run from the date of the exchange, not from the date of the
purchase of Money-Market Fund shares.
This Trust, as well as the Money-Market Funds and other Bond or Equity
Funds, reserves the right to reject any exchange into its shares, if shares of
the fund into which exchange is desired are not available for sale in your state
of residence. The Trust may also modify or terminate this exchange privilege at
any time. In the case of termination, the Prospectus will be appropriately
supplemented. No such modification or termination shall take effect on less than
60 days' written notice to shareholders.
All exercises of the exchange privilege are subject to the conditions
that (i) the shares being acquired are available for sale in your state of
residence; (ii) the aggregate net asset value of the shares surrendered for
exchange is at least equal to the minimum investment requirements of the
investment company whose shares are being acquired and (iii) the ownership of
the accounts from which and to which the exchange is made are identical.
The Agent will accept telephone exchange instructions from anyone. To make
a telephone exchange telephone:
800-437-1000 toll-free
Note: The Trust, the Agent, and the Distributor will not be responsible
for any losses resulting from unauthorized telephone transactions if the Agent
follows reasonable procedures designed to verify the identity of the caller. The
Agent will request some or all of the following information: account name(s) and
number, name of the caller, the social security number registered to the account
and personal identification. The Agent may also record calls. You should verify
the accuracy of confirmation statements immediately upon receipt.
Exchanges will be effected at the relative exchange prices of the
shares being exchanged next determined after receipt by the Agent of your
exchange request. The exchange prices will be the respective net asset values of
the shares, unless a sales charge is to be deducted in connection with an
exchange of shares, in which case the exchange price of shares of a Bond or
Equity Fund will be their public offering price. Prices for exchanges are
determined in the same manner as for purchases of the Trust's shares.
An exchange is treated for Federal tax purposes as a redemption and
purchase of shares and would result in the realization of a capital gain or
loss, depending on the cost or other tax basis of the shares exchanged and the
holding period; should any such loss occur, no representation is made as to its
deductibility .
Dividends paid by the Money-Market Funds are taxable, except to the
extent that a portion or all of the dividends paid by Pacific Capital Tax-Free
Cash Assets Trust (a tax-free money-market fund) are exempt from regular Federal
income tax, and to the extent that a portion or all of the dividends paid by
Pacific Capital U.S. Government Securities Cash Assets Trust (which invests in
U.S. Government obligations) are exempt from state income taxes. Dividends paid
by Aquila Rocky Mountain Equity Fund and Aquila Three Peaks High Income Fund are
taxable. If your state of residence is not the same as that of the issuers of
obligations in which a tax-free municipal bond fund or a tax-free money-market
fund invests, the dividends from that fund may be subject to income tax of the
state in which you reside. Accordingly, you should consult your tax adviser
before acquiring shares of such a bond fund or a tax-free money-market fund
under the exchange privilege arrangement.
If you are considering an exchange into one of the funds listed above,
you should send for and carefully read its Prospectus.
Conversion of Class C Shares
Conversion of Class C Shares into Class A Shares will be effected at
relative net asset values on the 15th day (or the next business day thereafter)
of the month preceding that in which the sixth anniversary of your purchase of
the Class C Shares occurred, except as noted below. Accordingly, the holding
period applicable to your Class C Shares may be up to seven weeks less than the
six years depending upon when your actual purchase was made during a month.
Because the per share value of Class A Shares may be higher than that of Class C
Shares at the time of conversion, you may receive fewer Class A Shares than the
number of Class C Shares converted. If you have made one or more exchanges of
Class C Shares among the Aquila-sponsored Bond or Equity Funds under the
Exchange Privilege, the six-year holding period is deemed to have begun on the
date you purchased your original Class C Shares of the Trust or of another of
the Aquila Bond or Equity Funds. The six-year holding period will be suspended
by one month for each period of thirty days during which you hold shares of a
Money-Market Fund you have received in exchange for Class C Shares under the
Exchange Privilege.
"Transfer on Death" Registration (Not Available for Class I Shares)
Each of the funds in the Aquila Group of Funds now permits registration
of its shares in beneficiary form, subject to the funds' rules governing
Transfer on Death ("TOD") registration, if the investor resides in a state that
has adopted the Uniform Transfer on Death Security Registration Act (a "TOD
State"; for these purposes, Missouri is deemed to be a TOD State). This form of
registration allows you to provide that, on your death, your shares are to be
transferred to the one or more persons that you specify as beneficiaries. To
register shares of the Trust in TOD form, complete the special TOD Registration
Request Form and review the Rules Governing TOD Registration; both are available
from the Agent. The Rules, which are subject to amendment upon 60 days' notice
to TOD account owners, contain important information regarding TOD accounts with
the Trust; by opening such an account you agree to be bound by them, and failure
to comply with them may result in your shares' not being transferred to your
designated beneficiaries. If you open a TOD account with the Trust that is
otherwise acceptable but, for whatever reason, neither the Trust nor the Agent
receives a properly completed TOD Registration Request Form from you prior to
your death, the Trust reserves the right not to honor your TOD designation, in
which case your account will become part of your estate.
You are eligible for TOD registration only if, and as long as, you
reside in a TOD State. If you open a TOD account and your account address
indicates that you do not reside in a TOD State, your TOD registration will be
ineffective and the Trust may, in its discretion, either open the account as a
regular (non-TOD) account or redeem your shares. Such a redemption may result in
a gain or loss to you and may have tax consequences. Similarly, if you open a
TOD account while residing in a TOD State and later move to a non-TOD State,
your TOD registration will no longer be effective. In both cases, should you die
while residing in a non-TOD State the Trust reserves the right not to honor your
TOD designation. At the date of this SAI, almost all states are TOD States.
Computation of Net Asset Value
The net asset value of the shares of each of the Trust's classes is
determined as of 4:00 p.m., New York time, on each day that the New York Stock
Exchange is open, by dividing the value of the Trust's net assets allocable to
each class by the total number of its shares of such class then outstanding.
With the approval of the Trust's Board of Trustees the Trust's normal practice
is that most or all of the Oregon Obligations in the Trust's portfolio are
priced using a reputable pricing service which may employ differential
comparisons to the market in other municipal bonds under methods which include
consideration of the current market value of tax-free debt instruments having
varying characteristics of quality, yield and maturity. Portfolio securities
other than those with a remaining maturity of sixty days or less are valued at
the mean between bid and asked quotations, if available, which, for Oregon
Obligations, may be obtained from a reputable pricing service which may, in
turn, obtain quotations from broker/dealers or banks dealing in Oregon
Obligations. Any securities or assets for which such market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures subject to the general supervision and responsibility of the
Trust's Board of Trustees. Securities having a remaining maturity of sixty days
or less when purchased and securities originally purchased with maturities in
excess of sixty days but which currently have maturities of sixty days or less
are valued at cost adjusted for amortization of premiums and accretion of
discounts. With the approval of the Trust's Board of Trustees, the Sub-Adviser
may at its own expense and without reimbursement from the Trust employ a pricing
service, bank or broker/dealer experienced in such matters to perform any of the
above described functions.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a number of
instances in which the Trust's Class A Shares are sold or issued on a basis
other than the maximum public offering price, that is, the net asset value plus
the highest sales charge. Some of these relate to lower or eliminated sales
charges for larger purchases, whether made at one time or over a period of time
as under a Letter of Intent or right of accumulation. (See the table of sales
charges in the Prospectus.) The reasons for these quantity discounts are, in
general, that (i) they are traditional and have long been permitted in the
industry and are therefore necessary to meet competition as to sales of shares
of other funds having such discounts; and (ii) they are designed to avoid an
unduly large dollar amount of sales charge on substantial purchases in view of
reduced selling expenses. Quantity discounts are made available to certain
related persons ("single purchasers") for reasons of family unity and to provide
a benefit to tax-exempt plans and organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A Shares are as follows. Exchanges at net
asset value are permitted because a sales charge has already been paid on the
shares exchanged. Sales without sales charge are permitted to Trustees, officers
and certain others due to reduced or eliminated selling expenses and/or since
such sales may encourage incentive, responsibility and interest and an
identification with the aims and policies of the Trust. Limited reinvestments of
redemptions of Class A Shares and Class C Shares at no sales charge are
permitted to attempt to protect against mistaken or incompletely informed
redemption decisions. Shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and since, in some
cases, such issuance is exempted in the 1940 Act from the otherwise applicable
restrictions as to what sales charge must be imposed. In no case in which there
is a reduced or eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Trust receives the net
asset value per share of all shares sold or issued.
Purchases and Redemptions Through Broker/Dealers
A broker/dealer may charge its customers a processing or service fee in
connection with the purchase or redemption of Trust shares. The amount and
applicability of such a fee is determined and should be disclosed to its
customers by each individual broker/dealer. These processing or service fees are
typically fixed, nominal dollar amounts and are in addition to the sales and
other charges described in the Prospectus and this SAI. Your broker/dealer
should provide you with specific information about any processing or service
fees you will be charged.
Purchases and Redemptions of Class I Shares
The Trust has authorized one or more financial intermediaries to
receive on its behalf purchase and redemption orders for Class I Shares; one or
more of those financial intermediaries are also authorized to designate other
intermediaries to receive purchase and redemption orders for Class I Shares on
the Trust's behalf. The Trust will be deemed to have received a purchase or
redemption order for Class I Shares when an authorized financial intermediary
or, if applicable, the financial intermediary's authorized designee receives the
order. Such orders will be priced at the Trust's net asset value for Class I
Shares next determined after they are received by the authorized financial
intermediary or, if applicable, its authorized designee and accepted by the
Trust.
Limitation of Redemptions in Kind
The Trust has elected to be governed by Rule 18f-1 under the 1940 Act,
pursuant to which the Trust is obligated to redeem shares solely in cash up to
the lesser of $250,000 or 1 percent of the net asset value of the Trust during
any 90-day period for any one shareholder. Should redemptions by any shareholder
exceed such limitation, the Trust will have the option of redeeming the excess
in cash or in kind. If shares are redeemed in kind, the redeeming shareholder
might incur brokerage costs in converting the assets into cash. The method of
valuing securities used to make redemptions in kind will be the same as the
method of valuing portfolio securities described under "Net Asset Value Per
Share" in the Prospectus, and such valuation will be made as of the same time
the redemption price is determined.
Disclosure of Portfolio Holdings
Under Trust policies, the Manager publicly discloses the complete
schedule of the Trust's portfolio holdings, as reported at the end of each
calendar quarter, generally by the 15th day after the end of each calendar
quarter. Such information will remain accessible until the next schedule is made
publicly available. You may obtain a copy of the Trust's schedule of portfolio
holdings for the most recently completed period by accessing the information on
the Trust's website at www.aquilafunds.com. The Trust also discloses the five
largest holdings by market value as of the close of the last business day of
each calendar month by posting the same to its web site on the 5th business day
of the following calendar month. Such information remains on the web site until
the next such posting.
In addition, the Manager may share the Trust's non-public portfolio
holdings information with pricing services and other service providers to the
Trust who require access to such information in order to fulfill their
contractual duties to the Trust. The Manager may also disclose non-public
information regarding the Trust's portfolio holdings to certain mutual fund
analysts and rating and tracking entities, such as Morningstar and Lipper
Analytical Services, or to other entities that have a legitimate business
purpose in receiving such information on a more frequent basis. Exceptions to
the frequency and recipients of the disclosure may be made only with the advance
authorization of the Trust's Chief Compliance Officer upon a determination that
such disclosure serves a legitimate business purpose and is in the best
interests of the Trust and will be reported to the Board of Trustees at the next
regularly scheduled board meeting. All non-public portfolio holdings information
is provided pursuant to arrangements as to confidentiality.
Whenever portfolio holdings disclosure made pursuant to these procedures
involves a possible conflict of interest between the Trust's shareholders and
the Trust's Manager, Sub-Adviser, Distributor or any affiliated person of the
Trust, the disclosure may not be made unless a majority of the independent
Trustees or a majority of a board committee consisting solely of independent
Trustees approves such disclosure. The Trust, the Manager and the Sub-Adviser
shall not enter into any arrangement providing for the disclosure of non-public
portfolio holdings information for the receipt of compensation or benefit of any
kind. Any material changes to the policies and procedures for the disclosure of
portfolio holdings will be reported to the Board on at least an annual basis.
Additional Tax Information
Certain Redemptions or Exchanges
If you incur a sales commission on a purchase of shares of one mutual
fund (the original fund) and then either exchange them for shares of a different
mutual fund, or redeem them and subsequently acquire shares in a different
mutual fund, in either case without having held the original fund shares at
least 91 days, you must reduce the tax basis for the shares redeemed or
exchanged to the extent that the standard sales commission charged for acquiring
shares in the exchange or later acquiring shares of the original fund or another
fund is reduced because of the shareholder's having owned the original fund
shares. The effect of the rule is to increase your gain or reduce your loss on
the original fund shares. The amount of the basis reduction on the original fund
shares, however, is added on the investor's basis for the fund shares acquired
in the exchange or later acquired.
Tax Status of the Trust
During its last fiscal year, the Trust qualified as a "regulated
investment company" under the Internal Revenue Code and intends to continue such
qualification. A regulated investment company is not liable for Federal income
taxes on amounts paid by it as dividends and distributions.
The Internal Revenue Code, however, contains a number of complex
qualifying tests. Therefore, it is possible, although not likely, that the Trust
might not meet one or more of these tests in any particular year. If the Trust
fails to qualify, it would be treated for tax purposes as an ordinary
corporation. As a consequence, it would receive no tax deduction for payments
made to shareholders and would be unable to pay dividends and distributions
which would qualify as "exempt-interest dividends" or "capital gains dividends."
Additionally the Trust must meet certain distribution requirements or it will be
subject to an excise tax on amounts not properly distributed. The Trust intends
to meet such requirements.
Tax Effects of Redemptions and Exchanges
Normally, when you redeem shares of the Trust, or exchange shares of
the Trust for shares issued by other funds sponsored by the Manager, you will
recognize capital gain or loss measured by the difference between the proceeds
received in the redemption or the net asset value of the shares received in the
exchange and the amount you paid for the shares. If you are required to pay a
contingent deferred sales charge at the time of redemption or exchange, the
amount of that charge will reduce the amount of your gain or increase the amount
of your loss as the case may be. Your gain or loss will generally be long-term
if you held the redeemed/exchanged shares for over one year and short-term if
for a year or less. Long-term capital gains are currently taxed at a maximum
rate of 15% and short-term gains are currently taxed at ordinary income tax
rates. However, if shares held for six months or less (which holding period may
be extended in the event that the risk of holding shares is reduced by holding
substantially similar or related property) are redeemed or exchanged and you
have a loss, two special rules apply: the loss is generally disallowed by the
amount of exempt-interest dividends, if any, which you received on the
redeemed/exchanged shares, and any loss over and above the amount of such
exempt-interest dividends is treated as a long-term loss to the extent you have
received capital gains dividends on the redeemed/exchanged shares.
Tax Effect of Conversion
When Class C Shares automatically convert to Class A Shares,
approximately six years after purchase, gain or loss may not be recognized in
whole or in part. In such case, your adjusted tax basis in the Class A Shares
you receive upon conversion would then equal your adjusted tax basis in the
Class C Shares you held immediately before conversion, and your holding period
for the Class A Shares you receive would then include the period you held the
converted Class C Shares.
Underwriters
Aquila Distributors, Inc. acts as the Trust's principal underwriter in
the continuous public offering of all of the Trust's classes of shares. The
Distributor is not obligated to sell a specific number of shares. Under the
Distribution Agreement, the Distributor is responsible for the payment of
certain printing and distribution costs relating to prospectuses and reports as
well as the costs of supplemental sales literature, advertising and other
promotional activities. Payments of the amounts listed below for the fiscal year
ended September 30, 2009 were as follows:
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions and Brokerage Commissions Other Compensation
Underwriter Commissions Repurchases
Aquila Distributors, $_______ None None None(*)
Inc.
(*) Amounts paid to the Distributor under the Trust's Distribution Plan are for
compensation.
APPENDIX A
DESCRIPTION OF MUNICIPAL BOND RATINGS
Nationally Recognized Statistical Rating Organizations
At the date of this Statement of Additional Information there are ten
organizations registered with the Securities and Exchange Commission (SEC) as
Nationally Recognized Statistical Rating Organizations ("NRSROs") under Section
15E of the Securities Exchange Act of 1934. Not all NRSROs rate securities in
which the Trust invests. The names of some important and widely-known NRSROs,
brief summaries of their respective rating systems, some of the factors
considered by each of them in issuing ratings, and their individual procedures
are described below.
Municipal Bond Ratings
Standard & Poor's. A Standard & Poor's municipal obligation rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment may take into consideration obligors such
as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws
affecting creditors rights.
AAA Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only
in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Moody's Investors Service. A brief description of the applicable
Moody's Investors Service rating symbols and their meanings follows:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge". Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment some time in the
future.
Baa Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess
the strongest investment attributes are designated by the symbols Aa1, A1, Baa1,
Ba1 and B1.
Moody's Short Term Loan Ratings - There are three rating categories for
short-term obligations, all of which define an investment grade situation. These
are designated as Moody's Investment Grade MIG 1 through MIG 3. In the case of
variable rate demand obligations (VRDOs), two ratings are assigned; one
representing an evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other representing an evaluation of the
degree of risk associated with the demand feature. The short-term rating
assigned to the demand feature of VRDOs is designated as VMIG. When no rating is
applied to the long or short-term aspect of a VRDO, it will be designated NR.
Issues or the features associated with MIG or VMIG ratings are identified by
date of issue, date of maturity or maturities or rating expiration date and
description to distinguish each rating from other ratings. Each rating
designation is unique with no implication as to any other similar issue of the
same obligor. MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issuer's specific structural
or credit features.
MIG1/VMIG1 This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG2/VMIG2 This designation denotes strong credit quality. Margins of
protection are ample, although not as large as in the preceding group.
MIG3/VMIG3 This designation denotes acceptable credit quality.
Liquidity and cash flow protection may be narrow, and market access for
refinancing is likely to be less well established.
Dominion Bond Rating Service Limited ("DBRS") Bond and Long Term Debt
Rating Scale. Long term debt ratings are meant to give an indication of the risk
that the borrower will not fulfill its full obligations in a timely manner with
respect to both interest and principal commitments.
AAA Bonds rated AAA are of the highest credit quality, with exceptionally
strong protection for the timely repayment of principal and interest.
AA Bonds rated AA are of superior credit quality, and protection of
interest and principal is considered high.
A Bonds rated A are of satisfactory credit quality. Protection of
interest and principal is still substantial, but the degree of strength
is less than with AA rated entities.
BBB Bonds rated BBB are of adequate credit quality.
BB Bonds rated BB are defined to be speculative, where the degree of
protection afforded interest and principal is uncertain, particularly
during periods of economic recession.
B Bonds rated B are highly speculative and there is a reasonably high
level of uncertainty which exists as to the ability of the entity to
pay interest and principal on a continuing basis in the future,
especially in periods of economic recession or industry adversity.
DBRS Commercial Paper and Short Term Debt Rating Scale. Commercial
paper ratings are meant to give an indication of the risk that the borrower will
not fulfill its obligations in a timely manner. All three DBRS rating categories
for short term debt use "high," "middle" or "low" as subset grades to designate
the relative standing of the credit within a particular rating category.
R-1 (high) Short term debt rated R-1 (high) is of the highest credit quality,
and indicates an entity which possesses unquestioned ability to repay current
liabilities as they fall due.
R-1 (middle) Short term debt rated R-1 (middle) is of superior credit quality
and, in most cases, ratings in this category differ from R-1 (high) credits to
only a small degree.
R-1 (low) Short term debt rated R-1 (low) is of satisfactory credit quality. the
overall strength and outlook for key liquidity, debt and profitability ratios is
not normally as favorable as with higher rating categories, but these
considerations are still respectable.
R-2 (high), Short term debt rated R-2 is of adequate credit quality and within
the three subset grades, R-2 (middle), debt protection ranges from having
reasonable ability for timely repayment to a level R-2 (low) which is considered
only just adequate.
R-3 (high), Short term debt rated R-3 is speculative, and within the three
subset grades, the capacity R-3 (middle), for timely payment ranges from mildly
speculative to doubtful.
R-3 (low)
Fitch Ratings. A brief description of the applicable rating symbols and
their meanings follows:
AAA Highest credit quality. `AAA' ratings denote the lowest
expectation of credit risk. They are assigned only
in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable
events.
AA Very high credit quality. `AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is
not significantly vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is
the lowest investment-grade category.
Notes to Long-term and Short-term ratings:
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the `AAA' Long-term rating
category, to categories below `CCC', or to Short-term ratings other than `F1'.
`NR' indicates that Fitch Ratings does not rate the issuer or issue in question.
`Withdrawn': A rating is withdrawn when Fitch Ratings deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
Rating Watch: Ratings are placed on Rating Watch to notify investors that there
is a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. Rating Watch is typically resolved over a relatively
short period.
A Rating Outlook indicates the direction a rating is likely to move over a one
to two-year period. Outlooks may be positive, stable or negative. A positive or
negative Rating Outlook does not imply a rating change is inevitable. Similarly,
companies whose outlooks are `stable` could be upgraded or downgraded before an
outlook moves to positive or negative if circumstances warrant such an action.
Occasionally, Fitch may be unable to identify the fundamental trend. In these
cases, the Rating Outlook may be described as evolving.
Short-Term Obligations. The following ratings scale applies to foreign
currency and local currency ratings. A Short-term rating has a time horizon of
less than 12 months for most obligations, or up to three years for US public
finance securities, and thus places greater emphasis on the liquidity necessary
to meet financial commitments in a timely manner.
F1 Highest credit quality. Indicates the strongest capacity for
timely payment of financial commitments; may have an added "+"
to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of safety is
not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term adverse
changes could result in a reduction to non-investment grade.
PART C: OTHER INFORMATION
Financial Statements
Tax-Free Trust of Oregon Portfolio:
Included in Part A:
Per Share Income and Capital Changes
Incorporated by reference into Part B:
Report of Independent Registered Public
Accounting Firm
Statement of Assets and Liabilities as of
September 30, 2009
Statement of Operations for the year ended
September 30, 2009
Statement of Changes in Net Assets for the
years ended September 30, 2009 and 2008
Statement of Investments as of September 30, 2009
Notes to Financial Statements
Included in Part C:
Consent of Independent Registered Public
Accounting Firm (to be filed by amendment)
ITEM 23 Exhibits:
(a) Supplemental Declaration of Trust Amending
and Restating the Declaration of Trust (ii)
(b) By-laws (xiii)
(c) Instruments defining rights of shareholders
The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares and to divide
or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial
interests in the Trust. Each share represents an equal
proportionate interest in the Trust with each other share of
its class; shares of the respective classes represent
proportionate interests in the Trust in accordance with their
respective net asset values. Upon liquidation of the Trust,
shareholders are entitled to share pro-rata in the net assets
of the Trust available for distribution to shareholders, in
accordance with the respective net asset values of the shares
of each of the Trust's classes at that time. All shares are
presently divided into four classes; however, if they deem it
advisable and in the best interests of shareholders, the Board
of Trustees of the Trust may create additional classes of
shares, which may differ from each other as provided in rules
and regulations of the Securities and Exchange Commission or
by exemptive order. The Board of Trustees may, at its own
discretion, create additional series of shares, each of which
may have separate assets and liabilities (in which case any
such series will have a designation including the word
"Series"). Shares are fully paid and non-assessable, except as
set forth under the caption "General Information" in the
Additional Statement; the holders of shares have no
pre-emptive or conversion rights, except that Class C Shares
automatically convert to Class A Shares after being held for
six years.
At any meeting of shareholders, shareholders are entitled to
one vote for each dollar of net asset value (determined as of
the record date for the meeting) per share held (and
proportionate fractional votes for fractional dollar amounts).
Shareholders will vote on the election of Trustees and on
other matters submitted to the vote of shareholders. Shares
vote by classes on any matter specifically affecting one or
more classes, such as an amendment of an applicable part of
the Distribution Plan. No amendment may be made to the
Declaration of Trust without the affirmative vote of the
holders of a majority of the outstanding shares of the Trust
except that the Trust's Board of Trustees may change the name
of the Trust. The Trust may be terminated (i) upon the sale of
its assets to another issuer, or (ii) upon liquidation and
distribution of the assets of the Trust, in either case if
such action is approved by the vote of the holders of a
majority of the outstanding shares of the Trust.
(d) (i) Advisory and Administration
Agreement (xvi)
(d) (ii) Sub-Advisory Agreement (xvi)
(e) (i) Distribution Agreement (vi)
(ii) Sales Agreement for Brokerage
Firms for Tax-Free Trust of
Oregon Portfolio (iii)
(iii) Sales Agreement for Financial
Institutions for Tax-Free Trust
of Oregon Portfolio (iii)
(iv) Sales Agreement for Investment
Advisers for Tax-Free Trust of
Oregon Portfolio (iii)
(v) Shareholder Services Agreement (viii)
(vi) Anti-Money Laundering Amendment to
Distribution Agreement(ix)
(f) Not applicable
(g) (i) Custody Agreement for Tax-Free
Trust of Oregon Portfolio (i)
(h) (i) Transfer Agency Agreement for Tax-Free
Trust of Oregon Portfolio (iv)
(ii) Anti-Money Laundering Amendment to Transfer
Agency Agreement (x)
(iii) Customer Identification Services Amendment to
Transfer Agency Agreement (x)
(i) (i) Opinion of Trust's Counsel (xiv)
(i) (ii) Consent of Trust's Counsel (to be filed by
amendment)
(j) Consent of Independent Registered Public Accounting
Firm (to be filed by amendment)
(k) Not Applicable
(l) Not Applicable
(m) (i) Distribution Plan (iv)
(ii) Shareholder Services Plan (iv)
(n) Plan Pursuant to Rule 18f-3 (xiii)
(o) Reserved
(p) Codes of Ethics
(i) The Trust (xiii)
(ii) The Manager and The Distributor (xiii)
(iii) The Sub-Adviser (xii)
(i) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 17 dated January 31, 1996 and
incorporated herein by reference.
(ii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 18 dated April 3, 1996 and incorporated
herein by reference.
(iii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 19 dated January 24, 1997, and
incorporated herein by reference.
(iv) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 20 dated December 1, 1997, and
incorporated herein by reference.
(v) Filed as an exhibit to Registrant's Post-Effective
Amendment No 23 filed January 28, 1999 and
incorporated herein by reference.
(vi) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 24 dated January 28, 2000 and
incorporated herein by reference.
(vii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 25 dated January 31, 2001 and
incorporated herein by reference.
(viii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 26 dated January 23, 2002 and
incorporated herein by reference
(ix) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 27 dated January 29, 2003 and
incorporated herein by reference
(x) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 28 dated January 29, 2004 and
incorporated herein by reference
(xi) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 29 dated January 29, 2005 and
incorporated herein by reference
(xii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 30 dated January 30, 2006 and
incorporated herein by reference
(xiii) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 31 dated January 30, 2007 and
incorporated herein by reference
(xiv) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 32 dated January 30, 2008 and
incorporated herein by reference
(xv) Filed as an exhibit to Registrant's Post-Effective
Amendment No. 33 dated January 29, 2009 and
incorporated herein by reference
(xvi) Filed herewith.
ITEM 24. Persons Controlled By Or Under Common Control With Registrant
None
ITEM 25. Indemnification
Subdivision (c) of Section 12 of Article SEVENTH of Registrant's
Amended and Restated Declaration of Trust, filed as Exhibit 1 to
Registrant's Post Effective Amendment No. 18 dated April 3, 1996 is
incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers, and controlling
persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in that Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses
incurred or paid by a Trustee, officer, or controlling person of
Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such Trustee, officer, or controlling person
in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. Business and Other Connections of Investment
Adviser and Sub-Adviser
The business and other connections of Aquila Investment Management
LLC, the Trust's Investment Adviser and Manager is set forth in
the prospectus (Part A). As a result of transactions completed in
2009 no individual holds with the power to vote, directly or
indirectly, more than 24.9% of the voting shares of the Manager's
corporate parent, Aquila Management Corporation. For information as
to the business, profession, vocation, or employment of a substantial
nature of its Directors and officers, reference is made to the Form
ADV filed by it under the Investment Advisers Act of 1940.
The Sub-adviser, FAF Advisors, Inc. is a registered investment adviser
and subsidiary of U.S. Bank National Association. U.S. Bank National
Association is a separate entity and a wholly owned subsidiary of U.S.
Bancorp ("USB") 800 Nicollett Mall, Minneapolis, Minnesota 55402. USB
is the 6th largest commercial bank in the United States. The company
operates 2,850 banking offices, 5,173 ATMs in 24 states, and provides
a comprehensive line of banking, brokerage, insurance, investment,
mortgage, trust and payment services products to consumers, businesses
and institutions. The company is headquartered in Minneapolis,
Minnesota and primarily serves the Midwest and West. At September 30,
2009, on a pro forma combined basis, USB and its consolidated
subsidiaries had consolidated assets of approximately $265.1 billion,
consolidated deposits of $169.8 billion and shareholder equity of
$25.2 billion.
For information as to the business, profession, vocation, or employment
of a substantial nature of its Directors and officers, reference is
made to the Form ADV filed by it under the Investment Advisers Act of
1940.
ITEM 27. Principal Underwriters
(a) Aquila Distributors, Inc. serves as principal underwriter to
the following Funds, including the Registrant, Tax-Free Trust
of Oregon: Churchill Tax-Free Fund of Kentucky, Hawaiian
Tax-Free Trust, Narragansett Insured Tax-Free Income Fund,
Pacific Capital Cash Assets Trust, Pacific Capital Tax-Free Cash
Assets Trust, Pacific Capital U.S. Government Securities Cash
Assets Trust, Tax-Free Fund For Utah, Tax-Free Fund of Colorado,
Tax-Free Trust of Arizona, Aquila Rocky Mountain Equity Fund and
Aquila Three Peaks High Income Fund.
(b) For information about the directors and officers of Aquila
Distributors, Inc., reference is made to the Form BD filed by
it under the Securities Exchange Act of 1934.
(c) Not applicable.
ITEM 28. Location of Accounts and Records
All such accounts, books, and other documents are maintained by the
Manager, the Sub-Adviser the custodian, and the transfer agent, whose addresses
appear in or on the back cover pages of the Prospectus and the Statement of
Additional Information.
ITEM 29. Management Services
Not applicable.
ITEM 30. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement or Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and State of New York, on the 30th day
of November, 2009.
THE CASCADES TRUST
(Registrant)
/s/Diana P. Herrmann
----------------------------
By Diana P. Herrmann,
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment has been signed below by the following
persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/Diana P. Herrmann President, Vice Chair 11/30/09
______________________ and Trustee _________
Diana P. Herrmann
/s/Gary C. Cornia Trustee 11/30/09
______________________ _________
Gary C. Cornia
/s/James A. Gardner Trustee 11/30/09
_______________________ _________
James A. Gardner
/s/Edmund P. Jensen Trustee 11/30/09
______________________ _________
Edmund P. Jensen
/s/ John W. Mitchell Trustee 11/30/09
______________________ _________
John W. Mitchell
/s/Ralph R. Shaw Trustee 11/30/09
_______________________ _________
Ralph R. Shaw
/s/Nancy Wilgenbusch Trustee 11/30/09
_______________________ _________
Nancy Wilgenbusch
/s/Joseph P. DiMaggio 11/30/09
_______________________ Chief Financial Officer __________
Joseph P. DiMaggio and Treasurer
THE CASCADES TRUST
EXHIBIT INDEX
Exhibit Number Name
(d)(i) Advisory and Administration Agreement
(d)(ii) Sub-Advisory Agreement
(i) Consent of Trust Counsel (to be filed by amendment)
(j) Consent of Independent Registered Public
Accounting Firm (to be filed by amendment)
EX-99.D
3
ora10aa.txt
ADVISORY AND ADMINISTRATION AGREEMENT
TAX-FREE TRUST OF OREGON
ADVISORY AND ADMINISTRATION AGREEMENT
THIS AGREEMENT, made as of November 10, 2009 by and between The Cascades
Trust (the "Business Trust"), a Massachusetts business trust, 380 Madison
Avenue, Suite 2300, New York, New York 10017 and AQUILA INVESTMENT MANAGEMENT
LLC (the "Manager"), a Delaware limited liability company, 380 Madison Avenue,
Suite 2300, New York, New York 10017.
W I T N E S S E T H:
WHEREAS, the Business Trust and the Manager wish to enter into an Advisory
and Administration Agreement referred to hereafter as "this Agreement," with
respect to a portfolio of the Business Trust entitled Tax-Free Trust of Oregon
(the "Trust").
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. In General
The Manager shall perform (at its own expense) the functions set forth more
fully herein for the Trust.
2. Duties and Obligations of the Manager
(a) Investment Advisory Services. Subject to the succeeding provisions of
this Section and subject to the direction and control of the Board of Trustees
of the Trust, the Manager shall:
(i) supervise continuously the investment program of the Trust and the
composition of its portfolio;
(ii) determine what securities shall be purchased or sold by the Trust;
(iii) arrange for the purchase and the sale of securities held in the
portfolio of the Trust; and
(iv) at its expense provide for pricing of the Trust's portfolio daily
using a pricing service or other source of pricing information
satisfactory to the Trust and, unless otherwise directed by the Board
of Trustees, provide for pricing of the Trust's portfolio at least
quarterly using another such source satisfactory to the Trust.
Subject to the provisions of Section 5 hereof, the Manager may at its own
expense delegate to a qualified organization ("Sub-Adviser"), affiliated or not
affiliated with the Manager, any or all of the above duties. Any such delegation
of the duties set forth in (i), (ii) or (iii) above shall be by a written
agreement (the "Sub-Advisory Agreement") approved as provided in Section 15 of
the Investment Company Act of 1940 (the "Act").
(b) Administration. Subject to the succeeding provisions of this Section and
subject to the direction and control of the Board of Trustees of the Trust, the
Manager shall provide all administrative services to the Trust other than those
relating to its investment portfolio delegated to a Sub-Adviser of the Trust
under a Sub-Advisory Agreement; as part of such administrative duties, the
Manager shall:
(i) provide office space, personnel, facilities and equipment for the
performance of the following functions and for the maintenance of the
headquarters of the Trust;
(ii) oversee all relationships between the Trust and any sub-adviser,
transfer agent, custodian, legal counsel, auditors and principal
underwriter, including the negotiation of agreements in relation
thereto, the supervision and coordination of the performance of such
agreements, and the overseeing of all administrative matters which
are necessary or desirable for the effective operation of the Trust
and for the sale, servicing or redemption of the Trust's shares;
(iii) either keep the accounting records of the Trust, including the
computation of net asset value per share and the dividends (provided
that if there is a Sub-Adviser, daily pricing of the Trust's
portfolio shall be the responsibility of the Sub-Adviser under the
Sub-Advisory Agreement) or, at its expense and responsibility,
delegate such duties in whole or in part to a company satisfactory to
the Trust;
(iv) maintain the Trust's books and records, and prepare (or assist
counsel and auditors in the preparation of) all required proxy
statements, reports to the Trust's shareholders and Trustees, reports
to and other filings with the Securities and Exchange Commission and
any other governmental agencies, and tax returns, and oversee the
insurance relationships of the Trust;
(v) prepare, on behalf of the Trust and at the Trust's expense, such
applications and reports as may be necessary to register or maintain
the registration of the Trust and/or its shares under the securities
or "Blue-Sky" laws of all such jurisdictions as may be required from
time to time; and
(vi) respond to any inquiries or other communications of shareholders of
the Trust and broker-dealers, or if any such inquiry or communication
is more properly to be responded to by the Trust's shareholder
servicing and transfer agent or distributor, oversee such shareholder
servicing and transfer agent's or distributor's response thereto.
(c) Compliance with Requirements. Any investment program furnished, and any
activities performed, by the Manager or by a Sub-Adviser under this Section
shall at all times conform to, and be in accordance with, any requirements
imposed by: (1) the Act and any rules or regulations in force thereunder; (2)
any other applicable laws, rules and regulations; (3) the Declaration of Trust
and By-Laws of the Trust as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5) the fundamental
policies of the Trust, as reflected in its Registration Statement under the Act
or as amended by the shareholders of the Trust.
(d) Best Efforts; Responsibility. The Manager shall give the Trust the
benefit of its best judgment and effort in rendering services hereunder, but the
Manager shall not be liable for any loss sustained by reason of the adoption of
any investment policy or the purchase, sale or retention of any security,
whether or not such purchase, sale or retention shall have been based upon (i)
its own investigation and research or (ii) investigation and research made by
any other individual, firm or corporation, if such purchase, sale or retention
shall have been made and such other individual, firm or corporation shall have
been selected in good faith by the Manager or a Sub-Adviser.
(e) Other Customers. Nothing in this Agreement shall prevent the Manager or
any officer thereof from acting as investment adviser, sub-adviser,
administrator or manager for any other person, firm, or corporation, and shall
not in any way limit or restrict the Manager or any of its officers, members or
employees from buying, selling or trading any securities for its own or their
own accounts or for the accounts of others for whom it or they may be acting,
provided, however, that the Manager expressly represents that it will undertake
no activities which, in its judgment, will adversely affect the performance of
its obligations under this Agreement.
(f) Order Allocation. In connection with any duties for which it may become
responsible to arrange for the purchase and sale of the Trust's portfolio
securities, the Manager shall select, and shall cause any Sub-Adviser to select,
such broker-dealers ("dealers") as shall, in the Manager's judgment, implement
the policy of the Trust to achieve "best execution," i.e., prompt, efficient,
and reliable execution of orders at the most favorable net price. The Manager
shall cause the Trust to deal directly with the selling or purchasing principal
or market maker without incurring brokerage commissions unless the Manager
determines that better price or execution may be obtained by paying such
commissions; the Trust expects that most transactions will be principal
transactions at net prices and that the Trust will incur little or no brokerage
costs. The Trust understands that purchases from underwriters include a
commission or concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread between the bid
and asked prices. In allocating transactions to dealers, the Manager is
authorized and shall authorize any Sub-Adviser, to consider, in determining
whether a particular dealer will provide best execution, the dealer's
reliability, integrity, financial condition and risk in positioning the
securities involved, as well as the difficulty of the transaction in question,
and thus need not pay the lowest spread or commission available if the Manager
determines in good faith that the amount of commission is reasonable in relation
to the value of the brokerage and research services provided by the dealer,
viewed either in terms of the particular transaction or the Manager's overall
responsibilities. If, on the foregoing basis, the transaction in question could
be allocated to two or more dealers, the Manager is authorized, in making such
allocation, to consider whether a dealer has provided research services, as
further discussed below. Such research may be in written form or through direct
contact with individuals and may include quotations on portfolio securities and
information on particular issuers and industries, as well as on market,
economic, or institutional activities. The Trust recognizes that no dollar value
can be placed on such research services or on execution services and that such
research services may or may not be useful to the Trust and may be used for the
benefit of the Manager or its other clients. The Manager shall cause the
foregoing provisions, in substantially the same form, to be included in any
Sub-Advisory Agreement.
(g) Registration Statement; Information. It is agreed that the Manager shall
have no responsibility or liability for the accuracy or completeness of the
Trust's Registration Statement under the Act and the Securities Act of 1933,
except for information supplied by the Manager for inclusion therein. The
Manager shall promptly inform the Trust as to any information concerning the
Manager appropriate for inclusion in such Registration Statement, or as to any
transaction or proposed transaction which might result in an assignment of the
Agreement.
(h) Liability for Error. The Manager shall not be liable for any error in
judgment or for any loss suffered by the Trust or its security holders in
connection with the matters to which this Agreement relates, except a loss
resulting from wilful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Nothing in this Agreement shall, or
shall be construed to, waive or limit any rights which the Trust may have under
federal and state securities laws which may impose liability under certain
circumstances on persons who act in good faith.
(i) Indemnification. The Trust shall indemnify the Manager to the full
extent permitted by the Trust's Declaration of Trust.
3. Allocation of Expenses
The Manager shall, at its own expense, provide office space, facilities,
equipment, and personnel for the performance of its functions hereunder and
shall pay all compensation of Trustees, officers, and employees of the Trust who
are affiliated persons of the Manager.
The Trust agrees to bear the costs of preparing and setting in type its
prospectuses, statements of additional information and reports to its
shareholders, and the costs of printing or otherwise producing and distributing
those copies of such prospectuses, statements of additional information and
reports as are sent to its shareholders. All costs and expenses not expressly
assumed by the Manager under this sub-section or otherwise by the Manager,
administrator or principal underwriter or by any Sub-Adviser shall be paid by
the Trust, including, but not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation of its Trustees other
than those affiliated with the Manager or such adviser, administrator or
principal underwriter and expenses of all its Trustees; (v) legal and audit
expenses; (vi) custodian and transfer agent, or shareholder servicing agent,
fees and expenses; (vii) expenses incident to the issuance of its shares
(including issuance on the payment of, or reinvestment of, dividends); (viii)
fees and expenses incident to the registration under Federal or State securities
laws of the Trust or its shares; (ix) expenses of preparing, printing and
mailing reports and notices and proxy material to shareholders of the Trust; (x)
all other expenses incidental to holding meetings of the Trust's shareholders;
and (xi) such non-recurring expenses as may arise, including litigation
affecting the Trust and the legal obligations for which the Trust may have to
indemnify its officers and Trustees.
4. Compensation of the Manager
The Trust agrees to pay the Manager, and the Manager agrees to accept as
full compensation for all services rendered by the Manager as such, an annual
fee payable monthly and computed on the net asset value of the Trust as of the
close of business each business day at the annual rate of 0.50 of 1% of such net
asset value provided, however, that for any day that the Trust pays or accrues a
fee under the Distribution Plan of the Trust based upon the assets of the Trust,
the annual fee shall be payable at the annual rate of 0.40 of 1% of such net
asset value.
5. Termination of Sub-Advisory Agreement
The Sub-Advisory Agreement may provide for its termination by the Manager
upon reasonable notice, provided, however, that the Manager agrees not to
terminate the Sub-Advisory Agreement except in accordance with such
authorization and direction of the Board of Trustees, if any, as may be in
effect from time to time.
6. Duration and Termination of this Agreement
(a) Duration. This Agreement shall become effective as of the date first
written above following approval by the shareholders of the Trust and shall,
unless terminated as hereinafter provided, continue in effect until the June 30
next preceding the first anniversary of the effective date of this Agreement,
and from year to year thereafter, but only so long as such continuance is
specifically approved at least annually (1) by a vote of the Trust's Board of
Trustees, including a vote of a majority of the Trustees who are not parties to
this Agreement or "interested persons" (as defined in the Act) of any such
party, with votes cast in person at a meeting called for the purpose of voting
on such approval, or (2) by a vote of the holders of a "majority" (as so
defined) of the outstanding voting securities of the Trust and by such a vote of
the Trustees.
(b) Termination. This Agreement may be terminated by the Manager at any time
without penalty upon giving the Trust sixty days' written notice (which notice
may be waived by the Trust) and may be terminated by the Trust at any time
without penalty upon giving the Manager sixty days' written notice (which notice
may be waived by the Manager), provided that such termination by the Trust shall
be directed or approved by a vote of a majority of its Trustees in office at the
time or by a vote of the holders of a majority (as defined in the Act) of the
voting securities of the Trust outstanding and entitled to vote. The portions of
this Agreement which relate to providing investment advisory services (Sections
2(a), (c), (d) and (e)) shall automatically terminate in the event of the
assignment (as defined in the Act) of this Agreement, but all other provisions
relating to providing services other than investment advisory services shall not
terminate, provided however, that upon such an assignment the annual fee payable
monthly and computed on the net asset value of the Trust as of the close of
business each business day shall be reduced to the annual rate of 0.27 of 1% of
such net asset value and provided further, that for any day that the Trust pays
or accrues a fee under the Distribution Plan of the Trust based upon the assets
of the Trust, the annual fee shall be payable at the annual rate of 0.22 of 1%
of such asset value.
7. Disclaimer of Shareholder Liability
The Manager understands that the obligations of this Agreement are not
binding upon any shareholder of the Trust personally, but bind only the Trust's
property; the Manager represents that it has notice of the provisions of the
Trust's Declaration of Trust disclaiming shareholder liability for acts or
obligations of the Trust.
8. Notices of Meetings
The Trust agrees that notice of each meeting of the Board of Trustees of
the Trust will be sent to the Manager and that the Trust will make appropriate
arrangements for the attendance (as persons present by invitation) of such
person or persons as the Manager may designate.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers and their seals to be hereunto
affixed, all as of the day and year first above written.
ATTEST: THE CASCADES TRUST
/s/ John M. Herndon /s/ Joseph P. DiMaggio
________________________ By:___________________________________
ATTEST: AQUILA INVESTMENT MANAGEMENT LLC
/s/ Sandra J. Antonucci /s/ Diana P. Herrmann
_______________________ By:___________________________________
EX-99.D
4
ora10sub.txt
SUB-ADVISORY AGREEMENT
TAX-FREE TRUST OF OREGON
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, made as of November 10, 2009 by and between Aquila
Investment Management LLC, a Delaware limited liability company (the "Manager"),
380 Madison Avenue, Suite 2300, New York, New York 10017 and FAF Advisors, Inc.
(the "Sub-Adviser"), 800 Nicollet Mall, Minneapolis, Minnesota 55402.
W I T N E S S E T H :
WHEREAS, Tax-Free Trust of Oregon (the "Trust") is a series of The Cascades
Trust, a Massachusetts business trust which is registered under the Investment
Company Act of 1940 (the "Act") as an open-end, non-diversified management
investment company;
WHEREAS, the Manager has entered into an Advisory and Administration
Agreement as of the date hereof with the Trust (the "Advisory and Administration
Agreement") pursuant to which the Manager shall act as investment adviser with
respect to the Trust; and
WHEREAS, pursuant to paragraph 2 of the Advisory and Administration
Agreement, the Manager wishes to retain the Sub-Adviser for purposes of
rendering investment advisory services to the Manager in connection with the
Trust upon the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. In General
The Manager hereby appoints the Sub-Adviser to render, to the Manager and
to the Trust, investment research and advisory services as set forth below under
the supervision of the Manager and subject to the approval and direction of the
Board of Trustees of the Trust. The Sub-Adviser shall, all as more fully set
forth herein, act as managerial investment adviser to the Trust with respect to
the investment of the Trust's assets, and supervise and arrange the purchase of
securities for and the sale of securities held in the portfolio of the Trust.
2. Duties and Obligations of the Sub-Adviser With Respect To Investment of the
Assets of the Trust
(a) Subject to the succeeding provisions of this section and subject to the
direction and control of the Manager and the Board of Trustees of the Trust, the
Sub-Adviser shall:
(i) supervise continuously the investment program of the Trust and the
composition of its portfolio;
(ii) determine what securities shall be purchased or sold by the Trust;
(iii) arrange for the purchase and the sale of securities held in the
portfolio of the Trust;
(iv) at its expense provide for pricing of the Trust's portfolio daily
using a pricing service or other source of pricing information
satisfactory to the Trust and, unless otherwise directed by the Board
of Trustees, provide for pricing of the Trust's portfolio at least
quarterly using another such source satisfactory to the Trust; and
(v) consult with the Manager in connection with its duties hereunder.
(b) Any investment program furnished by the Sub-Adviser under this section
shall at all times conform to, and be in accordance with, any requirements
imposed by: (1) the Act and any rules or regulations in force thereunder; (2)
any other applicable laws, rules and regulations; (3) the Declaration of Trust
and By-Laws of the Trust as amended from time to time; (4) any policies and
determinations of the Board of Trustees of the Trust; and (5) the fundamental
policies of the Trust, as reflected in its Registration Statement under the Act
or as amended by the shareholders of the Trust.
(c) The Sub-Adviser shall give to the Manager and to the Trust the benefit
of its best judgment and effort in rendering services hereunder, but the
Sub-Adviser shall not be liable for any loss sustained by reason of the adoption
of any investment policy or the purchase, sale or retention of any security,
whether or not such purchase, sale or retention shall have been based upon (i)
its own investigation and research or (ii) investigation and research made by
any other individual, firm or corporation, if such purchase, sale or retention
shall have been made and such other individual, firm or corporation shall have
been selected in good faith by the Sub-Adviser.
(d) Nothing in this Agreement shall prevent the Sub-Adviser or any
affiliated person (as defined in the Act) of the Sub-Adviser from acting as
investment adviser or manager for any other person, firm or corporation and
shall not in any way limit or restrict the Sub-Adviser or any such affiliated
person from buying, selling or trading any securities for its own or their own
accounts or for the accounts of others for whom it or they may be acting,
provided, however, that the Sub-Adviser expressly represents that, while acting
as Sub-Adviser, it will undertake no activities which, in its judgment, will
adversely affect the performance of its obligations to the Trust under this
Agreement.
(e) In connection with its duties to arrange for the purchase and sale
of the Trust's portfolio securities, the Sub-Adviser shall select such
broker-dealers ("dealers") as shall, in the Sub-Adviser's judgment, implement
the policy of the Trust to achieve "best execution," i.e., prompt, efficient,
and reliable execution of orders at the most favorable net price. The
Sub-Adviser shall cause the Trust to deal directly with the selling or
purchasing principal or market maker without incurring brokerage commissions
unless the Sub-Adviser determines that better price or execution may be obtained
by paying such commissions; the Trust expects that most transactions will be
principal transactions at net prices and that the Trust will incur little or no
brokerage costs. The Trust understands that purchases from underwriters include
a commission or concession paid by the issuer to the underwriter and that
principal transactions placed through dealers include a spread between the bid
and asked prices. In allocating transactions to dealers, the Sub-Adviser is
authorized to consider, in determining whether a particular dealer will provide
best execution, the dealer's reliability, integrity, financial condition and
risk in positioning the securities involved, as well as the difficulty of the
transaction in question, and thus need not pay the lowest spread or commission
available if the Sub-Adviser determines in good faith that the amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by the dealer, viewed either in terms of the particular
transaction or the Sub-Adviser's overall responsibilities. If, on the foregoing
basis, the transaction in question could be allocated to two or more dealers,
the Sub-Adviser is authorized, in making such allocation, to consider whether a
dealer has provided research services, as further discussed below. Such research
may be in written form or through direct contact with individuals and may
include quotations on portfolio securities and information on particular issuers
and industries, as well as on market, economic, or institutional activities. The
Trust recognizes that no dollar value can be placed on such research services or
on execution services and that such research services may or may not be useful
to the Trust and may be used for the benefit of the Sub-Adviser or its other
clients.
(f) The Sub-Adviser agrees to maintain, and to preserve for the periods
prescribed, such books and records with respect to the portfolio transactions of
the Trust as are required by applicable law and regulation, and agrees that all
records which it maintains for the Trust on behalf of the Manager shall be the
property of the Trust and shall be surrendered promptly to the Trust or the
Manager upon request.
(g) The Sub-Adviser agrees to furnish to the Manager and to the Board of
Trustees of the Trust such periodic and special reports as each may reasonably
request.
(h) It is agreed that the Sub-Adviser shall have no responsibility or
liability for the accuracy or completeness of the Trust's Registration Statement
under the Act and the Securities Act of 1933, except for information supplied by
the Sub-Adviser for inclusion therein. The Sub-Adviser shall promptly inform the
Trust as to any information concerning the Sub-Adviser appropriate for inclusion
in such Registration Statement, or as to any transaction or proposed transaction
which might result in an assignment (as defined in the Act) of this Agreement.
(i) The Sub-Adviser shall not be liable for any error in judgment or for
any loss suffered by the Trust or its security holders in connection with the
matters to which this Agreement relates, except a loss resulting from wilful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Nothing in this Agreement shall, or shall be construed to, waive or
limit any rights which the Trust may have under federal and state securities
laws which may impose liability under certain circumstances on persons who act
in good faith.
(j) To the extent that the Manager is indemnified under the Trust's
Declaration of Trust with respect to the services provided hereunder by the
Sub-Adviser, the Manager agrees to provide the Sub-Adviser the benefits of such
indemnification.
3. Allocation of Expenses
The Sub-Adviser shall bear all of the expenses it incurs in fulfilling its
obligations under this Agreement. In particular, but without limiting the
generality of the foregoing, the Sub-Adviser shall furnish, at the Sub-Adviser's
expense, all office space, facilities, equipment and clerical personnel
necessary for carrying out its duties under this Agreement. The Sub-Adviser
shall supply, or cause to be supplied, to any investment adviser, administrator
or principal underwriter of the Trust all necessary financial information in
connection with such adviser's, administrator's or principal underwriter's
duties under any agreement between such adviser, administrator or principal
underwriter and the Trust. The Sub-Adviser will also pay all compensation of the
Trust's officers, employees, and Trustees, if any, who are affiliated persons of
the Sub-Adviser.
4. Compensation of the Sub-Adviser
The Manager agrees to pay the Sub-Adviser, and the Sub-Adviser agrees to
accept as full compensation for all services rendered by the Sub-Adviser as
such, a management fee payable monthly and computed on the net asset value of
the Trust as of the close of business each business day at the annual rates of
0.23 of 1% of such net asset value, provided, however, that for any day that the
Trust pays or accrues a fee under the Distribution Plan of the Trust based upon
the assets of the Trust, the annual fee shall be payable at the annual rate of
0.18 of 1% of such net asset value.
5. Duration and Termination
(a) This Agreement shall become effective as of the date first written
above following approval by the shareholders of the Trust and shall, unless
terminated as hereinafter provided, continue in effect until the June 30 next
preceding the first anniversary of the effective date of this Agreement, and
from year to year thereafter, but only so long as such continuance is
specifically approved at least annually (1) by a vote of the Trust's Board of
Trustees, including a vote of a majority of the Trustees who are not parties to
this Agreement or "interested persons" (as defined in the Act) of any such
party, with votes cast in person at a meeting called for the purpose of voting
on such approval, or (2) by a vote of the holders of a "majority" (as so
defined) of the outstanding voting securities of the Trust and by such a vote of
the Trustees.
(b) This Agreement may be terminated by the Sub-Adviser at any time without
penalty upon giving the Manager and the Trust sixty days' written notice (which
notice may be waived). This Agreement may be terminated by the Manager or the
Trust at any time without penalty upon giving the Sub-Adviser sixty days'
written notice (which notice may be waived by the Sub-Adviser), provided that
such termination by the Trust shall be directed or approved by a vote of a
majority of its Trustees in office at the time or by a vote of the holders of a
majority (as defined in the Act) of the voting securities of the Trust
outstanding and entitled to vote. This Agreement shall automatically terminate
in the event of its assignment (as defined in the Act) or the termination of the
Advisory and Administration Agreement.
6. Notices of Meetings
The Manager agrees that notice of each meeting of the Board of Trustees of
the Trust will be sent to the Sub-Adviser and that Sub-Adviser will make
appropriate arrangements for the attendance (as persons present by invitation)
of such person or persons as the Sub-Adviser may designate.
7. Special Provisions
(a) For the duration of this Agreement, the Sub-Adviser will not cause or
permit any Converted Fund, as hereafter defined, to offer or sell its shares
directly to retail customers, but shall restrict such offers or sales to
institutions acting for investors in a fiduciary, advisory, agency, custodial or
similar capacity. A Converted Fund is an investment company registered under the
Act which: (i) is provided with portfolio management by the Sub-Adviser or any
affiliate thereof; (ii) has acquired, otherwise than by portfolio purchases in
the normal course of business, assets previously held in a common trust fund
managed by the Sub-Adviser or its predecessors in interest, including Qualivest
Capital Management, Inc. or any affiliate thereof; and (iii) invests in
municipal securities issued by the State of Oregon or its political
subdivisions.
(b) The Sub-Adviser, under the supervision of the Manager, shall provide at
its expense portfolio management particularly qualified to manage investments in
which the Trust primarily invests, and such portfolio management shall be
located in the state of issuers of such investments.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument
to be executed by their duly authorized officers and their seals to be hereunto
affixed, all as of the day and year first above written.
ATTEST: AQUILA INVESTMENT MANAGEMENT LLC
/s/ Sandra J. Antonucci /s/ Charles E. Childs, III
By: ___________________________
-----------------------
ATTEST: FAF ADVISORS, INC.
/s/ /s/ Frank L. Wheeler
By: ___________________________
-----------------------
COVER
5
filename5.txt
BUTZEL LONG, a professional corporation
380 Madison Avenue,
New York, NY 10017
Tel: (212) 818-1110
FAX: (212) 818-0494
e-mail: barrett@butzel.com
November 30, 2009
BY EDGAR
Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Re: Tax-Free Trust of Oregon (a portfolio of
The Cascades Trust)
File Nos. 33-4382 and 811-4626
Dear Sirs:
On behalf of Tax-Free Trust of Oregon (the "Trust"), the only series of the
Cascades Trust, we are filing today with the Commission, pursuant to Rule 485(a)
under the Securities Act of 1933 (the "1933 Act") and pursuant to the Investment
Company Act of 1940 (the "1940 Act"), the following documents:
In accordance with Rule 472(b) under the 1933 Act and Rule 8b-11 under
the 1940 Act, the text on Form N-1A of Post-Effective Amendment No. 34
to the Registration Statement of the Trust under the 1933 Act and
Amendment No. 35 to the Registration Statement of the Trust under the
1940 Act, marked to show changes.
This filing is being made under Rule 485(a) because it contains a new
summary prospectus pursuant to Rule 498 and corresponding revisions to the
statutory prospectus of the Trust. The staff is advised that the text of the
summary prospectus fits on four pages. In addition, the material in the
statutory prospectus relating to purchase and redemption of shares, which was
formerly in two separate prospectuses has been combined into one prospectus.
Management has advised us that before this registration statement
becomes effective, the Trust's web site will include continuously visible,
cross-document links between all related documents (Summary Prospectus,
Prospectus, Annual Report, Semi-Annual Report, and Statement of Additional
Information). In addition, these documents will include a linkable table of
contents that allow users to jump between all important sections of that
document which is available while reading any page of that document.
This filing otherwise contains only routine updates and selective
review would be appropriate.
This filing represents the first such filing by one of the funds in the
Aquila group of Funds under the new rule. We expect to incorporate all staff
comments on this filing in filings for the other funds throughout 2010. We will
request that these filings be made under Rule 485(b) if otherwise appropriate.
The staff is advised that not all of the financial material required
was available at the time of this filing. It is our intention to file a
superseding amendment under Rule 485(b) when such material becomes available, to
become effective February 1, 2010.
Because we will have a heavy printing schedule in January for this and
other funds, we would be most grateful if we could have staff comments on this
filing as soon as possible.
Please provide comments to me or to my partner Robert Jones at the
above telephone number, 212-818-1110.
Pursuant to Rule 485(a) it is proposed that this amendment will become
effective on February 1, 2010.
Very truly yours,
/s/ William L. D. Barrett
William L. D. Barrett