-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FJSPNqlJM9LOkdqMDMhputKsHLBi5rDSXCIQ47pkZ4NSsdYOTVoS4W/CKGBtxotZ YSbPiIW3oPzDvHT9vEdmVg== 0000791049-96-000007.txt : 19960405 0000791049-96-000007.hdr.sgml : 19960405 ACCESSION NUMBER: 0000791049-96-000007 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960404 EFFECTIVENESS DATE: 19960404 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASCADES TRUST CENTRAL INDEX KEY: 0000791049 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136868231 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-04382 FILM NUMBER: 96544614 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04626 FILM NUMBER: 96544611 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 485BPOS 1 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. 18 [ X ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ] Amendment No. 18 [ 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 Hollyer, Brady, Smith, Troxell, Barrett, Rockett, Hines & Mone 551 Fifth Avenue, 27th Floor New York, New York 10176 (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) [_X_] on April 5, 1996 pursuant to paragraph (b) [___] 60 days after filing pursuant to paragraph (a)(i) [___] on (date) pursuant to paragraph (a)(i) [___] 75 days after filing pursuant to paragraph (a)(ii) [___] on (date) prusuant to paragraph (a)(ii) of Rule 485. [___] This post-effective amendment designates a new effec- tive date for a previous post-effective amendment. Registrant hereby declares, pursuant to Section (a)(1) of Rule 24f-2 under the Investment Company Act of 1940, that Registrant has registered an indefinite number of its shares under the Securities Act of 1933 pursuant to that Section and that the Rule 24f-2 Notice for Registrant's fiscal year ended September 30, 1995 was filed in November 1995. THE CASCADES TRUST CROSS REFERENCE SHEET Part A of Form N-1A Item No. Prospectus Caption(s) 1..............Cover Page 2..............Table of Expenses 3..............Financial Highlights; General Information 4..............Introduction; Highlights; Investment of the Trust's Assets; Investment Restrictions; General Information 5..............Management Arrangements 5A.............** 6..............General Information; Alternative Purchase Plans; Dividend and Tax Information 7..............Net Asset Value per Share; Alternative Purchase Plans; How to Invest in the Trust; Exchange Privilege 8..............How to Redeem Your Investment; Automatic Withdrawal Plan; Exchange Privilege 9..............* Part B of Form N-1A Statement of Additional Information Item No. or Prospectus Caption(s) 10.............Cover Page 11.............Cover Page 12.............* 13.............Investment of the Trust's Assets; Municipal Bonds; Investment Restrictions 14.............Trustees and Officers 15.............General Information (Prospectus caption); Trustees and Officers 16.............Additional Information as to Management Arrangements; General Information 17.............Additional Information as to Management Arrangements 18.............General Information 19.............Limitations of Redemptions in Kind; Computa- tion of Net Asset Value; Automatic With- drawal Plan; Distribution Plan 20.............Additional Tax Information 21.............How to Invest in the Trust (Prospectus cap- tion); General Information 22.............Performance * Not applicable or negative answer ** Contained in the annual report of the Registrant Aquila Tax-Free Trust of Oregon 380 Madison Avenue, Suite 2300 New York, New York 10017 800-USA-OREG (800-872-6734) 212-697-6666 Prospectus April 5, 1996 Class A Shares Class C Shares The Trust is a mutual fund whose objective is to seek to provide as high a level of current income exempt from Oregon and regular Federal income taxes as is consistent with preservation of capital by investing in municipal obligations which pay interest exempt from Oregon State and Federal income taxes. These municipal obligations must, at the time of purchase, either be rated within the four highest credit ratings (considered as investment grade) assigned by Moody's Investors Service, Inc. or Standard & Poor's Corporation, or, if unrated, be determined to be of comparable quality by the Trust's Adviser, Qualivest Capital Management, Inc., a subsidiary of U.S. Bancorp. This Prospectus concisely states information about the Trust that you should know before investing. A Statement of Additional Information about the Trust (the "Additional Statement") dated April 5, 1996, has been filed with the Securities and Exchange Commission and is available without charge upon written request to Administrative Data Management Corp., the Trust's Shareholder Servicing Agent, at the address given below, or by calling the telephone number(s) given below. The Additional Statement contains information about the Trust and its management not included in this Prospectus. The Additional Statement is incorporated by reference in its entirety in this Prospectus. Only when you have read both the Prospectus and the Additional Statement are all material facts about the Trust available to you. SHARES OF THE TRUST ARE NOT DEPOSITS IN, OBLIGATIONS OF OR GUARANTEED OR ENDORSED BY, QUALIVEST CAPITAL MANAGEMENT, INC., (THE "ADVISER"), UNITED STATES NATIONAL BANK OR OREGON, ANY OF THEIR AFFILIATES OR ANY OTHER BANK. SHARES OF THE TRUST ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY OR GOVERNMENT SPONSORED AGENCY OF THE FEDERAL GOVERNMENT OR ANY STATE. AN INVESTMENT IN THE TRUST INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. FOR PURCHASE, REDEMPTION OR ACCOUNT INQUIRIES CONTACT THE TRUST'S TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORP. 581 MAIN STREET, WOODBRIDGE, NJ 07095-1198 CALL 800-872-6735 TOLL FREE OR 908-855-5731 FOR GENERAL INQUIRIES & YIELD INFORMATION, CALL 800-872-6734 TOLL FREE OR 212-697-6666 This Prospectus Should Be Read and Retained For Future Reference THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. HIGHLIGHTS Tax-Free Trust of Oregon, founded by Aquila Management Corporation in 1985 and one of the Aquilasm Group of Funds, is an open-end mutual fund which invests in tax-free municipal bonds, the kind of obligations issued by the State of Oregon, its counties and various other local authorities to finance such long-term projects as schools, airports, roads, hospitals, water facilities and other vital public purpose projects throughout Oregon. (See "Introduction.") Tax-Free Income - The municipal obligations in which the Trust invests pay interest which is exempt from both regular Federal and State of Oregon income taxes. Dividends paid by the Trust from this income are likewise free of both such taxes. It is, however, possible that in certain circumstances a small portion of the dividends paid by the Trust will be subject to income taxes. The Federal alternative minimum tax may apply to some investors, but its impact will be limited since not more than 20% of the Trust's net assets can be invested in obligations paying interest which is subject to this tax. The receipt of exempt-interest dividends from the Trust may result in some portion of social security payments or railroad retirement benefits being included in taxable income. Capital gains distributions, if any, are taxable. (See "Dividend and Tax Information.") Investment Grade - The Trust will acquire only those municipal obligations which, at the time of purchase, are within the four highest credit ratings assigned by Moody's Investors Service, Inc. or Standard and Poor's Corporation, or are determined by the Adviser to be of comparable quality. In general there are nine separate credit ratings, ranging from the highest to the lowest credit ratings for municipal obligations. Obligations within the top four ratings are considered "investment grade," but those in the fourth rating may have speculative characteristics as well. (See "Investment of the Trust's Assets.") Initial Investment - You may open your account with any purchase of $1,000 or more or by opening an Automatic Investment Program which makes purchases of $50 or more each month. See the Application, which is in the back of the Prospectus. (See "How to Invest in the Trust," which includes applicable sales charge information.) Additional Investments - You may make additional investments at any time and in any amount, directly, or if in an amount of $50 or more, through the convenience of having your investment electronically transferred from your financial institution account into the Trust by Automatic Investment or Telephone Investment. (See "How to Invest in the Trust.") Alternative Purchase Plans - The Trust provides two alternative ways for individuals to invest. (See "Alternative Purchase Plans.") One way permits individual investors to pay distribution and certain service charges principally at the time they purchase shares; the other way permits investors to pay such costs over a period of time, but without paying anything at time of purchase, much as goods can be purchased on an installment plan. For this purpose the Trust offers the following classes of shares, which differ in their expense levels and sales charges: * Front-Payment Class Shares ("Class A Shares") are offered to anyone at net asset value plus a sales charge, paid at the time of purchase, at the maximum rate of 4.0% of the public offering price, with lower rates for larger purchases. (See "How to Purchase Class A Shares.") Class A Shares are subject to an asset retention service fee under the Trust's Distribution Plan at the rate of 0.15 of 1% of the average annual net assets represented by the Class A Shares. (See "Distribution Plan.") * Level-Payment Class Shares ("Class C Shares") are offered to anyone at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years after the date of purchase at the aggregate annual rate of 1% of the average annual net assets of the Class C Shares. (See "Distribution Plan" and "Service Plan.") Six years after the date of purchase Class C Shares are automatically converted to Class A Shares. In addition, Class C Shares are subject to a contingent deferred sales charge ("CDSC") if redeemed before they have been held for 12 months from the date of purchase; this charge is 1%, calculated on the net asset value of the Class C Shares at the time of purchase or at redemption, whichever is less. There is no CDSC after Class C Shares have been held beyond the applicable period. (See "Alternative Purchase Plans," "Computation of the Holding Periods for Class C Shares" and "How to Purchase Class C Shares.") The Trust also issues Institutional Class Shares ("Class Y Shares") that are sold only to certain institutional investors. Class Y Shares are not offered by this Prospectus. Monthly Income - Dividends are declared daily and paid monthly. At your choice, dividends are paid by check mailed to you, directly deposited into your financial institution account or automatically reinvested without sales charge in additional shares of the Trust at the then-current net asset value. Specific classes of shares will have different dividend amounts due to their particular expense levels. (See "Dividend and Tax Information.") Many Different Issues - You have the advantages of a portfolio which consists of over 195 issues with different maturities. (See "Investment of the Trust's Assets.") Local Portfolio Management - Qualivest Capital Management, Inc., a subsidiary of U.S. Bancorp ("Bancorp") and its subsidiary, United States National Bank of Oregon ("USNB"), serves as the Trust's Investment Adviser, providing experienced local professional management. The Trust pays fees at a rate of 0.20% of 1% of average annual net assets to its Adviser and fees at the same rate to its Administrator (for total fees at a rate of 0.40 of 1% of average annual net assets). (See "Table of Expenses," "Distribution Plan" and "Management Arrangements.") Bancorp is a $21 billion superregional financial services holding company organized under the laws of Oregon in 1968. USNB, headquartered in Portland, is a national banking association chartered in 1891. Other services of Bancorp and its subsidiaries include consumer financing, commercial finance, international banking, investment advisory, discount brokerage and venture capital. Redemptions - Liquidity - You may redeem any amount of your account on any business day at the next determined net asset value by telephone, FAX or mail request, with proceeds being sent to a predesignated financial institution, if you have elected Expedited Redemption. Proceeds will be wired or transferred through the facilities of the Automated Clearing House, wherever possible, upon request, if in an amount of $1,000 or more, or will be mailed. For these and other redemption procedures see "How to Redeem Your Investment." There are no penalties or redemption fees for redemption of Class A Shares. However, there is a contingent deferred sales charge with respect to certain Class A Shares which have been purchased in amounts of $1 million or more (see "Purchases of $1 Million or More"). If you redeem Class C Shares before you have held them for 12 months from the date of purchase you will pay a Contingent Deferred Sales Charge ("CDSC") at the rate of 1%. (See "Alternative Purchase Plans" -- "Class C Shares.") Certain Stabilizing Measures - The Trust will employ such traditional measures as varying maturities, upgrading credit standards for portfolio purchases, broadening diversification and increasing its position in cash, in an attempt to protect against declines in the value of its investments and other market risks. (See "Certain Stabilizing Measures.") Exchanges - You may exchange Class A or Class C Shares of the Trust into corresponding classes of shares of other Aquila- sponsored tax-free municipal bond mutual funds or an equity fund. You may also exchange them into shares of the Aquila-sponsored money market funds. The exchange prices will be the respective net asset values of the shares. (See "Exchange Privilege.") Risks and Special Considerations - The share price, determined on each business day, varies with the market prices of the Trust's portfolio securities, which fluctuate with market conditions including prevailing interest rates. Accordingly, the proceeds of redemptions may be more or less than your original cost. (See "Factors Which May Affect the Value of the Trust's Investments and Their Yields.") The Trust's assets, being primarily or entirely Oregon issues, are subject to economic and other conditions affecting Oregon. (See "Risks and Special Considerations Regarding Investment in Oregon Obligations.") Moreover, the Trust is classified as a "non-diversified" investment company, because it may choose to invest in the obligations of a relatively limited number of issuers. (See "Investment of the Trust's Assets.") The Trust may also, to a limited degree, buy and sell futures contracts and options on futures contracts, although since inception the Trust has not done so and has no present intention to do so. There may be risks associated with these practices. (See "Certain Stabilizing Measures.") Statements and Reports - You will receive statements of your account monthly as well as each time you add to your account or take money out. Additionally, you will receive a Semi-Annual Report and an audited Annual Report.
TAX-FREE TRUST OF OREGON TABLE OF EXPENSES Class A Class C Shareholder Transaction Expenses Shares Shares Maximum Sales Charge Imposed on Purchases 4.00% None (as a percentage of the offering price) Maximum Sales Charge Imposed on Reinvested Dividends None None Deferred Sales Charge None(1) 1.00%(2) Redemption Fees None None Exchange Fee None None Annual Trust Operating Expenses (3) (as a percentage of average net assets) Investment Advisory Fee 0.20% 0.20% 12b-1 Fee 0.15% 0.75% All other expenses (4) 0.38% 0.63% Administration Fee 0.20% 0.20% Service Fee None 0.25% Other Expenses (4) 0.18% 0.18% Total Trust Operating Expenses (4) 0.73% 1.58% Example (5) You would pay the following expenses on a $1,000 investment, assuming a 5% annual return and redemption at the end of each time period: One Three Five Ten Year Years Years Years Class A Shares $47 $62 $79 $127 Class C Shares With complete redemption at end of period $26 $50 $86 $141 (6) With no redemption $16 $50 $86 $141 (6) (1) Certain shares purchased in transactions of $1 million or more without a sales charge may be subject to a contingent deferred sales charge of up to 1% upon redemption during the first four years after purchase. See "Purchases of $1 Million or More" on page XX. (2) A contingent deferred sales charge of 1% is imposed on the redemption proceeds of the shares (or on the original price, whichever is lower) if redeemed during the first 12 months after purchase. (3) Estimated based upon amounts incurred by the Trust during its most recent fiscal year, restated to reflect current arrangements. During that period, only Class A Shares were outstanding. (4) Does not reflect a 0.02% expense offset in custodian fees received for uninvested cash balances. Reflecting this offset, other expenses, all other expenses, and total Trust operating expenses for Class A Shares were 0.16%, 0.36% and 0.71%, respectively; for Class C Shares, these expenses would have been 0.16%, 0.61% and 1.56%, respectively. (5) The expense example is based upon the above shareholder transaction expenses (in the case of Class A Shares, this includes a sales charge of $40 for a $1,000 investment) and annual Trust operating expenses. It is also based upon amounts at the beginning of each year which includes the prior year's assumed results. A year's results consist of an assumed 5% annual return less total operating expenses; the expense ratio was applied to an assumed average balance (the year's starting investment plus one-half the year's results). Each figure represents the cumulative expenses so determined for the period specified. (6) Six years after the date of purchase, Class C Shares are automatically converted to Class A Shares.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE EXAMPLE. THE EXAMPLE ALSO REFLECTS THE MAXIMUM SALES CHARGE. (SEE "HOW TO INVEST IN THE TRUST"). The purpose of the above table is to assist the investor in understanding the various costs that an investor in the Trust will bear directly or indirectly. The assumed 5% annual return should not be interpreted as a prediction of an actual return, which may be higher or lower.
The following historical financial information applies only to shares of the Trust which have been designated Class A Shares, upon adoption of the class structure described in the Prospectus. Similar information does not exist for Class C Shares. TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD The following table of Financial Highlights as it relates to the five years ended September 30, 1995 has been audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon is included in the Trust's financial statements contained in its Annual Report, which are incorporated by reference into the Additional Statement. The information provided in the table should be read in conjunction with the financial statments and related notes. On April 23, 1990, Aquila Management Corporation, originally the Trust's Sub-Adviser and Administrator, became Administrator only. Year ended September 30, 1995 1994 1993 1992 1991 Net Asset Value, Beginning of Period $10.20 $10.95 $10.48 $10.15 $9.67 Income from Investment Operations: Net investment income 0.55 0.56 0.58 0.65 0.62 Net gain (loss) on securities (both realized and unrealized) 0.39 (0.75) 0.50 0.29 0.49 Total from Investment Operations 0.94 (0.19) 1.08 0.94 1.11 Less Distributions: Dividends from net investment income (0.55) (0.56) (0.58) (0.61) (0.63) Distributions from capital gains (0.04) - (0.03) - - Total Distributions (0.59) (0.56) (0.61) (0.61) (0.63) Net Asset Value, End of Period $10.55 $10.20 $10.95 $10.48 $10.15 Total Return (not reflecting sales load) 9.52% (1.77)% 10.64% 9.51% 11.83% Ratios/Supplemental Data Net Assets, End of Period (in thousands) $310,554 $316,317 $331,018 $249,953 $189,734 Ratio of Expenses to Average Net Assets 0.71% 0.68% 0.66% 0.66% 0.71% Ratio of Net Investment Income to Average Net Assets 5.38% 5.28% 5.46% 5.87% 6.30% Portfolio Turnover Rate 13% 11% 8% 11% 21% Net investment income per share and the ratios of income and expenses to average net assets before expense offset in custodian fees for uninvested cash balances would have been: Net Investment Income $0.55 $0.56 $0.58 $0.65 $0.62 Ratio of Expenses to Average Net Assets 0.73% 0.70% 0.68% 0.66% 0.73% Ratio of Net Investment Income to Average Net Assets 5.37% 5.26% 5.44% 5.87% 6.28% 1990 1989 1988 1987 1986 $9.76 $9.67 $9.11 $9.85 $9.60 0.66 0.73 0.61 0.65 0.17 (0.11) 0.01 0.60 (0.71) 0.25 0.55 0.74 1.21 (0.06) 0.42 (0.64) (0.65) (0.65) (0.68) (0.17) - - - - - (0.64) (0.65) (0.65) (0.68) (0.17) $9.67 $9.76 $9.67 $9.11 $9.85 5.76% 7.83% 13.66% (0.59)% 4.06% $140,713 $122,096 $102,361 $92,990 $36,117 0.71% 0.76% 0.80% 0.55% 0.61% 6.55% 6.61% 6.77% 6.88% 6.33% 25% 45% 24% 17% None $0.66 $0.73 $0.61 $0.62 $0.16 0.73% 0.78% 0.82% 0.83% 1.21% 6.53% 6.59% 6.75% 6.60% 5.73% For the period from June 16, 1986 (commencement of operations) to September 30, 1986. Not annualized. Annualized.
INTRODUCTION The Trust's shares are designed to be a suitable investment for investors who seek income exempt from Oregon State and regular Federal income taxes. You may invest in shares of the Trust as an alternative to direct investments in Oregon Obligations, as defined below, which may include obligations of certain non-Oregon issuers. The Trust offers you the opportunity to keep assets fully invested in a vehicle that provides a professionally managed portfolio of Oregon Obligations which may, but not necessarily will, be more diversified, higher yielding or more stable and more liquid than you might be able to obtain on an individual basis by direct purchase of Oregon Obligations. Through the convenience of a single security consisting of shares of the Trust, you are also relieved of the inconvenience associated with direct investments of fixed denominations, including the selecting, purchasing, handling, monitoring call provisions and safekeeping of Oregon Obligations. Oregon Obligations are a type of municipal obligation. Municipal obligations are issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies and instrumentalities to obtain funds for various public purposes. The two principal classifications of municipal obligations are "notes" and "bonds." Municipal notes are generally used to provide for short-term capital needs and generally have maturities of one year or less while municipal bonds have extended maturities. Municipal notes include: project notes, which sometimes carry a U.S. Government guarantee; tax anticipation notes; revenue anticipation notes; bond anticipation notes; construction loan notes and floating and variable rate demand notes. Municipal obligations include municipal lease/purchase agreements which are similar to installment purchase contracts for property or equipment. The purposes for which municipal obligations such as bonds are issued include the construction of a wide range of public facilities such as airports, highways, bridges, schools, hospitals, housing, mass transportation, streets and water and sewer works. Other public purposes for which municipal obligations may be issued include the refunding of outstanding obligations, the obtaining of funds for general operating expenses and the obtaining of funds to lend to other public institutions and facilities. The Trust is the only active portfolio of the Cascades Trust. INVESTMENT OF THE TRUST'S ASSETS In seeking its objective of providing as high a level of current income which is exempt from both Oregon State and regular Federal income taxes as is consistent with the preservation of capital, the Trust will invest in Oregon Obligations (as defined below). There is no assurance that the Trust will achieve its objective, which is a fundamental policy of the Trust. (See "Investment Restrictions.") As used in the Prospectus and the Additional Statement, the term "Oregon Obligations" means obligations, including those of certain non-Oregon issuers, of any maturity which pay interest which, in the opinion of bond counsel or other appropriate counsel, is exempt from regular Federal income taxes and not subject to Oregon income taxes. Although exempt from regular Federal income tax, interest paid on certain types of Oregon Obligations, and dividends which the Trust might pay from this interest, are preference items as to the Federal alternative minimum tax; for further information, see "Dividend and Tax Information." As a fundamental policy, at least 80% of the Trust's net assets will be invested in Oregon Obligations the income paid upon which will not be subject to the alternative minimum tax; accordingly, the Trust can invest up to 20% of its net assets in obligations which are subject to the Federal alternative minimum tax. The Trust may refrain entirely from purchasing these types of Oregon Obligations. (See "Dividend and Tax Information.") The non-Oregon bonds or other obligations the interest on which is exempt under present law from regular Federal and Oregon income taxes are those issued by or under the authority of Guam, the Northern Mariana Islands, Puerto Rico and the Virgin Islands. The Trust will not purchase Oregon Obligations of non-Oregon issuers unless Oregon Obligations of Oregon issuers of the desired quality, maturity and interest rate are not available. As an Oregon-oriented fund, at least 65% of the Trust's total assets will be invested in Oregon Obligations of Oregon issuers. The Trust invests only in Oregon Obligations and, possibly, in Futures and options on Futures (see below) for protective (hedging) purposes. In general, there are nine separate credit ratings ranging from the highest to the lowest quality standards for municipal obligations. So that the Trust will have a portfolio of quality oriented (investment grade) securities, the Oregon Obligations which the Trust will purchase must, at the time of purchase, either (i) be rated within the four highest credit ratings assigned by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be determined to be of comparable quality to municipal obligations so rated, by Qualivest Capital Management, Inc., the Trust's investment adviser (the "Adviser"), subject to the direction and control of the Trust's Board of Trustees. Municipal obligations rated in the fourth highest credit rating are considered by such rating agencies to be of medium quality and thus may present investment risks not present in more highly rated obligations. Such bonds lack outstanding investment characteristics and may in fact have speculative characteristics as well; changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case for higher grade bonds. If after purchase the rating of any rated Oregon Obligation is downgraded such that it could not then be purchased by the Trust, or, in the case of an unrated Oregon Obligation, if the Adviser determines that the unrated obligation is no longer of comparable quality to those rated obligations which the Trust may purchase, it is the current policy of the Trust to cause any such obligation to be sold as promptly thereafter as the Adviser in its discretion determines to be consistent with the Trust's objectives; such obligation remains in the Trust's portfolio until it is sold. In addition, because a downgrade often results in a reduction in the market price of a downgraded obligation, sale of such an obligation may result in a loss. See Appendix A to the Additional Statement for further information as to these ratings. The Trust can purchase industrial development bonds only if they meet the definition of Oregon Obligations, i.e., the interest on them is exempt from Oregon State and regular Federal income taxes. The Trust is classified as a "non-diversified" investment company under the Investment Company Act of 1940 (the "1940 Act"). The Trust also intends to continue to qualify as a "regulated investment company" under the Internal Revenue Code (the "Code"). One of the tests for such qualification under the Code is, in general, that at the end of each fiscal quarter of the Trust, at least 50% of its assets must consist of (i) cash; and (ii) securities which, as to any one issuer, do not exceed 5% of the value of the Trust's assets. If the Trust had elected to register under the 1940 Act as a "diversified" investment company, it would have to meet the same test as to 75% of its assets. The Trust may therefore not have as much diversification among securities, and thus diversification of risk, as if it had made this election under the 1940 Act. In general, the more the Trust invests in the securities of specific issuers, the more the Trust is exposed to risks associated with investments in those issuers. The Trust's assets, being primarily or entirely Oregon issues, are accordingly subject to economic and other conditions affecting Oregon. (See "Risk Factors and Special Considerations Regarding Investment in Oregon Obligations.") Certain Stabilizing Measures The Trust will employ such traditional measures as varying maturities, upgrading credit standards for portfolio purchases, broadening diversification and increasing its position in cash and cash equivalents in attempting to protect against declines in the value of its investments and other market risks. There can, however, be no assurance that these will be successful. Although the Trust has no current intention of using futures and options, to the limited degree described below, these may be used to attempt to hedge against changes in the market price of the Trust's Oregon Obligations caused by interest rate fluctuations. Futures and options could also provide a hedge against increases in the cost of securities the Trust intends to purchase. Although it does not currently do so, and since inception has not done so, the Trust may buy and sell futures contracts relating to indices on municipal bonds ("Municipal Bond Index Futures") and to U.S. government securities ("U.S. Government Securities Futures"); both kinds of futures contracts are "Futures." The Trust may also write and purchase put and call options on Futures. As a matter of fundamental policy the Trust will not buy or sell a Future or an option on a Future if thereafter more than 10% of its net assets would be in initial or variation margin on such Futures and options on them, and in premiums on such options. Under an applicable regulatory rule, the Trust will not enter into Futures or options for which the aggregate initial margins and premiums paid for options exceed 5% of the fair market value of the Trust's assets. (See the Additional Statement.) The primary risks associated with the use of Futures and options are: (i) imperfect correlation between the change in the market value of the securities held in the Trust's portfolio and the prices of Futures or options purchased or sold by the Trust; (ii) incorrect forecasts by the Adviser concerning interest rates which may result in the hedge being ineffective; and (iii) possible lack of a liquid secondary market for a Future or option; the resulting inability to close a Futures or options position could adversely affect the Trust's hedging ability. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the security being hedged. The risk of imperfect correlation of these price changes is increased as the composition of the Trust's portfolio is divergent from the debt securities underlying the hedging instrument. To date, the Adviser has had no experience in the use of Futures or options on them. The liquidity of a secondary market in a Future may be adversely affected by "daily price fluctuation limits" established by commodity exchanges which restrict the amount of change in the contract price allowed during a single trading day. Thus, once a daily limit is reached, no further trades may be entered into beyond the limit, thereby preventing the liquidation of open positions. Prices have in the past reached the daily limit on a number of consecutive trading days. For further information about Futures and options, see the Additional Statement. When and if the Trust determines to use futures and options, the Prospectus will be supplemented. Floating and Variable Rate Demand Notes Floating and variable rate demand notes are tax-exempt obligations which may have a stated maturity in excess of one year, but permit the holder to demand payment of principal at any time, or at specified intervals not exceeding one year, in each case upon not more than 30-days' notice. The issuer of such notes normally has a corresponding right, after a given period, to prepay in its discretion the outstanding principal amount of the note plus accrued interest upon a specified number of days' notice to the noteholders. The interest rate on a floating rate demand note is based on a known lending rate, such as a bank's prime rate, and is adjusted automatically each time such rate is adjusted. The interest rate on a variable rate demand note is adjusted automatically at specified intervals. Participation Interests The Trust may purchase from financial institutions participation interests in Oregon Obligations (such as industrial development bonds and municipal lease/purchase agreements). A participation interest gives the Trust an undivided interest in the underlying Oregon Obligations in the proportion that the Trust's participation interest bears to the total amount of the underlying Oregon Obligations. All such participation interests must meet the Trust's credit requirements. See "Limitation to 10% as to Certain Investments." When-Issued and Delayed Delivery Purchases The Trust may buy Oregon Obligations on a when-issued or delayed delivery basis when it has the intention of acquiring them. The Oregon Obligations so purchased are subject to market fluctuation and no interest accrues to the Trust until delivery and payment take place; their value at the delivery date may be less than the purchase price. The Trust cannot enter into when-issued commitments exceeding in the aggregate 15% of the market value of the Trust's total assets, less liabilities other than the obligations created by when-issued commitments. If the Trust chooses to dispose of the right to acquire a when-issued obligation prior to its acquisition, it could, as with the disposition of any other portfolio holding, incur a gain or loss due to market fluctuation; any such gain would be a taxable short-term gain. The Trust places an amount of assets equal in value to the amount due on the settlement date for the when-issued or delayed delivery securities being purchased in a segregated account with the Custodian, which is marked to market every business day. See the Additional Statement for further information. Limitation to 10% as to Certain Investments The Trust cannot purchase Oregon Obligations that are not readily marketable if thereafter more than 10% of its net assets would consist of such investments. However, this 10% limit does not include any Oregon Obligations as to which the Trust can exercise the right to demand payment in full within three days and as to which there is a secondary market. Floating and variable rate demand notes and participation interests (including municipal lease/purchase obligations) are considered illiquid unless determined by the Board of Trustees to be readily marketable. (See the Additional Statement.) Current Policy as to Certain Obligations The Trust will not invest more than 25% of its total assets in (i) Oregon Obligations the interest on which is paid from revenues of similar type projects or (ii) industrial development bonds, unless this Prospectus and/or the Additional Statement are supplemented to reflect the change and to give additional information. Factors Which May Affect the Value of the Trust's Investments and Their Yields The value of the Oregon Obligations in which the Trust invests will fluctuate depending in large part on changes in prevailing interest rates. If the prevailing interest rates go up after the Trust buys Oregon Obligations, the value of these obligations will normally go down; if these rates go down, the value of these obligations will normally go up. Changes in value and yield based on changes in prevailing interest rates may have different effects on short-term Oregon Obligations than on long-term obligations. Long-term obligations (which often have higher yields) may fluctuate in value more than short-term ones. For this reason, the Trust may, to achieve a defensive position, shorten the average maturity of its portfolio. Risk Factors and Special Considerations Regarding Investment in Oregon Obligations The following is a discussion of the general factors that might influence the ability of Oregon issuers to repay principal and interest when due on the Oregon Obligations contained in the portfolio of the Trust. Such information is derived from sources that are generally available to investors and is believed by the Trust to be accurate, but has not been independently verified and may not be complete. Oregon's economy is substantially diversified among many industries. The lumber and forest products industry, an industry highly susceptible to recessionary cycles, has long been a significant component of the State's economy. However, a political environment supporting the reduction of logging on public lands has taken its toll on this industry and the pursuit of protection for the spotted owl and wild salmon runs have severely curtailed logging in certain areas. As employment in the lumber and forest products industries has declined, other industries have been picking up the slack. 1994 saw many manufacturing plants lured to the State. The ultimate decision of whether to locate in the State depends on a company's ability to secure property tax breaks from the county in which its plant will be located. A relatively new State property tax exemption program grants counties the right to offer property tax breaks for new plants costing more than $100 million to build. The principal sources of State tax revenues are the personal income and corporate income taxes; Oregon does not have a sales tax. Recent attempts to institute a sales tax have been unsuccessful. A recent attempt to introduce a "transaction tax" was unsuccessful. As a result, State tax revenues are particularly sensitive to economic recessions. In addition to general obligation bonds, the State and its political subdivisions issue revenue obligations payable from specific projects or sources, including lease rentals. There can be no assurance that a material downturn in the State's economy, with the resulting impact on the financial strength of State and local entities, will not adversely affect obligors of the obligations held in the Trust's portfolio to make the required payments on these obligations, and consequently, the market value of such obligations. Additionally, certain municipal securities held by the Trust may rely in whole or in part for repayment on ad valorem property taxes. There are existing limits under Oregon State law on the issuance of bonds supported by such taxes. In recent years several voter initiatives have sought to amend the State Constitution to "freeze" or roll back such taxes. On November 6, 1990, Oregon voters approved a property tax limitation measure. The adoption of the tax limitation measure may have an adverse effect on the general financial condition of cities, counties, school districts and other districts and may in some cases impair their ability to pay principal and interest on obligations. The tax limitation measure does permit tax levies to pay interest and principal on bonds issued on or before November 6, 1990, as well as indebtedness authorized by the Oregon Constitution (bonds issued by the State of Oregon under specific constitutional provisions), and general obligation bonds approved by the voters for capital construction or improvements. (See the Additional Statement for information about the tax limitation measure.) At present, it is difficult to assess the impact of the tax limitation measure, in part, because it will not be fully phased in until 1995-1996. In addition, the effect of this measure is also dependent on whether alternative revenue sources are obtained and, if so, the type and amount of such revenues. The adoption of the tax limitation measure may have an adverse effect on the general financial condition of affected cities, counties, school districts and other districts, and may, in some cases, impair their ability to pay obligations other than general obligation bonds. In addition, the adoption of the tax limitation measure will require the Legislature to provide funds from its general fund to replace tax revenues lost by the public school system through fiscal year 1995-96. This could have an adverse effect on the State's credit rating, particularly if alternative revenue sources are not obtained. Moreover, the tax limitation measure might contract the overall size of the Oregon municipal bond market and might have some adverse effect on the value of the Trust's portfolio. See the Additional Statement. The Oregon Constitution reserves to the people of the State initiative and referendum powers pursuant to which measures designed to amend the State Constitution or enact legislation can be placed on the statewide general election ballot for consideration by the voters. Over the past decade Oregon has witnessed increasing activity in the number of initiative petitions that have qualified for statewide general elections. From the 1988 elections through those of 1994, both the number of such petitions that qualified and the number of such petitions that were approved by the voters have increased. It is not possible to predict what petitions will qualify for submission to the voters in 1996 nor which will be approved. There is a relatively inactive market for municipal bonds of Oregon issuers other than the general obligations of the State itself. Consequently, the market price of such other bonds may be changeable. If the Trust were forced to sell a large volume of these bonds for any reason, such as redemptions of a large number of its shares, there is a risk that the large sale itself might adversely affect the value of the Trust's portfolio. INVESTMENT RESTRICTIONS The Trust has a number of policies about what it can and cannot do. Certain of these policies, identified in the Prospectus and Additional Statement as "fundamental policies," cannot be changed unless the holders of a "majority," as defined in the 1940 Act, of the Trust's outstanding shares vote to change them. (See the Additional Statement for a definition of such a majority.) All other policies can be changed from time to time by the Board of Trustees without shareholder approval. Some of the more important of the Trust's fundamental policies, not otherwise identified in the Prospectus, are set forth below; others are listed in the Additional Statement. 1. The Trust invests only in certain limited securities. The Trust cannot buy any securities other than the Oregon Obligations meeting the standards stated under "Investment of the Trust's Assets"; the Trust can also purchase and sell Futures and options on them within the limits there discussed. 2. The Trust has industry investment requirements. The Trust cannot buy the obligations of issuers in any one industry if more than 25% of its total assets would then be invested in securities of issuers of that industry; the Trust will consider that a non-governmental user of facilities financed by industrial development bonds is an issuer in an industry. 3. The Trust cannot make loans. The Trust can buy those Oregon Obligations which it is permitted to buy (see "Investment of the Trust's Assets"); this is investing, not making a loan. The Trust cannot lend its portfolio securities. 4. The Trust can borrow only in limited amounts for special purposes. The Trust can borrow from banks for temporary or emergency purposes but only up to 10% of its total assets. It can mortgage or pledge its assets only in connection with such borrowing and only up to the lesser of the amounts borrowed or 5% of the value of its total assets. However, this shall not prohibit margin arrangements in connection with the purchase or sale of Municipal Bond Index Futures, U.S. Government Securities Futures or options on them, or the payment of premiums on those options. The Trust will not borrow to purchase Oregon Obligations or to increase its income, but only to meet redemptions so that it will not have to sell Oregon Obligations to pay for redemptions. Interest on borrowings would reduce the Trust's income. Except in connection with borrowings, the Trust will not issue senior securities. The Trust will not purchase any Oregon Obligations, Futures or options on Futures while it has any outstanding borrowings which exceed 5% of the value of its total assets. NET ASSET VALUE PER SHARE The Trust's net asset value and offering price per share of each class are determined as of 4:00 p.m. New York time on each day that the New York Stock Exchange is open (a "business day"). The net asset value per share is determined by dividing the value of the net assets of the Trust (i.e., the value of the assets less liabilities) by the total number of shares outstanding. Determination of the value of the Trust's assets is subject to the direction and control of the Trust's Board of Trustees. In general, it is based on market value, except that Oregon Obligations maturing in 60 days or less are generally valued at amortized cost; see the Additional Statement for further information. ALTERNATIVE PURCHASE PLANS In this Prospectus, the Trust provides individual investors with the option of two alternative ways to purchase shares, through two separate classes of shares. All classes represent interests in the same portfolio of Oregon Obligations. The primary distinction among the classes of shares offered to individuals lies in their sales charge structures and ongoing expenses, as described below. You should choose the class that best suits your own circumstances and needs. By purchasing Class A Shares you have the option of paying the applicable sales charge at the time of your purchase. By purchasing Class C Shares, you have the option of paying a sales charge over a period of six years after purchase but without paying anything at time of purchase, much as goods can be purchased on an installment plan. You are subject to a conditional deferred sales charge, described below, but only if you redeem your Class C Shares before they have been held 12 months from your purchase.(See "Computation of Holding Periods for Class C Shares.") * Class A Shares, "Front-Payment Class Shares," are offered to anyone at net asset value plus a sales charge, paid at the time of purchase, at the maximum rate of 4.0% of the public offering price, with lower rates for larger purchases. Under the Trust's Distribution Plan, Class A Shares are subject to a fee of 0.15 of 1% of the average annual net assets of the Class A Shares. When you purchase Class A Shares, the amount of your investment is reduced by the applicable sales charge. Certain Class A Shares purchased in transactions of $1 million or more are subject to a contingent deferred sales charge. (See "Purchases of $1 Million or More of Class A Shares.") * Class C Shares, "Level-Payment Class Shares," are offered to anyone at net asset value with no sales charge payable at purchase but with a level charge for distribution fees and service fees for six years after the date of purchase at the aggregate annual rate of 1% of the average annual net assets of the Class C Shares. (See "Distribution Plan" and "Shareholder Services Plan.") Six years after the date of purchase, Class C Shares, including Class C Shares acquired in exchange for other Class C Shares under the Exchange Privilege (see "Exchange Privilege"), are automatically converted to Class A Shares. In addition, if you redeem Class C Shares before you have held them for 12 months from the date of purchase you will pay a contingent deferred sales charge ("CDSC") at the rate of 1%, calculated on the net asset value of the Class C Shares redeemed at the time of purchase or of redemption, which ever is less. The amount of any CDSC will be paid to the Distributor. The CDSC does not apply to shares acquired through the reinvestment of dividends on Class C Shares or to any Class C Shares held for more than 12 months after purchase. In the Prospectus, 12- month and six-year holding periods are considered modified by up to one month depending upon when during a month your purchase of such shares is made. (See "Computation of Holding Periods for Class C Shares" and "How to Purchase Class C Shares.") In determining whether a CDSC is payable on a redemption of Class C Shares, it will be assumed that the redemption is made first of any shares acquired as dividends or distributions, second of any Class C Shares you have held for more than 12 months from the date of purchase and finally of those Class C Shares as to which the CDSC is payable which you have held the longest. This will result in your paying the lowest possible CDSC. Computation of Holding Periods for Class C Shares For purposes of determining the holding period for Class C Shares, all of your purchases made during a calendar month will be deemed to have been made on the first business day of that month at the average cost of all purchases made during that month. The 12- month CDSC holding period will end on the first business day of the 12th calendar month after the date your purchase is deemed to have been made. Accordingly, the CDSC holding period applicable to your Class C Shares may be up to one month less than the full 12 months depending upon when your actual purchase was made during a month. Running of the 12-month CDSC holding period will be suspended for one month for each period of thirty days during which you have held shares of a money market fund you have received in exchange for Class C Shares under the Exchange Privilege. (See "Exchange Privilege.") Your Class C Shares will automatically convert to Class A Shares six years after the date of purchase, together with a pro- rata portion of all Class C Shares representing dividends and other distributions paid in additional Class C Shares. The Class C Shares so converted will no longer be subject to the higher expenses borne by the Class C Shares. The conversion will be effected at relative net asset values on the first business day of the month following that in which the sixth anniversary of your purchase of the Class C Shares occurred, except as noted below. Accordingly, the holding period applicable to your Class C Shares may be up to one month more than the six years depending upon when your actual purchase was made during a month. Because the per share value of Class A Shares may be higher than that of Class C Shares at the time of conversion, you may receive fewer Class A Shares than the number of Class C Shares converted. If you have made one or more exchanges of Class C Shares among the Aquila-sponsored tax-free municipal bond funds or equity funds under the Exchange Privilege, the six-year holding period is deemed to have begun on the date you purchased your original Class C Shares of the Trust or of another of the Aquila Bond or Equity funds. The six-year holding period will be suspended by one month for each period of thirty days during which you hold shares of a money market fund you have received in exchange for Class C Shares under the Exchange Privilege. (See "Exchange Privilege.") The following chart summarizes the principal differences between Class A Shares and Class C Shares Class A Class C Initial Sales Maximum of 4% of the None Charge Public Offering Price Contingent Deferred None (except for Maximum CDSC of 1% if Sales Charge certain purchases shares redeemed before 12 over $1 Million) months; 0% after 12 months Distribution and 0.15 of 1% Distribution fee of 0.75 Service Fees of 1% and a service fee of 0.25 of 1% for a total of 1%, payable for six years Other Information Initial Sales Charge Shares convert to Class A waived or reduced in Shares after six years some cases
Factors to Consider in Choosing Classes of Shares This discussion relates to the major differences between Class A Shares and Class C Shares. It is recommended that any investment in the Trust be considered long-term in nature. Over time, the cumulative total cost of the 1% annual service and distribution fees on the Class C Shares will equal or exceed the total cost of the initial 4% maximum initial sales charges and 0.15 of 1% annual fee payable for Class A Shares. For example, if equal amounts were paid at the same time for Class A Shares (where the amount invested is reduced by the amount of the sales charge) and for Class C Shares (which carry no sales charge at the time of purchase) and the net asset value per share remained constant over time, the total of such costs for Class C Shares would equal the total of such costs for Class A Shares after approximately four and two-thirds years. This example assumes no redemptions and disregards the time value of money. Purchasers of Class C Shares have all of their investment dollars invested from the time of purchase, without having their investment reduced at the outset by the initial sales charge payable for Class A Shares. If you invest in Class A Shares you will pay the entire sales charge at the time of purchase. Accordingly, if you expect to redeem your shares shortly after purchase, you should consider the total cost of such an investment in Class A Shares compared with a similar investment in Class C Shares. The example under "Table of Expenses" shows the effect of Trust expenses for both Classes if a hypothetical investment in each of the Classes is held for 1, 3, 5 and 10 years. (See the Table of Expenses.) Dividends and other distributions paid by the Trust with respect to shares of each class are calculated in the same manner and at the same time. The dividends actually paid with respect to Class C Shares will be lower than those paid on Class A because Class C Shares bear higher distribution and service fees and will have a higher expense ratio. In addition, the dividends of each class can vary because each class will bear certain class-specific charges. For example, each class will bear the costs of printing and mailing annual reports to its own shareholders. HOW TO INVEST IN THE TRUST The Trust's shares may be purchased through any investment broker or dealer (a "selected dealer") which has a sales agreement with Aquila Distributors, Inc. (the "Distributor") or through the Distributor. There are two ways to make an initial investment: (i) order the shares through your investment broker or dealer, if it is a selected dealer; or (ii) mail the Application with payment to Administrative Data Management Corp. (the "Agent") at the address on the Application. The applicable sales charge will apply in either instance. Subsequent investments are also subject to the applicable sales charges. You are urged to complete an Application and send it to the Agent so that expedited shareholder services can be established at the time of your investment. Unless your initial investment is specified to be made in Class C Shares, it will be made in Class A Shares. The minimum initial investment for Class A Shares and Class C Shares is $1,000, except as otherwise stated in the Prospectus or Additional Statement. You may also make an initial investment of at least $50 by establishing an Automatic Investment Program for Automatic investments of at least $50 per month and paying at least $50. (See below and "Automatic Investment Program" in the Application.) Such investment must be drawn in United States dollars on a United States commercial or savings bank, credit union or a United States branch of a foreign commercial bank (each of which is a "Financial Institution"). You may make subsequent investments in the same class of shares in any amount (unless you have an Automatic Withdrawal Plan). Your subsequent investment may be made through a selected dealer or by forwarding payment to the Agent, with the name(s) of account owner(s), the account number, the name of the Trust and the Class of Shares to be purchased. With subsequent investments, please send the pre-printed stub attached to the Trust's confirmations. Subsequent investments of $50 or more in shares of the same class as your initial investment can be made by electronic funds transfer from your demand account at a Financial Institution. To use electronic funds transfer for your purchases, your Financial Institution must be a member of the Automated Clearing House and the Agent must have received your completed Application designating this feature, or, after your account has been opened, a Ready Access Features form available from the Distributor or the Agent. A pre-determined amount can be regularly transferred for investment ("Automatic Investment"), or single investments can be made upon receipt by the Agent of telephone instructions from anyone ("Telephone Investment"). The maximum amount of each Telephone Investment is $50,000. Upon 30 days' written notice to shareholders, the Trust may modify or terminate these investment methods at any time or charge a service fee, although no such fee is currently contemplated. The offering price is the net asset value per share for Class C Shares and the net asset value per share plus the applicable sales charge for Class A Shares. The offering price determined on any day applies to all purchase orders received by the Agent from selected dealers that day, except that orders received by it after 4:00 p.m. New York time will receive that day's offering price only if such orders were received by selected dealers from customers prior to such time and transmitted to the Distributor prior to its close of business that day (normally 5:00 p.m. New York time); if not so transmitted, such orders will be filled at the next determined offering price. Selected dealers are required to transmit orders promptly. Investments by mail are made at the offering price next determined after receipt of the purchase order by the Agent. Purchase orders received on other than a business day will be executed on the next succeeding business day. Purchases by Automatic Investment and Telephone Investment will be executed on the first business day occurring on or after the date an order is considered received by the Agent at the price determined on that day. In the case of Automatic Investment your order will be executed on the date you specified for investment at the price determined on that day. If that day is not a business day your order will be executed at the price determined on the next business day. In the case of Telephone Investment your order will be filled at the next determined offering price. If your order is placed after the time for determining the net asset value of the Trust shares for any day it will be executed at the price determined on the following business day. The sale of shares will be suspended during any period when the determination of net asset value is suspended and may be suspended by the Distributor when the Distributor judges it in the Trust's best interest to do so. How to Purchase Class A Shares (Front-Payment Class Shares) The following table shows the amount of the sales charges to a "single purchaser" (defined below) together with the dealer discounts paid to dealers and the agency commissions paid to brokers (collectively called the "commissions"):
Sales Sales Commis- Charge Charge sions as as as Percentage Approximate Percentage of Public Percentage of Amount of Offering of Amount Offering Purchase Price Invested Price Less than $25,000...... 4.00% 4.17% 3.00% $25,000 but less than $50,000........ 3.75% 3.90% 3.00% $50,000 but less than $100,000....... 3.50% 3.63% 2.75% $100,000 but less than $250,000....... 3.25% 3.36% 2.75% $250,000 but less than $500,000....... 3.00% 3.09% 2.50% $500,000 but less than $1,000,000..... 2.50% 2.56% 2.25% For purchases of $1 million or more see "Purchases of $1 Million or More," below.
The table of sales charges is applicable to purchases of Class A Shares by a "single purchaser," i.e.: (a) an individual; (b) an individual together with his or her spouse and their children under the age of 21 purchasing shares for his or their own accounts; (c) a trustee or other fiduciary purchasing shares for a single trust estate or a single fiduciary account; and (d) a tax-exempt organization enumerated in Section 501(c)(3) or (13) of the Code. Upon notice to all selected dealers, the Distributor may reallow up to the full amount of the applicable sales charge as shown in the above schedule during periods specified in such notice. During periods when all or substantially all of the entire sales charge is reallowed, such selected dealers may be deemed to be underwriters as that term is defined in the Securities Act of 1933. Purchases of $1 Million or More Class A Shares issued in purchases of $1 million or more by a single purchaser are called "CDSC Class A Shares." CDSC Class A Shares also include certain Class A Shares issued in purchases of $1 million or more under the program captioned "Certain Investment Companies - Special Dealer Arrangements," below. (CDSC Class A Shares do not include (i) Class A Shares purchased without sales charge pursuant to the terms described under "General," below and (ii) Class A Shares purchased in transactions of less than $1 million and when certain special dealer arrangements are not in effect under "Certain Investment Companies" set forth under "Reduced Sales Charges," below.) When you purchase CDSC Class A Shares you will not pay a sales charge at the time of purchase, and the Distributor will pay to any dealer effecting such a purchase an amount equal to 1% of the sales price of the shares purchased for purchases of $1 million but less than $2.5 million, 0.50 of 1% for purchases of $2.5 million but less than $5 million, and 0.25 of 1% for purchases of $5 million or more, if the CDSC Class A Shares remain outstanding for a period of at least one year. A pro-rata portion of this fee will be payable for each day the CDSC Class A Shares are outstanding in the first one-year period following issuance of such shares. The fee payable for each calendar quarter will be made within fifteen days of the end of that quarter. If you redeem all or part of your CDSC Class A Shares during the four years after your purchase of such shares, at the time of redemption you will be required to pay to the Distributor a special contingent deferred sales charge based on the lesser of (i) the net asset value of your redeemed CDSC Class A Shares at the time of purchase or (ii) the net asset value of your redeemed CDSC Class A Shares at the time of redemption (the "Redemption Value"). The special charge will be an amount equal to 1% of the Redemption Value if the redemption occurs within the first two years after purchase, and 0.50 of 1% of the Redemption Value if the redemption occurs within the third or fourth year after purchase. The special charge will apply to redemptions of CDSC Class A Shares purchased without a sales charge pursuant to a Letter of Intent, as described below under "Reduced Sales Charges." The special charge does not apply to shares acquired through the reinvestment of dividends on CDSC Class A Shares or to any CDSC Class A Shares held for more than four years after purchase. In determining whether the special charge is applicable, it will be assumed that the CDSC Class A Shares you have held the longest are the first CDSC Class A Shares to be redeemed, unless you instruct the Agent otherwise. It will also be assumed that if you have both CDSC Class A Shares and non- CDSC Class A Shares the non-CDSC Class A Shares will be redeemed first. For purposes of determining the holding period for CDSC Class A Shares, all of your purchases made during a calendar month will be deemed to have been made on the first business day of that month at the average cost of all purchases made during that month. The four-year holding period will end on the first business day of the 48th calendar month after the date your purchase is deemed to have been made. Accordingly, the CDSC holding period applicable to your CDSC Class A Shares may be up to one month less than the full 48 months depending upon when your actual purchase was made during a month. Running of the 48-month CDSC holding period will be suspended for one month for each period of thirty days during which you have held shares of a money market fund you have received in exchange for CDSC Class A Shares under the Exchange Privilege. (See "Exchange Privilege.") Reduced Sales Charges for Certain Purchases of Class A Shares Right of Accumulation: If you are a "Single purchaser" you may benefit from a reduction of the sales charge in accordance with the above schedule for subsequent purchases of Class A Shares if the cumulative value (at cost or current net asset value, whichever is higher) of Class A Shares you have previously purchased with a sales charge, together with Class A Shares of your subsequent purchase with such a charge, amounts to $25,000 or more. Letters of Intent: The foregoing schedule of reduced sales charges will also be available to "single purchasers" who enter into a written Letter of Intent (included in the Application) providing for the purchase, within a thirteen-month period, of Class A Shares of the Trust through a single selected dealer or through the Distributor. Class A Shares of the Trust which you previously purchased during a 90-day period prior to the date of receipt by the Distributor of your Letter of Intent and which you still own may also be included in determining the applicable reduction. For further details, including escrow provisions, see the Letter of Intent provisions of the Application. General: Class A Shares may be purchased at the next determined net asset value by the Trust's Trustees and officers, by the directors, officers and certain employees, retired employees and representatives of the Adviser and its parent and affiliates, the Administrator and the Distributor, by selected dealers and brokers and their officers and employees, by certain persons connected with firms providing legal, advertising or public relations assistance, by certain family members of, and plans for the benefit of, the foregoing, and for the benefit of trust or similar clients of banking institutions over which these institutions have full investment authority if the Distributor has entered into an agreement relating to such purchases. Except for the last category, purchasers must give written assurance that the purchase is for investment and that the Class A Shares will not be resold except through redemption. There may be tax consequences of these purchases. Such purchasers should consult their own tax counsel. Class A Shares may also be issued at net asset value in a merger, acquisition or exchange offer made pursuant to a plan of reorganization to which the Trust is a party. The Trust permits the sale of its Class A Shares at prices that reflect the reduction or elimination of the sales charge to investors who are members of certain qualified groups meeting the following requirements. A qualified group (i) is a group or association, or a category of purchasers who are represented by a fiduciary, professional or other representative (other than a registered broker-dealer), which (ii) satisfies uniform criteria which enable the Distributor to realize economies of scale in its costs of distributing shares; (iii) gives its endorsement or authorization (if it is a group or association) to an investment program to facilitate solicitation of its membership by a broker or dealer; and (iv) complies with the conditions of purchase that are set forth in any agreement entered into between the Trust and the group, representative or broker or dealer. At the time of purchase you must furnish the Distributor with information sufficient to permit verification that the purchase qualifies for a reduced sales charge, either directly or through a broker or dealer. Certain Investment Companies: Class A Shares of the Trust may be purchased at net asset value without sales charge (except as set forth below under "Special Dealer Arrangements") to the extent that the aggregate net asset value of such Class A Shares does not exceed the proceeds from a redemption (a "Qualified Redemption"), made within 120 days prior to such purchase, of shares of another investment company on which a sales charge, including a contingent deferred sales charge, has been paid. Additional information is available from the Distributor. To qualify, the following special procedures must be followed: 1. A completed Application (included in the Prospectus) and payment for the shares to be purchased must be sent to the Distributor, Aquila Distributors, Inc., 380 Madison Avenue, Suite 2300, New York, NY 10017 and should not be sent to the Shareholder Servicing Agent of the Trust, Administrative Data Management Corp. (This instruction replaces the mailing address contained on the Application.) 2. The Application must be accompanied by evidence satisfactory to the Distributor that the prospective shareholder has made a Qualified Redemption in an amount at least equal to the net asset value of the Class A Shares to be purchased. Satisfactory evidence includes a confirmation of the date and the amount of the redemption from the investment company, its transfer agent or the investor's broker or dealer, or a copy of the investor's account statement with the investment company reflecting the redemption transaction. 3. You must complete and return to the Distributor a Transfer Request Form, which is available from the Distributor. The Trust reserves the right to alter or terminate this privilege at any time without notice. The Prospectus will be supplemented to reflect such alteration or termination. Special Dealer Arrangements: During certain periods determined by the Distributor, the Distributor (not the Trust) will pay to any dealer effecting a purchase of Class A Shares of the Trust using the proceeds of a Qualified Redemption the lesser of 1% of such proceeds or same amounts described under "Purchases of $1 Million or More," above on the same terms and conditions. Class A Shares of the Trust issued in such a transaction will be CDSC Class A Shares and if you thereafter redeem all or part of such shares during the four-year period from the date of purchase you will be subject to the special contingent deferred sales charge described under "Purchases of $1 Million or More," above, on the same terms and conditions. Whenever the Special Dealer Arrangements are in effect the Prospectus will be supplemented. How to Purchase Class C Shares (Level-Payment Class Shares) Level-Payment Class Shares (Class C Shares) are offered at net asset value with no sales charge payable at purchase. A level charge is imposed for service and distribution fees for the first six years after the date of purchase at the aggregate annual rate of 1% of the average annual net assets of the Trust represented by the Class C Shares. In addition, Class C Shares are subject to a contingent deferred sales charge ("CDSC") if redeemed before you have held them for 12 months from the date of purchase at the rate of 1%, calculated on the net asset value of the Class C Shares at the time of purchase or of redemption, whichever is less. There is no CDSC after Class C Shares have been held beyond the applicable period. The CDSC does not apply to shares acquired through the reinvestment of dividends on Class C Shares. The Distributor will pay to any dealer effecting a purchase of Class C Shares an amount equal to 1% of the sales price of the Class C Shares purchased. Additional Compensation for Dealers The Distributor, at its own expense, may also provide additional compensation to dealers in connection with sales of any class of shares of the Trust. Additional compensation may include payment or partial payment for advertising of the Trust's shares, payment of travel expenses, including lodging, incurred in connection with attendance at sales seminars taken by qualifying registered representatives to locations within or outside of the United States, other prizes or financial assistance to securities dealers in offering their own seminars or conferences. In some instances, such compensation may be made available only to certain dealers whose representatives have sold or are expected to sell significant amounts of such shares. Dealers may not use sales of the Trust's shares to qualify for the incentives to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the National Association of Securities Dealers, Inc. The cost to the Distributor of such promotional activities and such payments to participating dealers will not exceed the amount of the sales charges in respect of sales of all classes of shares of the Trust effected through such participating dealers, whether retained by the Distributor or reallowed to participating dealers. No such additional compensation to dealers in connection with sales of shares of the Trust will affect the price you pay for shares or the amount that the Trust will receive from such sales. Any of the foregoing payments to be made by the Distributor may be made instead by the Administrator out of its own funds, directly or through the Distributor. Brokers and Dealers may receive different levels of compensation for selling different classes of shares. Systematic Payroll Investments If your employer has established with the Trust a Systematic Payroll Investment Plan ("Payroll Plan") you may arrange for systematic investments into the Trust through a Payroll Plan. Investments can be made in either Class A Shares or Class C Shares. In order to participate in a Payroll Plan, you should make arrangements with your own employer's payroll department, and you must complete and sign any special application forms which may be required by your employer. You must also complete the Application included in the Prospectus. Once your application is received and put into effect, under a Payroll Plan the employer will make a deduction from payroll checks in an amount you determine, and will remit the proceeds to the Trust. An investment in the Trust will be made for you at the offering price, which includes applicable sales charges determined as described above, when the Trust receives the funds from your employer. The Trust will send a confirmation of each transaction to you. To change the amount of or to terminate your participation in the Payroll Plan (which could take up to ten days), you must notify your employer. Confirmations and Share Certificates All purchases of shares will be confirmed and credited to you in an account maintained for you at the Agent in full and fractional shares of the Trust (rounded to the nearest 1/1000th of a share). No share certificates will be issued for Class C Shares. Share certificates for Class A Shares will be issued only if you so request in writing to the Agent. All share certificates previously issued by the Trust represent Class A Shares. No certificates will be issued for fractional Class A shares or if you have elected Automatic Investment or Telephone Investment for Class A Shares (see "How to Invest in the Trust" above) or Expedited Redemption (see "How to Redeem Your Investment" below). If certificates for Class A Shares are issued at your request, Expedited Redemption Methods described below will not be available. In addition, you may incur delay and expense if you lose the certificates. The Trust and the Distributor reserve the right to reject any order for the purchase of shares. In addition, the offering of shares may be suspended at any time and resumed at any time thereafter. Distribution Plan The Trust has adopted a Distribution Plan (the "Plan") under Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in substance that an investment company may not engage directly or indirectly in financing any activity which is primarily intended to result in the sale of its shares except pursuant to a written plan adopted under the Rule. The Plan has three parts. Under the Plan, the Trust is authorized to make payments with respect to Class A Shares ("Class A Permitted Payments") to Qualified Recipients, which Permitted Payments shall be made 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 represented by the Class A Shares of the Trust. Such payments shall be made only out of the Trust's assets allocable to the Class A Shares. "Qualified Recipients" means broker-dealers or others selected by the Distributor, including but not limited to any principal underwriter of the Trust, with which the Distributor has entered into written agreements and which have rendered assistance (whether direct, administrative, or both) in the distribution and/or retention of the Trust's Class A Shares or servicing of accounts of shareholders owning Class A Shares. Permitted Payments under the Plan commenced July 1, 1994. Until April 5, 1996, all outstanding shares of the Trust were what are currently designated Class A Shares. During the fiscal year ended September 30, 1995, $230,866 was paid under the Plan as then in effect to Qualified Recipients, of which $4,260 was paid to the Distributor. (See the Additional Statement for a description of the Distribution Plan.) Whenever the Trust makes Class A Permitted Payments, the aggregate annual rate of the advisory fee and administration fee otherwise payable by the Trust will be reduced from 0.50 of 1% to 0.40 of 1% of the Trust's average annual net assets. (See "Management Arrangements.") Under another part of the Plan, the Trust is authorized to make payments with respect to Class C Shares ("Class C Permitted Payments"), to Qualified Recipients. Class C Permitted Payments shall be made through the Distributor or shareholder servicing agent as disbursing agent, and may not exceed, for any fiscal year of the Trust (as adjusted for any part or parts of a fiscal year during which payments under the Plan are not accruable or for any fiscal year which is not a full fiscal year) 0.75 of 1% of the average annual net assets represented by the Class C Shares of the Trust. Such payments shall be made only out of the Trust's assets allocable to the Class C Shares. "Class C Qualified Recipients" means broker-dealers or others selected by the Distributor, including but not limited to any principal underwriter of the Trust, with which the Distributor has entered into written agreements and which have rendered assistance (whether direct, administrative, or both) in the distribution and/or retention of the Trust's Class C Shares or servicing of accounts of shareholders owning Class C Shares. Payments with respect to Class C Shares during the first year after purchase are paid to the Distributor and thereafter to other Qualified Recipients. Another part of the Plan is designed to protect against any claim against or involving the Trust that some of the expenses which might be considered to be sales-related which the Trust pays or may pay come within the purview of the Rule. The Trust believes that except for Permitted Payments it is not financing any such activity and does not consider any payment enumerated in this part of the Plan as so financing any such activity. However, it might be claimed that some of the expenses the Trust pays come within the purview of the Rule. If and to the extent that any payment as specifically listed in the Plan (see the Additional Statement) is considered to be primarily intended to result in or as indirect financing of any activity which is primarily intended to result in the sale of Trust shares, these payments are authorized under the Plan. In addition, if the Administrator, out of its own funds, makes payment for distribution expenses such payments are authorized. See the Additional Statement. Shareholder Services Plan for Class C Shares Under a Shareholder Services Plan, the Trust is authorized to make payments with respect to Class C Shares ("Service Fees") to Qualified Recipients. Service Fees shall be paid through the Distributor or shareholder servicing agent as disbursing agent, and may not exceed, for any fiscal year of the Trust (as adjusted for any part or parts of a fiscal year during which payments under the Plan are not accruable or for any fiscal year which is not a full fiscal year) 0.25 of 1% of the average annual net assets represented by the Class C Shares of the Trust. Such payments shall be made only out of the Trust's assets represented by the Class C Shares. "Service Fee Qualified Recipients" means broker-dealers or others selected by the Distributor, including but not limited to any principal underwriter of the Trust, with which the Distributor has entered into written agreements and which have agreed to provide personal services to holders of Class C Shares and/or maintenance of Class C shareholder accounts. See the Additional Statement. Service Fees with respect to Class C Shares will be paid to the Distributor. HOW TO REDEEM YOUR INVESTMENT You may redeem all or any part of your shares at the net asset value next determined after acceptance of your redemption request at the Agent (subject to any applicable contingent deferred sales charge for redemptions of Class C Shares and CDSC Class A Shares). For redemptions of Class C Shares and CDSC Class A Shares, at the time of redemption a sufficient number of additional shares will be redeemed to pay for any applicable contingent deferred sales charge. Redemptions can be made by the various methods described below. There is no minimum period for any investment in the Trust, except for shares recently purchased by check, Automatic Investment or Telephone Investment as discussed below. Except for CDSC Class A Shares (see "Purchases of $1 Million or More") there are no redemption fees or withdrawal penalties for Class A Shares. Class C Shares are subject to a contingent deferred sales charge if redeemed before they have been held 12 months from the date of purchase. (See "Alternative Purchase Plans.") A redemption may result in a transaction taxable to you. If you own both Class A Shares and Class C Shares and do not specify which you wish to redeem, it will be assumed that you wish to redeem Class A Shares. For your convenience the Trust offers expedited redemption for all classes of shares to provide you with a high level of liquidity for your investment. Expedited Redemption Methods (Non-Certificate Shares) You have the flexibility of two expedited methods of initiating redemptions. They are available as to shares of any class not represented by certificates. 1. By Telephone. The Agent will accept instructions by telephone from anyone to redeem shares and make payments a) to a Financial Institution account you have predesignated or b) by check in the amount of $50,000 or less, mailed to you, if your shares are registered in your name at the Trust and the check is sent to your address of record, provided that there has not been a change of your address of record during the 30 days preceding your redemption request. You can make only one request for telephone redemption by check in any 7-day period. See "Redemption Payments", below for payment methods. Your name, your account number and your address of record must be supplied. To redeem an investment by this method, telephone: 800-872-6735 toll free or 908-855-5731 Note: The Trust, the Agent, and the Distributor will not be responsible for any losses resulting from unauthorized telephone transactions if the Agent follows reasonable procedures designed to verify the identity of the caller. The Agent will request some or all of the following information: account name(s) and number, name of the caller, the social security number registered to the account and personal identification. The Agent may also record calls. You should verify the accuracy of confirmation statements immediately upon receipt. 2. By FAX or Mail. You may also request redemption payments to a predesignated Financial Institution account by a letter of instruction sent to: Administrative Data Management Corp., Attn: Aquilasm Group of Funds, by FAX at 908-855-5730 or by mail at 581 Main Street, Woodbridge, NJ 07095-1198, indicating account name(s), account number, amount to be redeemed, and any payment directions, signed by the registered holder(s). Signature guarantees are not required. See "Redemption Payments," below for payment methods. If you wish to use the above procedures you should so elect on the Expedited Redemption section of the Application or the Ready Access Features form and provide the required information concerning your Financial Institution account number. The Financial Institution account must be in the exclusive name(s) of the shareholder(s) as registered with the Trust. You may change the designated Financial Institution account at any time by completing and returning a Ready Access Features form. For protection of your assets, this form requires signature guarantees and possible additional documentation. Regular Redemption Method (Certificate and Non-Certificate Shares) 1. Certificate Shares. Certificates representing Class A Shares to be redeemed should be sent in blank (unsigned) to the Trust's Shareholder Servicing Agent: Administrative Data Management Corp., Attn: Aquilasm Group of Funds, 581 Main Street, Woodbridge, NJ 07095-1198, with payment instructions. A stock assignment form signed by the registered shareholder(s) exactly as the account is registered must also be sent to the Shareholder Servicing Agent. For your own protection, it is essential that certificates be mailed separately from signed redemption documentation. Because of possible mail problems, it is also recommended that certificates be sent by registered mail, return receipt requested. For a redemption request to be in "proper form," the signature or signatures must be the same as in the registration of the account. In a joint account, the signatures of both shareholders are necessary. Signature guarantees may be required if sufficient documentation is not on file with the Agent. Additional documentation may be required where shares are held by certain types of shareholders such as corporations, partnerships, trustees or executors, or if redemption is requested by other than the shareholder of record. If redemption proceeds of $50,000 or less are payable to the record holder and are to be sent to the record address, no signature guarantee is required, except as noted above. In all other cases, signatures must be guaranteed by a member of a national securities exchange, a U.S. bank or trust company, a state-chartered savings bank, a federally chartered savings and loan association, a foreign bank having a U.S. correspondent bank, a participant in the Securities Transfer Association Medallion Program (STAMP), The Stock Exchanges Medallion Program (SEMP) or The New York Stock Exchange, Inc. Medallion Signature Program (MSP). A notary public is not an acceptable signature guarantor. 2. Non-Certificate Shares. If you own non-certificate shares registered on the books of the Trust, and you have not elected Expedited Redemption to a predesignated Financial Institution account, you must use the Regular Redemption Method. Under this redemption method you should send a letter of instruction to: Administrative Data Management Corp., Attn: Aquilasm Group of Funds, 581 Main Street, Woodbridge, NJ 07095-1198, containing: * Account Name(s); * Account Number; * Dollar amount or number of shares to be redeemed or a statement that all shares held in the account are to be redeemed; * Payment instructions (normally redemption proceeds will be mailed to your address as registered with the Trust); * Signature(s) of the registered shareholder(s); and * Signature guarantee(s), if required, as indicated above. Redemption Payments Redemption payments will ordinarily be mailed to you at your address of record. If you so request and the amount of your redemption proceeds is $1,000 or more, the proceeds will, wherever possible, be wired or transferred through the facilities of the Automated Clearing House to the Financial Institution account specified in the Expedited Redemption section of your Application or Ready Access Features form. The Trust may impose a charge, not exceeding $5.00 per wire redemption, after written notice to shareholders who have elected this redemption procedure. The Trust has no present intention of making this charge. Upon 30 days' written notice to shareholders, the Trust may modify or terminate the use of the Automated Clearing House to make redemption payments at any time or charge a service fee, although no such fee is presently contemplated. If any such changes are made, the Prospectus will be supplemented to reflect them. If you use a broker or dealer to arrange for a redemption, it may charge you a fee for this service. The Trust will normally make payment for all shares redeemed on the next business day (see "Net Asset Value Per Share") following acceptance of the redemption request made in compliance with one of the redemption methods specified above. Except as set forth below, in no event will payment be made more than seven days after acceptance of such a redemption request. However, the right of redemption may be suspended or the date of payment postponed (i) during periods when the New York Stock Exchange is closed for other than weekends and holidays or when trading on such Exchange is restricted as determined by the Securities and Exchange Commission by rule or regulation; (ii) during periods in which an emergency, as determined by the Securities and Exchange Commission, exists which causes disposal of, or valuation of the net asset value of, the portfolio securities to be unreasonable or impracticable; or (iii) for such other periods as the Securities and Exchange Commission may permit. Payment for redemption of shares recently purchased by check (irrespective of whether the check is a regular check or a certified, cashier's or official bank check) or by Automatic Investment or Telephone Investment may be delayed up to 15 days or until (i) the purchase check or Automatic Investment or Telephone Investment has been honored or (ii) the Agent has received assurances by telephone or in writing from the Financial Institution on which the purchase check was drawn, or from which the funds for Automatic Investment or Telephone Investment were transferred, satisfactory to the Agent and the Trust, that the purchase check or Automatic Investment or Telephone Investment will be honored. Possible delays in payment of redemption proceeds can be eliminated by using wire payments or Federal Reserve drafts to pay for purchases. If the Trustees determine that it would be detrimental to the best interests of the remaining shareholders of the Trust to make payment wholly or partly in cash, the Trust may pay the redemption price in whole or in part by the distribution in kind of securities from the portfolio of the Trust, in lieu of cash, in conformity with applicable rules of the Securities and Exchange Commission. See the Additional Statement for details. The Trust has the right to compel the redemption of shares held in any account if the aggregate net asset value of such shares is less than $500 as a result of shareholder redemptions or failure to meet the minimum investment level under an Automatic Purchase Program. If the Board elects to do this, shareholders who are affected will receive prior written notice and will be permitted 60 days to bring their accounts up to the minimum before this redemption is processed. Reinvestment Privilege You may reinvest without payment of any additional sales charge all or part of any redemption proceeds within 120 days of a redemption of shares in shares of the Trust of the same Class as the shares redeemed at the net asset value next determined after the Agent receives your reinvestment order. In the case of Class C Shares or CDSC Class A Shares on which a contingent deferred sales charges was deducted at the time of redemption, the Distributor will refund to you the amount of such sales charge, which will be added to the amount of the reinvestment. The Class C Shares or CDSC Class A Shares issued on reinvestment will be deemed to have been outstanding from the date of your original purchase of the redeemed shares, less the period from redemption to reinvestment. The reinvestment privilege for any class may be exercised only once a year, unless otherwise approved by the Distributor. If you have realized a gain on the redemption of your shares, the redemption transaction is taxable, and reinvestment will not alter any capital gains tax payable. If there has been a loss on the redemption, some or all of the loss may be tax deductible, depending on the amount reinvested and the length of time between the redemption and the reinvestment. You should consult your own tax advisor on this matter. AUTOMATIC WITHDRAWAL PLAN You may establish an Automatic Withdrawal Plan if you own or purchase shares Class A Shares of the Trust having a net asset value of at least $5,000. The Automatic Withdrawal plan is not available for Class C Shares. Under an Automatic Withdrawal Plan you will receive a monthly or quarterly check in a stated amount, not less than $50. If such a plan is established, all dividends and distributions must be reinvested in your shareholder account. Redemption of Class A Shares to make payments under the Automatic Withdrawal Plan will give rise to a gain or loss for tax purposes. See the Automatic Withdrawal Plan provisions of the Application included in the Prospectus, the Additional Statement under "Automatic Withdrawal Plan," and "Dividend and Tax Information" below. Purchase of additional Class A Shares concurrently with withdrawals are undesirable because of sales charges when purchases are made. Accordingly, a Planholder may not maintain an Automatic Withdrawal Plan while simultaneously making regular purchases. While an occasional lump sum investment may be made, such investment should normally be an amount at least equal to three times the annual withdrawal or $5,000, whichever is less. MANAGEMENT ARRANGEMENTS The Board of Trustees The business and affairs of the Trust are managed under the direction and control of its Board of Trustees. The Additional Statement lists the Trust's Trustees and officers and provides further information about them. The Advisory Agreement Qualivest Capital Management, Inc. (the "Adviser"), a subsidiary of U.S. Bancorp, supervises the investment program of the Trust and the composition of its portfolio. The principal subsidiary of U.S. Bancorp is United States National Bank of Oregon. The services of the Adviser are rendered under an Investment Advisory Agreement (the "Advisory Agreement") which provides, subject to the control of the Board of Trustees, for investment supervision and for either keeping the accounting records of the Trust, including the computation of the net asset value per share and the dividends, or, at the Adviser's expense and responsibility, delegating these accounting duties in whole or in part to a company satisfactory to the Trust. The Advisory Agreement states that the Adviser shall, at its expense, provide to the Trust all office space and facilities, equipment and clerical personnel necessary for the carrying out of the Adviser's duties under the Advisory Agreement. Under the Advisory Agreement, the Adviser pays all compensation of those officers and employees of the Trust and of those Trustees, if any, who are affiliated with the Adviser. Under the Advisory Agreement, the Trust bears the cost of preparing and setting in type its prospectuses, statements of additional information, and reports to 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. Under the Advisory Agreement, all costs and expenses not expressly assumed by the Adviser or by the Administrator under the Administration Agreement or by the Trust's Distributor (principal underwriter) are paid by the Trust. The Advisory Agreement lists examples of such expenses borne by the Trust, the major categories of such expenses being: legal and audit expenses, custodian and transfer agent or shareholder servicing agent fees and expenses, stock issuance and redemption costs, certain printing costs, registration costs of the Trust and its shares under Federal and State securities laws, interest, taxes and brokerage commissions, and non-recurring expenses, including litigation. Under the Advisory Agreement, the Trust agrees to pay the Adviser, and the Adviser agrees to accept as full compensation for all services rendered by the Adviser 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 0.25 of 1% of such net asset value provided, however, that for any day that the Trust pays or accrues a fee under the Distribution Plan of the Trust based upon the assets of the Trust, such annual fee is payable at the rate of 0.20 of 1% of all of the Trust's average annual net assets. (Since the Administrator also receives a fee from the Trust under the Administration Agreement, the total investment advisory and administration fees which the Trust pays are at the annual rate of 0.50 of 1% of such net assets, or, 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 above the Base Amount, at 0.40 of 1% of such net asset value; see below.) Effective July 1, 1995, such combined annual fees are payable at the rate of 0.40 of 1% of all of the Trust's average annual net assets 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 Adviser and the Administrator may, in order to attempt to achieve a competitive yield on the shares of the Trust, each waive all or part of any such fee. Under the Advisory Agreement, the Adviser agrees that the above fee shall be reduced, but not below zero, by an amount equal to one-half of the amount, if any, by which the total expenses of the Trust in any fiscal year, exclusive of taxes, interest and brokerage fees, shall exceed the lesser of (i) 2.5% of the first $30 million of average annual net assets of the Trust plus 2% of the next $70 million of such assets and 1.5% of its average annual net assets in excess of $100 million, or (ii) 25% of the Trust's total annual investment income. The Advisory Agreement contains provisions as to the allocation of the portfolio transactions of the Trust; see the Additional Statement. Under these provisions, the Adviser is authorized to consider sales of shares of the Trust or of any other investment company or companies having the same investment adviser, sub-adviser, administrator or principal underwriter as the Trust. The Administration Agreement Under an Administration Agreement (the "Administration Agreement"), Aquila Management Corporation as Administrator, at its own expense, provides office space, personnel, facilities and equipment for the performance of its functions thereunder and as is necessary in connection with the maintenance of the headquarters of the Trust and pays all compensation of the Trust's Trustees, officers and employees who are affiliated persons of the Administrator. Prior to April 23, 1990, Aquila Management Corporation acted as sub-adviser and administrator under a sub-advisory and administration agreement, performing substantially the same functions for the same compensation. Under the Administration Agreement, subject to the control of the Trust's Board of Trustees, the Administrator provides all administrative services to the Trust other than those relating to its investment portfolio and the maintenance of its accounting books and records. Such administrative services include but are not limited to maintaining books and records (other than accounting books and records) of the Trust, and overseeing all relationships between the Trust and its shareholder servicing 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 effective operation of the Trust and for the sale, servicing, or redemption of the Trust's shares. See the Additional Statement for a further description of functions listed in the Administration Agreement as part of such duties. Under the Administration Agreement, the Trust pays a fee payable monthly and computed on the net asset value of the Trust at the end of each business day at the annual rate of 0.25 of 1% of such net asset value provided, however, that for any day that the Trust pays or accrues a fee under the Distribution Plan of the Trust based upon the assets of the Trust, such annual fee is payable at the rate of 0.20 of 1% of all of the Trust's average annual net assets. The Administrator has agreed that the above fee shall be reduced, but not below zero, by an amount equal to one-half of the amount, if any, by which the total expenses of the Trust in any fiscal year, exclusive of taxes, interest and brokerage fees, exceed the lesser of (i) 2.5% of the first $30 million of average annual net assets of the Trust plus 2% of the next $70 million of such assets and 1.5% of its average annual net assets in excess of $100 million, or (ii) 25% of the Trust's total annual investment income. Information as to the Adviser, the Administrator and the Distributor The Adviser is a subsidiary of U.S. Bancorp ("Bancorp") and its subsidiary, United States National Bank of Oregon ("USNB"). Bancorp is a $21 billion superregional financial services holding company organized under the laws of Oregon in 1968. USNB, headquartered in Portland, is a national banking association, chartered in 1891. It offers a wide variety of full-service and commercial banking operations in over 200 locations in Oregon. Other services of Bancorp and it subsidiaries include mortgage banking, lease financing, consumer financing, commercial finance, international banking, investment advisory, insurance agency and credit life insurance services, discount brokerage and venture capital. As of September 30, 1994, the Adviser had under management nearly $5.2 billion in assets. See the Additional Statement as to the legality, under the Glass-Steagall Act, of the Adviser acting as the Trust's investment adviser. In general, under that Act, the Adviser will not, among other things, be involved in the promotion or distribution of shares of the Trust. Mr. Edgar M. Potts, with the position of Fixed-Income Manager, is the officer of the Adviser who manages the Trust's portfolio. He has served as such since the Trust's inception in 1986. He has been employed by the Adviser since 1977, before that by the Adviser's parent company, U.S. National Bank. He has 35 years of investment experience in those positions and in other financial institutions. He has a B.S. in economics from Georgetown University. Mr. Stephen J. Galiani is the backup portfolio manager. Mr. Galiani has been employed by the Adviser since 1994. He was president of Galiani Asset Management, a private investment advisory firm from 1990 to 1994. Prior to owning his own firm, Mr. Galiani was Vice President and Senior Portfolio Manager of the municipal bond mutual funds for the Keystone family of mutual funds with over $2 billion in municipal debt assets. Before managing Keystone mutual funds, Mr. Galiani was Vice President and Portfolio Manager of municipal bond portfolios for the Eaton Vance Corporation. Mr. Galiani has an MBA from Boston University, School of Management. The Trust's Administrator is founder and administrator to the Aquilasm Group of Funds, which consists of tax-free municipal bond funds, money market funds and an equity fund. As of December 31, 1995, these funds had aggregate assets of approximately $2.7 billion, of which approximately $1.9 billion consisted of assets of tax-free municipal bond funds. The Administrator, which was founded in 1984, is controlled by Mr. Lacy B. Herrmann (directly, through a trust and through share ownership by his wife). See the Additional Statement for information on Mr. Herrmann. For the fiscal year of the Trust ended September 30, 1995, fees of $729,908 were paid or accrued to each of the Adviser and the Administrator. The Distributor currently handles the distribution of the shares of thirteen funds (seven tax-free municipal bond funds, five money market funds 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. At the date of this Prospectus, there is a proposed transaction whereby all of the shares of the Distributor, which are currently owned by Mr. Herrmann, will be owned by certain directors and/or officers of the Administrator and/or the Distributor including Mr. Herrmann. DIVIDEND AND TAX INFORMATION Dividends and Distributions The Trust will declare all of its net income, as defined below, as dividends on every day, including weekends and holidays, on those shares outstanding for which payment was received by the close of business on the preceding business day. Net income for dividend purposes includes all interest income accrued by the Trust since the previous dividend declaration, including accretion of any original issue discount, less expenses paid or accrued. As such net income will vary, the Trust's dividends will also vary. Dividends and other distributions paid by the Trust with respect to Class A Shares and Class C Shares are calculated at the same time and in the same manner. The per share dividends of Class C Shares will be lower than the per share dividends on the Class A Shares as a result of the higher service and distribution fees applicable to those shares. In addition, the dividends of each class can vary because each class will bear certain class-specific charges. It is the Trust's present policy to pay dividends so that they will be received or credited by approximately the first day of each month. Shareholders may elect to have dividends deposited without charge by electronic funds transfers into an account at a Financial Institution which is a member of the Automated Clearing House by completing a Ready Access Features form. Redeemed shares continue to earn dividends through and including the day which is the earlier of (i) the day before the day on which the redemption proceeds are mailed, wired or transferred by the facilities of the Automated Clearing House by the Agent or paid by the Agent to a selected dealer; or (ii) the day which is the third day on which the New York Stock Exchange is open after the day on which the net asset value of the redeemed shares has been determined. (See "How To Redeem Your Investment.") Net investment income includes amounts of income from the Oregon Obligations in the Trust's portfolio which are allocated as "exempt-interest dividends." "Exempt-interest dividends" are exempt from regular Federal income tax. The allocation of "exempt-interest dividends" will be made by the use of one designated percentage applied uniformly to all income dividends declared during the Trust's tax year. Such designation will normally be made in the first month after the end of each of the Trust's fiscal years as to income dividends paid in the prior year. It is possible that in certain circumstances, a small portion of the dividends paid by the Trust will be subject to income taxes. During the Trust's fiscal year ended September 30, 1995, 98.98% of the Trust's dividends were "exempt-interest dividends." For the calendar year 1995, 0.74% of the total dividends paid were taxable as ordinary income and 1.76% were taxable as long-term capital gains. (These amounts relate to dividends on Class A shares; no Class C Shares were outstanding during that period. The percentage of income designated as tax-exempt for any particular dividend may be different from the percentage of the Trust's income that was tax-exempt during the period covered by the dividend. Distributions ("short-term gains distributions") from net realized short-term gains, if any, and distributions ("long-term gains distributions"), if any, from the excess of net long-term capital gains over net short-term capital losses realized through October 31st of each year and not previously paid out will be paid out after that date; the Trust may also pay supplemental distributions after the end of its fiscal year. If net capital losses are realized in any year, they are charged against capital and not against net investment income which is distributed regardless of gains or losses. The Trust may be required to impose backup withholding at a rate of 31% upon payment of redemptions to shareholders, and from short- and long-term gains distributions (if any) and any other distributions that do not qualify as "exempt- interest dividends," if shareholders do not comply with provisions of the law relating to the furnishing of taxpayer identification numbers and reporting of dividends. Unless you request otherwise by letter addressed to the Agent or by filing an appropriate application prior to a given ex-dividend date, dividends and distributions will be automatically reinvested in full and fractional shares of the Trust at net asset value on the record date for the dividend or distribution or other date fixed by the Board of Trustees. An election to receive cash will continue in effect until written notification of a change is received by the Agent. All shareholders, whether their dividends are received in cash or are being reinvested, will receive a monthly account summary indicating the current status of their investment. There is no fixed dividend rate. Corporate shareholders of the Trust are not entitled to any deduction for dividends received from the Trust. Tax Information The Trust qualified during its last fiscal year as a "regulated investment company" under the Code, and intends to continue to so qualify. If it does so qualify, it will not be liable for Federal income taxes on amounts paid by it as dividends and distributions. However, the Code contains a number of complex tests relating to such qualification and it is possible although not likely that the Trust might not meet one or more of these tests in any particular year. If it does not so qualify, it would be treated for tax purposes as an ordinary corporation, would receive no tax deduction for payments made to shareholders and would be unable to pay dividends or distributions which would qualify as "exempt-interest dividends" or "capital gains dividends," as discussed below. The Trust intends to qualify during each fiscal year under the Code to pay "exempt-interest dividends" to its shareholders. Exempt-interest dividends which are derived from net income earned by the Trust on Oregon Obligations will be excludable from gross income of the shareholders for regular Federal income tax purposes. Capital gains dividends are not included in exempt-interest dividends. Although "exempt-interest dividends" are not taxed, each taxpayer must report the total amount of tax-exempt interest (including exempt-interest dividends from the Trust) received or acquired during the year. The Omnibus Budget Reconciliation Act of 1993 requires that either gains realized by the Trust on the sale of municipal obligations acquired after April 30, 1993 at a price which is less than face or redemption value be included as ordinary income to the extent such gains do not exceed such discount or that the discount be amortized and included ratably in taxable income. There is an exception to the foregoing treatment if the amount of the discount is less than 0.25% of face or redemption value multiplied by the number of years from acquisition to maturity. The Trust will report such ordinary income in the years of sale or redemption rather than amortize the discount and report it ratably. To the extent the resultant ordinary taxable income is distributed to shareholders, it will be taxable to them as ordinary income. Capital gains dividends (net long-term gains over net short-term losses which the Trust distributes and so designates) are reportable by shareholders as long-term capital gains. This is the case whether the shareholder takes the distribution in cash or elects to have the distribution reinvested in Trust shares and regardless of the length of time the shareholder has held his or her shares. Capital gains are taxed at the same rates as ordinary income, except that for individuals, trusts and estates the maximum tax rate on capital gains distributions is 28% even if the applicable rate on ordinary income for such taxpayers is higher than 28%. Short-term gains, when distributed, are taxed to shareholders as ordinary income. Capital losses of the Trust are not distributed but carried forward by the Trust to offset gains in later years and thereby lessen the later-year capital gains dividends and amounts taxed to shareholders. The Trust's gains or losses on sales of Oregon Obligations will be long-term or short-term depending upon the length of time the Trust has held such obligations. Capital gains and losses of the Trust will also include gains and losses on Futures and options, if any, including gains and losses actually realized on sales and exchanges and gains and losses deemed to be realized. Those deemed to be realized are on Futures and options held by the Trust at year-end, which are "marked to the market," that is, deemed sold for fair market value. Net gains or losses realized and deemed realized on Futures and options will be reportable by the Trust as long-term to the extent of 60% of the gains or losses and short-term to the extent of 40% regardless of the actual holding period of such investments. Information as to the tax status of the Trust's dividends and distributions will be mailed to shareholders annually. Under the Code, interest on loans incurred by shareholders to enable them to purchase or carry shares of the Trust may not be deducted for regular Federal tax purposes. In addition, under rules used by the Internal Revenue Service for determining when borrowed funds are deemed used for the purpose of purchasing or carrying particular assets, the purchase of shares of the Trust may be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchase of shares. The receipt of exempt-interest dividends from the Trust by an individual shareholder may result in some portion of any social security payments or railroad retirement benefits received by the shareholder or the shareholder's spouse being included in taxable income. Persons who are "substantial users" (or persons related thereto) of facilities financed by industrial development bonds or private activity bonds should consult their own tax advisers before purchasing shares. While interest from all Oregon Obligations is tax-exempt for purposes of computing the shareholder's regular tax, interest from so-called private activity bonds issued after August 7, 1986, constitutes a tax preference for both individuals and corporations and thus will enter into a computation of the alternative minimum tax. Whether or not that computation will result in a tax will depend on the entire content of the taxpayer's return. The Trust will not invest in the types of Oregon Obligations which would give rise to interest that would be subject to alternative minimum taxation if more than 20% of its net assets would be so invested, and may refrain from investing in that type of bond completely. The 20% limit is a fundamental policy of the Trust. Corporate shareholders must add to or subtract from alternative minimum taxable income, as calculated before taking into consideration this adjustment, 75% of the difference between what is called adjusted current earnings (essentially current earnings and profits) and alternative minimum taxable income, as previously calculated. Since tax-exempt bond interest is included in earnings and profits and therefore in adjusted current earnings, this adjustment will tend to make it more likely that corporate shareholders will be subject to the alternative minimum tax. As of the date of the Prospectus, Congress is considering a number of changes affecting taxation. It is not possible to predict which, if any, of such changes will become law. Tax Effects of Redemptions Normally, when you redeem shares of the Trust you will recognize capital gain or loss measured by the difference between the proceeds received in the redemption and the amount you paid for the shares. If you are required to pay a conditional deferred sales charge at the time of redemption, the amount of that charge will reduce the amount of your gain or increase the amount of your loss as the case may be. The gain or loss will be long-term if you held the redeemed shares for over a year, and short-term, if for a year or less. However, if shares held for six months or less are redeemed and you have a loss, two special rules apply: the loss is reduced by the amount of exempt-interest dividends, if any, which you received on the redeemed shares, and any loss over and above the amount of such exempt-interest dividends is treated as a long-term loss to the extent you have received capital gains dividends on the redeemed shares. Tax Effect of Conversion Class C Shares will automatically convert to Class A Shares approximately six years after purchase. No gain or loss will be recognized by the Trust or its shareholders upon such conversions; each shareholder's adjusted tax basis in the Class A Shares received upon conversion will equal the shareholder's adjusted tax basis in the Class C Shares held immediately before the conversion; and each shareholder's holding period for the Class A Shares received upon conversion will include the period for which the shareholder held as capital assets the converted Class C Shares immediately before conversion. Oregon Tax Information Individual shareholders of the Trust, resident in Oregon, will not be subject to Oregon personal income tax on distributions received from the Trust to the extent such distributions are attributable to interest on tax-exempt obligations of the State of Oregon and its political subdivisions and authorities or on obligations issued by or under the authority of the governments of Puerto Rico, the Virgin Islands, Guam and the Northern Mariana Islands, provided that the Trust complies with the requirement of the Code that at least 50% of its assets at the close of each quarter of its taxable year is invested in state, municipal or other obligations the interest on which is exempt from federal income tax under Section 103(a) thereof. Other distributions from the Trust, including all long-term and short-term capital gains, will generally not be exempt from Oregon income tax. Trust distributions are expected to be fully includable in income in determining the Oregon excise tax on corporations. Shares of the Trust will not be subject to the Oregon property tax. Shareholders of the Trust should consult their tax advisers about other state and local tax consequences of their investment in the Trust. EXCHANGE PRIVILEGE There is an exchange privilege as set forth below among this Trust and certain tax-free municipal bond funds and an equity fund (the "Bond or Equity Funds") and certain money market funds (the "Money-Market Funds"), all of which are sponsored by Aquila Management Corporation and Aquila Distributors, Inc., and have the same Administrator and Distributor as the Trust. All exchanges are subject to certain conditions described below. As of the date of the Prospectus, the Aquila-sponsored Bond or Equity Funds are this Trust, Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky, Tax-Free Fund For Utah and Narragansett Insured Tax-Free Income Fund; the Aquila Money-Market Funds are Capital Cash Management Trust, Pacific Capital Cash Assets Trust (Original Shares), Pacific Capital Tax-Free Cash Assets Trust (Original Shares), Pacific Capital U.S. Treasuries Cash Assets Trust (Original Shares) and Churchill Cash Reserves Trust. Class A Shares of the Trust can be exchanged only into Class A Shares of any Bond or Equity Trust or into shares of the Money-Market Funds. Class C Shares can be exchanged only into Class C Shares of any Bond or Equity Fund that offers Class C Shares or into shares of the Money-Market Funds. At the date of the Prospectus it is expected that all of the Bond and Equity Funds will offer Class C Shares by April 30, 1996. Class A Shares Exchange Privilege Under the Class A Shares exchange privilege, once any applicable sales charge has been paid on Class A Shares of any Bond or Equity Fund, those shares (and any shares acquired as a result of reinvestment of dividends and/or distributions) may be exchanged any number of times between Money-Market Funds and Bond or Equity Funds without the payment of any additional sales charge. CDSC Class A Shares of the Trust (see "Purchases of $1 Million or More" and Special Dealer Arrangements") can be exchanged for CDSC Class A Shares of a Bond or Equity Fund or into a Money- Market Fund. The CDSC Class A Shares will not be subject to a contingent deferred sales charge at the time of exchange, but the contingent deferred sales charge will be payable upon a redemption which occurs before the expiration of the applicable holding period of any CDSC Class A Shares or any shares of a Money-Market Fund received on exchange for CDSC Class A Shares. (The contingent deferred sales charge does not apply to any shares acquired as a result of reinvestment of dividends and/or distributions.) For purposes of computing the time period for the applicable contingent deferred sales charge, the length of time of ownership of CDSC Class A Shares will be determined by the time of original purchase and not by the time of the exchange. Any period of 30 days or more during which any Money-Market shares received on an exchange of CDSC Class A Shares are held is not counted in computing the period of ownership of CDSC Class A Shares. (See "Alternative Purchase Plans.") Class C Shares Exchange Privilege Under the Class C exchange privilege, Class C Shares (and any shares acquired as a result of reinvestment of dividends and/or distributions) may be exchanged any number of times between Money-Market Funds and for Class C Shares of Bond or Equity Funds. Class C Shares will not be subject to a contingent deferred sales charge at the time of exchange, but the contingent deferred sales charge will be payable upon redemption which occurs before the expiration of the applicable holding period of any Class C Shares or any shares of a Money-Market Fund received on exchange for Class C Shares. (The contingent deferred sales charge does not apply to any shares acquired as a result of reinvestment of dividends and/or distributions.) For purposes of computing the time period for the applicable contingent deferred sales charge or for the conversion of Class C Shares into Class A Shares, the length of time of ownership of Class C shares will be determined by time of original purchase and not by the time of the exchange. Any period of 30 days or more during which any Money-Market shares received on an exchange of Class C Shares are held is not counted in computing the period of ownership of Class C Shares. (See "Alternative Purchase Plans.") Eligible Shares The "Class A Eligible Shares" of any Bond or Equity Fund are those Class A Shares which were (a) acquired by direct purchase with payment of any applicable sales charge, or which were received in exchange for shares of another Bond or Equity Fund on which any applicable sales charge was paid; (b) acquired by exchange for shares of a Money-Market Fund with payment of the applicable sales charge; (c) acquired in one or more exchanges between shares of a Money-Market Fund and a Bond or Equity Fund so long as the shares of the Bond or Equity Fund were originally purchased as set forth in (a) or (b); (d) acquired on conversion of Class C Shares or (e) acquired as a result of reinvestment of dividends and/or distributions on otherwise Class A Eligible Shares. The "CDSC Class A Eligible Shares" of any Bond or Equity Fund are those CDSC Class A Shares which were (a) acquired by direct purchase in the amount of $1 million or more without a sales charge or in certain purchases when Special Dealer Arrangements are in effect or which were received in exchange for CDSC Class A Shares of another Bond or Equity Fund acquired under the same conditions; (b) acquired by exchange for shares of a Money-Market Fund under the same conditions; (c) acquired in one or more exchanges between shares of a Money-Market Fund and a Bond or Equity Fund so long as the shares of the Bond or Equity Fund were originally purchased as set forth in (a) or (b); or (d) acquired as a result of reinvestment of dividends and/or distributions on otherwise CDSC Class A Eligible Shares. The "Class C Eligible Shares" of any Bond or Equity Fund are those shares which were (a) acquired by direct purchase including by exchange from a Money-Market Fund, or which were received in exchange for shares of Class C Shares of another Bond or Equity Fund; or (b) acquired as a result of reinvestment of dividends and/or distributions on otherwise Class C Eligible Shares. If you own Class A or Class C Eligible Shares of any Bond or Equity Fund, you may exchange them for shares of any Money Market Fund or the Class A or Class C Shares, respectively, of any other Bond or Equity Fund without payment of any sales charge or CDSC. The shares received will continue to be Class A or Class C Eligible shares. If you own shares of a Money-Market Fund which you have acquired by exchange for Class A Eligible Shares of any Bond or Equity Fund, you may exchange these shares, and any shares acquired as a result of reinvestment of dividends and/or distributions on these shares, for Class A Shares of any Bond or Equity Fund without payment of any sales charge. If you own shares of a Money-Market Fund which you have acquired by exchange for CDSC Class A Eligible Shares of any Bond or Equity Fund, you may exchange these shares, and any shares acquired as a result of reinvestment of dividends and/or distributions on these shares, for CDSC Class A shares of any Bond or Equity Fund but you will be required to pay the applicable contingent deferred sales charge if you redeem such shares before you have held CDSC Class A Shares for four years. You will also be required to pay the applicable contingent deferred sales charge if you redeem such shares of a Money-Market fund before you have held CDSC Class A Shares for four years. The running of the four-year period is suspended during the period you hold shares of a Money- Market Fund received in exchange for CDSC Class A Shares. If you own shares of a Money-Market Fund which you have acquired by exchange for Class C Eligible Shares of any Bond or Equity Fund, you may exchange these shares, and any shares acquired as a result of reinvestment of dividends and/or distributions on these shares, for Class C Shares of any Bond or Equity Fund, but you will be required to pay the applicable contingent deferred sales charge if you redeem such Class C shares before you have held Class C Shares for 12 months. You will also be required to pay the applicable contingent deferred sales charge if you redeem such shares of a Money-Market fund before you have held Class C Shares for 12 months. The running of the 12-month CDSC period and the six- year conversion period for Class C Shares is suspended during the period you hold shares of a Money-Market Fund received in exchange for Class C Shares.(See "Alternative Purchase Plans.") Shares of a Money-Market Fund may be exchanged for shares of another Money-Market Fund or for Class A Shares or Class C Shares of a Bond or Equity Fund; however, if the shares of a Money-Market Fund were not acquired by exchange of Eligible Shares of a Bond or Equity Fund or of shares of a Money-Market Fund acquired in such an exchange, they may be exchanged for Class A Shares of a Bond or Equity Fund only upon payment of the applicable sales charge. 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 are at least equal to the minimum investment requirements of the investment company whose shares are being acquired and (iii) the ownership of the accounts from which and to which the exchange is made are identical. The Agent will accept telephone exchange instructions from anyone. To make a telephone exchange telephone: 800-872-6735 toll free or 908-855-5731 Note: The Trust, the Agent, and the Distributor will not be responsible for any losses resulting from unauthorized telephone transactions if the Agent follows reasonable procedures designed to verify the identity of the caller. The Agent will request some or all of the following information: account name(s) and number, name of the caller, the social security number registered to the account and personal identification. The Agent may also record calls. You should verify the accuracy of confirmation statements immediately upon receipt. Exchanges will be effected at the relative exchange prices of the shares being exchanged next determined after receipt by the Agent of your exchange request. The exchange prices will be the respective net asset values of the shares, unless a sales charge is to be deducted in connection with an exchange of shares, in which case the exchange price of shares of a Bond or Equity Fund will be their public offering price. Prices for exchanges are determined in the same manner as for purchases of the Trust's shares. See "How to Invest in the Trust". An exchange is treated for Federal tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss, depending on the cost or other tax basis of the shares exchanged and the holding period (see the Additional Statement); no representation is made as to the deductibility of any such loss should such occur. Dividends paid by the Money-Market Funds are taxable, except to the extent that a portion or all of the dividends paid by Pacific Capital Tax-Free Cash Assets Trust (a tax-free Money-Market Fund) are exempt from regular Federal income tax, and to the extent that a portion or all of the dividends paid by Pacific Capital U.S. Treasuries Cash Assets Trust (which invests in U.S. Treasury obligations) are exempt from state income taxes. Dividends paid by Aquila Rocky Mountain Equity Fund are taxable. If your state of residence is not the same as that of the issuers of obligations in which a tax-free municipal Bond Fund or a tax-free Money-Market Fund invests, the dividends from that fund may be subject to income tax of the state in which you reside. Accordingly, you should consult your tax adviser before acquiring shares of such a Bond Fund or a tax-free Money-Market Fund under the exchange privilege arrangement. If you are considering an exchange into one of the funds listed above, you should send for and carefully read its Prospectus. GENERAL INFORMATION Performance Advertisements, sales literature and communications to shareholders may contain various measures of the Trust's performance including current yield, taxable equivalent yield, various expressions of total return, current distribution rate and taxable equivalent distribution rate. Average annual total return figures, as prescribed by the Securities and Exchange Commission, represent the average annual percentage change in value of a hypothetical $1,000 purchase, invested at the maximum public offering price (offering price includes the applicable sales charge) for 1- and 5-year periods and for a period since the inception of the Trust, to the extent applicable, through the end of such periods, assuming reinvestment (without sales charge) of all distributions. The Trust may also furnish total return quotations for other periods or based on investments at various applicable sales charge levels or at net asset value. For such purposes total return equals the total of all income and capital gains paid to shareholders, assuming reinvestment of all distributions, plus (or minus) the change in the value of the original investment, expressed as a percentage of the purchase price. See the Additional Statement. Current yield reflects the income per share earned by each of the Trust's portfolio investments; it is calculated by (i) dividing the Trust's net investment income per share during a recent 30-day period by (ii) the maximum public offering price on the last day of that period and by (iii) annualizing the result. Taxable equivalent yield shows the yield from a taxable investment that would be required to produce an after-tax yield equivalent to that of the Trust, which invests in tax-exempt obligations. It is computed by dividing the tax-exempt portion of the Trust's yield (calculated as indicated) by one minus a stated income tax rate and by adding the product to the taxable portion (if any) of the Trust's yield. See the Additional Statement. Current yield and taxable equivalent yield, which are calculated according to a formula prescribed by the Securities and Exchange Commission (see the Additional Statement), are not indicative of the dividends or distributions which were or will be paid to the Trust's shareholders. Dividends or distributions paid to shareholders are reflected in the current distribution rate or taxable equivalent distribution rate which may be quoted to shareholders. The current distribution rate is computed by (i) dividing the total amount of dividends per share paid by the Trust during a recent 30-day period by (ii) the current maximum offering price and by (iii) annualizing the result. A taxable equivalent distribution rate shows the taxable distribution rate that would be required to produce an after-tax distribution rate equivalent to the Trust's distribution rate (calculated as indicated above). The current distribution rate, unlike yield figures, is not limited to investment performance, but takes into account expenses as well; it also differs from the current yield computation because it could include distributions to shareholders from sources, if any, other than dividends and interest, such as short-term capital gains or return of capital. If distribution rates are quoted in advertising, they will be accompanied by calculations of current yield in accordance with the formula of the Securities and Exchange Commission. In each case performance figures are based upon past performance, reflect as appropriate all recurring charges against the Trust's income net of fee waivers and reimbursement of expenses, if any, and will assume the payment of the maximum sales charge on the purchase of shares, but not on reinvestment of income dividends. The investment results of the Trust, like all other investment companies, will fluctuate over time; thus, performance figures should not be considered to represent what an investment may earn in the future or what the Trust's yield, tax equivalent yield, distribution rate, taxable equivalent distribution rate or total return may be in any future period. The annual report of the Trust contains additional performance information that will be made available upon request and without charge. Description of the Trust and its Shares The Trust is a series of The Cascades Trust (the "Business Trust") formed in 1985 under the name Tax-Free Trust of Oregon. On August 10, 1989, the name of the Business Trust was changed to The Cascades Trust. The Business Trust presently has only one active series, the original series, which continues to be called Tax-Free Trust of Oregon. The Business Trust is an open-end, non-diversified management investment company organized as a Massachusetts business trust. (See "Investment of the Trust Assets" above for further information about the Trust's status as "non-diversified"). The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares and to divide or combine the shares into a greater or lesser number of shares without thereby changing the proportionate beneficial interests in the Business Trust. Each share represents an equal proportionate interest in the Trust with each other share of its class; shares of the respective classes represent proportionate interests in the Trust in accordance with their respective net asset values. Income, direct liabilities and direct operating expenses of each series will be allocated directly to each series, and general liabilities and expenses, if any, of the Business Trust will be allocated among the series in a manner acceptable to the Board of Trustees. Upon liquidation of a series, shareholders of the series are entitled to share pro-rata in the net assets of that series available for distribution to shareholders and upon liquidation of the Business Trust, the respective series are entitled to share proportionately in the assets available to the Business Trust after allocation to the various series. Shareholders of each series 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 that series classes at that time. All shares are presently divided into three classes; however, if they deem it advisable and in the best interests of shareholders, the Board of Trustees of the Trust may create additional classes of shares (subject to rules and regulations of the Securities and Exchange Commission or by exemptive order) or the Board of Trustees may, at its own discretion, create additional series of shares, each of which may have separate assets and liabilities (in which case any such series will have a designation including the word "Series"). See the Additional Statement for further information about possible additional series. Shares are fully paid and non-assessable, except as set forth under the caption "General Information" in the Additional Statement; the holders of shares have no pre-emptive or conversion rights. In addition to Class A and Class C Shares, which are offered by this Prospectus, the Trust also has Institutional Class Shares ("Class Y Shares"), which are offered only to institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity and are not offered directly to retail customers. Class Y Shares are offered by means of a separate prospectus, which can be obtained by calling the Trust at 800-872-6735. The primary distinction among the Trust's three classes of shares lies in their different sales charge structures and ongoing expenses, which are likely to be reflected in differing yields and other measures of investment performance. All three 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 Distribution Plan and has exclusive voting rights with respect to its Plan. As of April 2, 1996, BHC Securities, Inc., 2005 Market Street, Philadelphia, PA held of record 2,590,644 shares (9.7%) of the Trust and Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561, New Brunswick, NJ held of record 2,590,644 shares (8.9%) of the Trust, all of which were Class A Shares. The Trust's management is not aware of any other person owning of record or beneficially 5% or more of the Trust's outstanding shares as of that date. On the basis of information received from those record owners, the Trust's management believes that all of such shares are held for the benefit of brokerage clients. Voting Rights At any meeting of shareholders, shareholders are entitled to one vote for each dollar of net asset value (determined as of the record date for the meeting) per share held (and proportionate fractional votes for fractional dollar amounts). Shareholders will vote on the election of Trustees and on other matters submitted to the vote of shareholders. Shares vote by classes on any matter specifically affecting one or more classes, such as an amendment of an applicable part of the Distribution Plan. Rule 18f-2 under the Investment Company Act of 1940 provides that matters submitted to shareholders affecting any series must be approved by a majority of the outstanding voting securities of such series, voting separately from the other series, unless it is clear that the interests of each series in the matter are identical or the matter does not affect a series. However, the rule exempts the selection of accountants and the election of Trustees from the separate voting requirement. No amendment may be made to the Declaration of Trust without the affirmative vote of the holders of a majority of the outstanding shares of the Trust, except that the Trust's Board of Trustees may change the name of the Trust. The Trust may be terminated (i) upon the sale of its assets to another issuer, or (ii) upon liquidation and distribution of the assets of the Trust, in either case if such action is approved by the vote of the holders of a majority of the outstanding shares of the Trust. If not so terminated, the Trust will continue indefinitely. APPLICATION FOR TAX-FREE TRUST OF OREGON FOR CLASS A OR CLASS C SHARES ONLY PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO: ADM, ATTN: AQUILA SM GROUP OF FUNDS 581 MAIN STREET, WOODBRIDGE, NJ 07095-1198 1-800-872-6735 STEP 1 A. ACCOUNT REGISTRATION ___Individual Use line 1 ___Joint Account* Use lines 1&2 ___For a Minor Use line 3 ___For Trust, Corporation, Partnership or other Entity Use line 4 * Joint Accounts will be Joint Tenants with rights of survivorship unless otherwise specified. ** Uniformed Gifts/Transfers to Minors Act. Please type or print name exactly as account is to be registered 1.________________________________________________________________ First Name Middle Initial Last Name Social Security Number 2.________________________________________________________________ First Name Middle Initial Last Name Social Security Number 3.________________________________________________________________ Custodian's First Name Middle Initial Last Name Custodian for ____________________________________________________ Minor's First Name Middle Initial Last Name Under the ___________UGTMA** _____________________________________ Name of State Minors Social Security Number 4. ____________________________________________________ ____________________________________________________ (Name of Corporation or Partnership. If a Trust, include the name(s) of Trustees in which account will be registered and the name and date of the Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may be registered in the name of the Plan or Trust itself.) ___________________________________________________________________ Tax I.D. Number Authorized Individual Title B. MAILING ADDRESS AND TELEPHONE NUMBER ____________________________________________________ Street or PO Box City _______________________________(______)______________ State Zip Daytime Phone Number Occupation:________________________Employer:________________________ Employers Address:__________________________________________________ Street Address: City State Zip Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a non-U.S. Citizen or resident and not subject to back-up withholding (See certification in Step 4, Section B, below.) C. INVESTMENT DEALER OR BROKER: (Important - to be completed by Dealer or Broker) _______________________ _____________________________ Dealer Name Branch Number _______________________ _____________________________ Street Address Rep. Number/Name _______________________ (_______)_____________________ City State Zip Area Code Telephone STEP 2 PURCHASES OF SHARES A. INITIAL INVESTMENT Indicate method of payment (For either method, make check payment to: TAX-FREE TRUST OF OREGON) Indicate class of shares: __ Class A Shares (Front-Payment Class) __ Class C Shares (Level-Payment Class) IF NO SHARE CLASS IS MARKED, INVESTMENT WILL AUTOMATICALLY BE MADE IN CLASS A SHARES. __ Initial Investment $_________ (Minimum $1,000) __ Automatic Investment $________ (Minimum $50) For Automatic Investments of at least $50 per month, you must complete Step 3, Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK. B. DISTRIBUTIONS All income dividends and capital gains distributions are automatically reinvested in additional shares at Net Asset Value unless otherwise indicated below. Dividends are to be:___ Reinvested ___Paid in cash* Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash* * For cash dividends, please choose one of the following options: ___ Deposit directly into my/our Financial Institution account. ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing the Financial Institution account where I/we would like you to deposit the dividend. (A Financial Institution is a commercial bank, savings bank or credit union.) ___ Mail check to my/our address listed in Step 1. STEP 3 SPECIAL FEATURES A. AUTOMATIC INVESTMENT PROGRAM (Check appropriate box) ___ Yes ___ No This option provides you with a convenient way to have amounts automatically drawn on your Financial Institution account and invested in your Tax-Free Trust of Oregon Account. To establish this program, please complete Step 4, Sections A & B of this Application. I/We wish to make regular monthly investments of $ _________________ (minimum $50) on the ___ 1st day or ___ 16th day of the month (or on the first business day after that date). (YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK) B. TELEPHONE INVESTMENT (Check appropriate box) ___ Yes ___ No This option provides you with a convenient way to add to your account (minimum $50 and maximum $50,000) at any time you wish by simply calling the Trust toll-free at 1-800-872-6735. To establish this program, please complete Step 4, Sections A & B of this Application. (YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK) C. LETTER OF INTENT APPLICABLE TO CLASS A SHARES ONLY. See Terms of Letter of Intent and Escrow at the end of this application ___ Yes ___ No I/We intend to invest in Class A Shares of the Trust during the 13-month period from the date of my/our first purchase pursuant to this Letter (which purchase cannot be more than 90 days prior to the date of this Letter), an aggregate amount (excluding any reinvestment of dividends or distributions) of at least $25,000 which, together with my/our present holdings of Trust shares (at public offering price on date of this Letter), will equal or exceed the minimum amount checked below: ___ $25,000 ___ $50,000 ___ $100,000 ___ $250,000 ___ $500,000 ___ $1,000,000 ___ $2,500,000 ___ $5,000,000 D. AUTOMATIC WITHDRAWAL PLAN (Minimum investment $5,000) APPLICABLE TO CLASS A SHARES ONLY. Application must be received in good order at least 2 weeks prior to 1st actual liquidation date. (Check appropriate box) ___ Yes ___ No Please establish an Automatic Withdrawal Plan for this account, subject to the terms of the Automatic Withdrawal Plan Provisions set forth below. To realize the amount stated below, Administrative Data Management Corp. (the Agent) is authorized to redeem sufficient shares from this account at the then current Net Asset Value, in accordance with the terms below: Dollar Amount of each withdrawal $ ______________beginning________________ . Minimum: $50 Month/Year Payments to be made: ___ Monthly or ___ Quarterly Checks should be made payable as indicated below. If check is payable to a Financial Institution for your account, indicate Financial Institution name, address and your account number. _______________________________ ______________________________________ First Name Middle Initial Last Name Financial Institution Name _______________________________ ______________________________________ Street Financial Institution Street Address _______________________________ ______________________________________ City State Zip City State Zip ____________________________________ Financial Institution Account Number E. TELEPHONE EXCHANGE (Check appropriate box) ___ Yes ___ No This option allows you to effect exchanges among accounts in your name within the Aquila SM Group of Funds by telephone. The Agent is authorized to accept and act upon my/our or any other persons telephone instructions to execute the exchange of shares of one Aquila-sponsored fund for shares of another Aquila-sponsored fund with identical shareholder registration in the manner described in the Prospectus. Except for gross negligence in acting upon such telephone instructions to execute an exchange, and subject to the conditions set forth herein, I/we understand and agree to hold harmless the Agent, each of the Aquila Funds, and their respective officers, directors, trustees, employees, agents and affiliates against any liability, damage, expense, claim or loss, including reasonable costs and attorneys fees, resulting from acceptance of, or acting or failure to act upon, this Authorization. F. EXPEDITED REDEMPTION (Check appropriate box) ___ Yes ___ No The proceeds will be deposited to your Financial Institution account listed. Cash proceeds in any amount from the redemption of shares will be mailed or wired, whenever possible, upon request, if in an amount of $1,000 or more to my/our account at a Financial Institution. The Financial Institution account must be in the same name(s) as this Trust account is registered. (YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK). _______________________________ ____________________________________ Account Registration Financial Institution Account Number _______________________________ ____________________________________ Financial Institution Name Financial Institution Transit/Routing Number _______________________________ ____________________________________ Street City State Zip STEP 4 Section A DEPOSITORS AUTHORIZATION TO HONOR DEBITS IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B. I/We authorize the Financial Institution listed below to charge to my/our account any drafts or debits drawn on my/our account initiated by the Agent, Administrative Data Management Corp., and to pay such sums in accordance therewith, provided my/our account has sufficient funds to cover such drafts or debits. I/We further agree that your treatment of such orders will be the same as if I/we personally signed or initiated the drafts or debits. I/We understand that this authority will remain in effect until you receive my/our written instructions to cancel this service. I/We also agree that if any such drafts or debits are dishonored, for any reason, you shall have no liabilities. Financial Institution Account Number _______________________________________ Name and Address where my/our account is maintained Name of Financial Institution______________________________________________ Street Address_____________________________________________________________ City___________________________________________State _________ Zip ________ Name(s) and Signature(s) of Depositor(s) as they appear where account is registered ______________________________________________ (Please Print) X_____________________________________________ __________________ (Signature) (Date) ______________________________________________ (Please Print) X_____________________________________________ __________________ (Signature) (Date) INDEMNIFICATION AGREEMENT To: Financial Institution Named Above So that you may comply with your depositor's request, Aquila Distributors, Inc. (the "Distributor") agrees: 1 Electronic Funds Transfer debit and credit items transmitted pursuant to the above authorization shall be subject to the provisions of the Operating Rules of the National Automated Clearing House Association. 2 To indemnify and hold you harmless from any loss you may suffer in connection with the execution and issuance of any electronic debit in the normal course of business initiated by the Agent (except any loss due to your payment of any amount drawn against insufficient or uncollected funds), provided that you promptly notify us in writing of any claim against you with respect to the same, and further provided that you will not settle or pay or agree to settle or pay any such claim without the written permission of the Distributor. 3 To indemnify you for any loss including your reasonable costs and expenses in the event that you dishonor, with or without cause, any such electronic debit. STEP 4 Section B SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED - - The undersigned warrants that he/she has full authority and is of legal age to purchase shares of the Trust and has received and read a current Prospectus of the Trust and agrees to its terms. - - I/We authorize the Trust and its agents to act upon these instructions for the features that have been checked. - - I/We acknowledge that in connection with an Automatic Investment or Telephone Investment, if my/our account at the Financial Institution has insufficient funds, the Trust and its agents may cancel the purchase transaction and are authorized to liquidate other shares or fractions thereof held in my/our Trust account to make up any deficiency resulting from any decline in the net asset value of shares so purchased and any dividends paid on those shares. I/We authorize the Trust and its agents to correct any transfer error by a debit or credit to my/our Financial Institution account and/or Trust account and to charge the account for any related charges. I/We acknowledge that shares purchased either through Automatic Investment or Telephone Investment are subject to applicable sales charges. - - The Trust, the Agent and the Distributor and their Trustees, directors, employees and agents will not be liable for acting upon instructions believed to be genuine, and will not be responsible for any losses resulting from unauthorized telephone transactions if the Agent follows reasonable procedures designed to verify the identity of the caller. The Agent will request some or all of the following information: account name and number; name(s) and social security number registered to the account and personal identification; the Agent may also record calls. Shareholders should verify the accuracy of confirmation statements immediately upon receipt. Under penalties of perjury, the undersigned whose Social Security (Tax I.D.) Number is shown above certifies (i) that Number is my correct taxpayer identification number and (ii) currently I am not under IRS notification that I am subject to backup withholding (line out (ii) if under notification). If no such Number is shown, the undersigned further certifies, under penalties of perjury, that either (a) no such Number has been issued, and a Number has been or will soon be applied for; if a Number is not provided to you within sixty days, the undersigned understands that all payments (including liquidations) are subject to 31% withholding under federal tax law, until a Number is provided and the undersigned may be subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a citizen or resident of the U.S.; and either does not expect to be in the U.S. for 183 days during each calendar year and does not conduct a business in the U.S. which would receive any gain from the Trust, or is exempt under an income tax treaty. NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST, ALL TRUSTEES MUST SIGN.* __________________________ ____________________________ _________ Individual (or Custodian) Joint Registrant, if any Date __________________________ ____________________________ _________ Corporate Officer, Partner, Title Date Trustee, etc. * For Trust, Corporations or Associations, this form must be accompanied by proof of authority to sign, such as a certified copy of the corporate resolution or a certificate of incumbency under the trust instrument. SPECIAL INFORMATION - - Certain features (Automatic Investment, Telephone Investment, Expedited Redemption and Direct Deposit of Dividends) are effective 15 days after this form is received in good order by the Trust's Agent. - - You may cancel any feature at any time, effective 3 days after the Agent receives written notice from you. - - Either the Trust or the Agent may cancel any feature, without prior notice, if in its judgment your use of any feature involves unusual effort or difficulty in the administration of your account. - - The Trust reserves the right to alter, amend or terminate any or all features or to charge a service fee upon 30 days written notice to shareholders except if additional notice is specifically required by the terms of the Prospectus. BANKING INFORMATION - - If your Financial Institution account changes, you must complete a Ready Access features form which may be obtained from Aquila Distributors at 1-800-872-6734 and send it to the Agent together with a "voided" check or pre-printed deposit slip from the new account. The new Financial Institution change is effective in 15 days after this form is received in good order by the Trust's Agent. TERMS OF LETTER OF INTENT AND ESCROW By checking Box 2c and signing the Application, the investor is entitled to make each purchase at the public offering price applicable to a single transaction of the dollar amount checked above, and agrees to be bound by the terms and conditions applicable to Letters of Intent appearing below. The investor is making no commitment to purchase shares, but if the investor's purchases within thirteen months from the date of the investor's first purchase do not aggregate $25,000, or, if such purchases added to the investor's present holdings do not aggregate the minimum amount specified above, the investor will pay the increased amount of sales charge prescribed in the terms of escrow below. The commission to the dealer or broker, if any, named herein shall be at the rate applicable to the minimum amount of the investor's specified intended purchases checked above. If the investor's actual purchases do not reach this minimum amount, the commissions previously paid to the dealer will be adjusted to the rate applicable to the investor's total purchases. If the investor's purchases exceed the dollar amount of the investor's intended purchases and pass the next commission break-point, the investor shall receive the lower sales charge, provided that the dealer returns to the Distributor the excess of commissions previously allowed or paid to him over that which would be applicable to the amount of the investor's total purchases. The investor's dealer or broker shall refer to this Letter of Intent in placing any future purchase orders for the investor while this Letter is in effect. The escrow shall operate as follows: 1. Out of the initial purchase (or subsequent purchases if necessary), 3% of the dollar amount specified in the Letter of Intent (computed to the nearest full share) shall be held in escrow in shares of the Trust by the Agent. All dividends and any capital distributions on the escrowed shares will be credited to the investor's account. 2. If the total minimum investment specified under the Letter is completed within a thirteen-month period, the escrowed shares will be promptly released to the investor. However, shares disposed of prior to completion of the purchase requirement under the Letter will be deducted from the amount required to complete the investment commitment. 3. If the total purchases pursuant to the Letter are less than the amount specified in the Letter as the intended aggregate purchases, the investor must remit to the Distributor an amount equal to the difference between the dollar amount of sales charges actually paid and the amount of sales charges which would have been paid if the total amount purchased had been made at a single time. If such difference in sales charges is not paid within twenty days after receipt of a request from the Distributor or the dealer, the Distributor will, within sixty days after the expiration of the Letter, redeem the number of escrowed shares necessary to realize such difference in sales charges. Full shares and any cash proceeds for a fractional share remaining after such redemption will be released to the investor. The escrow of shares will not be released until any additional sales charge due has been paid as stated in this section. 4. By checking Box 2c and signing the Application, the investor irrevocably constitutes and appoints the Agent or the Distributor as his attorney to surrender for redemption any or all escrowed shares on the books of the Trust. AUTOMATIC WITHDRAWAL PLAN PROVISIONS By requesting an Automatic Withdrawal Plan, the applicant agrees to the terms and conditions applicable to such plans, as stated below. 1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as agent for the person (the "Planholder") who executed the Plan authorization. 2. Certificates will not be issued for shares of the Trust purchased for and held under the Plan, but the Agent will credit all such shares to the Planholder on the records of the Trust. Any share certificates now held by the Planholder may be surrendered unendorsed to the Agent with the application so that the shares represented by the certificate may be held under the Plan. 3. Dividends and distributions will be reinvested in shares of the Trust at Net Asset Value without a sales charge. 4. Redemptions of shares in connection with disbursement payments will be made at the Net Asset Value per share in effect at the close of business on the last business day of the month or quarter. 5. The amount and the interval of disbursement payments and the address to which checks are to be mailed may be changed, at any time, by the Planholder on written notification to the Agent. The Planholder should allow at least two weeks time in mailing such notification before the requested change can be put in effect. 6. The Planholder may, at any time, instruct the Agent by written notice (in proper form in accordance with the requirements of the then current Prospectus of the Trust) to redeem all, or any part of, the shares held under the Plan. In such case the Agent will redeem the number of shares requested at the Net Asset Value per share in effect in accordance with the Trust's usual redemption procedures and will mail a check for the proceeds of such redemption to the Planholder. 7. The Plan may, at any time, be terminated by the Planholder on written notice to the Agent, or by the Agent upon receiving directions to that effect from the Trust. The Agent will also terminate the Plan upon receipt of evidence satisfactory to it of the death or legal incapacity of the Planholder. Upon termination of the Plan by the Agent or the Trust, shares remaining unredeemed will be held in an uncertificated account in the name of the Planholder, and the account will continue as a dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder, his executor or guardian, or as otherwise appropriate. 8. The Agent shall incur no liability to the Planholder for any action taken or omitted by the Agent in good faith. 9. In the event that the Agent shall cease to act as transfer agent for the Trust, the Planholder will be deemed to have appointed any successor transfer agent to act as his agent in administering the Plan. 10.Purchases of additional shares concurrently with withdrawals are undesirable because of sales charges when purchases are made. Accordingly, a Planholder may not maintain this Plan while simultaneously making regular purchases. While an occasional lump sum investment may be made, such investment should normally be an amount equivalent to three times the annual withdrawal or $5,000, whichever is less. INVESTMENT ADVISER Qualivest Capital Management, Inc. A subsidiary of U.S. Bancorp and its subsidiary, United States National Bank of Oregon 111 S.W. Fifth Avenue U.S. Bancorp Tower Portland, Oregon 97204 ADMINISTRATOR Aquila Management Corporation 380 Madison Avenue, Suite 2300 New York, New York 10017 BOARD OF TRUSTEES Lacy B. Herrmann, Chairman Vernon R. Alden Warren C. Coloney James A. Gardner Diana P. Herrmann Ann R. Leven Raymond H. Lung Richard C. Ross OFFICERS Lacy B. Herrmann, President W. Dennis Cheroutes, Senior Vice President Sally Wilson Church, Vice President Nancy Kayani, Vice President Rose F. Marotta, Chief Financial Officer Richard F. West, Treasurer Edward M.W. Hines, Secretary DISTRIBUTOR Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300 New York, New York 10017 TRANSFER AND SHAREHOLDER SERVICING AGENT Administrative Data Management Corp. 581 Main Street Woodbridge, New Jersey 07095-1198 CUSTODIAN Bank One Trust Company, N.A. 100 East Broad Street Columbus, Ohio 43271 INDEPENDENT AUDITORS KPMG Peat Marwick LLP 345 Park Avenue New York, New York 10154 COUNSEL Hollyer Brady Smith Troxell Barrett Rockett Hines & Mone LLP 551 Fifth Avenue New York, New York 10176 TABLE OF CONTENTS Highlights Table Of Expenses Financial Highlights Introduction Investment Of The Trust's Assets Investment Restrictions Net Asset Value Per Share How To Invest In The Trust How To Redeem Your Investment Automatic Withdrawal Plan Management Arrangements Dividend And Tax Information Exchange Privilege General Information Application and Letter of Intent AQUILA [EAGLE LOGO] TAX-FREE TRUST OF OREGON [LOGO] A tax-free income investment A Series of The Cascades Trust PROSPECTUS One of The Aquilasm Group of Funds Aquila Tax-Free Trust of Oregon 380 Madison Avenue, Suite 2300 New York, New York 10017 800-USA-OREG (800-872-6734) 212-697-6666 Prospectus April 5, 1996 Institutional Class Shares Class Y Shares The Trust is a mutual fund whose objective is to seek to provide as high a level of current income exempt from Oregon and regular Federal income taxes as is consistent with preservation of capital by investing in municipal obligations which pay interest exempt from Oregon State and Federal income taxes. These municipal obligations must, at the time of purchase, either be rated within the four highest credit ratings (considered as investment grade) assigned by Moody's Investors Service, Inc. or Standard & Poor's Corporation, or, if unrated, be determined to be of comparable quality by the Trust's Adviser, Qualivest Capital Management, Inc., a subsidiary of U.S. Bancorp. There are three classes of shares of the Trust: Institutional Class Shares ("Class Y Shares") are offered only to institutions acting for investors in a fiduciary, advisory, agency custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are offered at net asset value with no sales charge no redemption fee, no contingent deferred sales charge and no distribution fee. (See "How to Purchase Class Y Shares.") The other classes, Front-Payment Class Shares ("Class A Shares") and Level-Payment Class Shares ("Class C Shares") are not offered by this prospectus. See "General Information - Description of Classes." This Prospectus concisely states information about the Trust that you should know before investing. A Statement of Additional Information about the Trust (the "Additional Statement") dated April 5, 1996, has been filed with the Securities and Exchange Commission and is available without charge upon written request to Administrative Data Management Corp., the Trust's Shareholder Servicing Agent, at the address given below, or by calling the telephone number(s) given below. The Additional Statement contains information about the Trust and its management not included in this Prospectus. The Additional Statement is incorporated by reference in its entirety in this Prospectus. Only when you have read both the Prospectus and the Additional Statement are all material facts about the Trust available to you. SHARES OF THE TRUST ARE NOT DEPOSITS IN, OBLIGATIONS OF OR GUARANTEED OR ENDORSED BY, QUALIVEST CAPITAL MANAGEMENT, INC., (THE "ADVISER"), UNITED STATES NATIONAL BANK OR OREGON, ANY OF THEIR AFFILIATES OR ANY OTHER BANK. SHARES OF THE TRUST ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY OR GOVERNMENT SPONSORED AGENCY OF THE FEDERAL GOVERNMENT OR ANY STATE. AN INVESTMENT IN THE TRUST INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. FOR PURCHASE, REDEMPTION OR ACCOUNT INQUIRIES CONTACT THE TRUST'S TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORP. 581 MAIN STREET, WOODBRIDGE, NJ 07095-1198 CALL 800-872-6735 TOLL FREE OR 908-855-5731 FOR GENERAL INQUIRIES & YIELD INFORMATION, CALL 800-872-6734 TOLL FREE OR 212-697-6666 This Prospectus Should Be Read and Retained For Future Reference THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. HIGHLIGHTS Tax-Free Trust of Oregon, founded by Aquila Management Corporation in 1985 and one of the Aquilasm Group of Funds, is an open-end mutual fund which invests in tax-free municipal bonds, the kind of obligations issued by the State of Oregon, its counties and various other local authorities to finance such long-term projects as schools, airports, roads, hospitals, water facilities and other vital public purpose projects throughout Oregon. (See "Introduction.") Tax-Free Income - The municipal obligations in which the Trust invests pay interest which is exempt from both regular Federal and State of Oregon income taxes. Dividends paid by the Trust from this income are likewise free of both such taxes. It is, however, possible that in certain circumstances a small portion of the dividends paid by the Trust will be subject to income taxes. The Federal alternative minimum tax may apply to some investors, but its impact will be limited since not more than 20% of the Trust's net assets can be invested in obligations paying interest which is subject to this tax. The receipt of exempt-interest dividends from the Trust may result in some portion of social security payments or railroad retirement benefits being included in taxable income. Capital gains distributions, if any, are taxable. (See "Dividend and Tax Information.") Investment Grade - The Trust will acquire only those municipal obligations which, at the time of purchase, are within the four highest credit ratings assigned by Moody's Investors Service, Inc. or Standard and Poor's Corporation, or are determined by the Adviser to be of comparable quality. In general there are nine separate credit ratings, ranging from the highest to the lowest credit ratings for municipal obligations. Obligations within the top four ratings are considered "investment grade," but those in the fourth rating may have speculative characteristics as well. (See "Investment of the Trust's Assets.") Initial Investment - You may open your account with any purchase of $1,000 or more or by opening an Automatic Investment Program which makes purchases of $50 or more each month. See the Application, which is in the back of the Prospectus. (See "How to Invest in the Trust," which includes applicable sales charge information.) Additional Investments - You may make additional investments at any time and in any amount, directly, or if in an amount of $50 or more, through the convenience of having your investment electronically transferred from your financial institution account into the Trust by Automatic Investment or Telephone Investment. (See "How to Invest in the Trust.") Alternative Purchase Plans - The Trust provides alternative ways to invest. (See "Description of the Trust and its Shares.") For this purpose the Trust offers classes of shares, which differ in their expense levels and sales charges: Institutional Class Shares ("Class Y Shares") are offered by this Prospectus. Class Y Shares are offered only to institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are offered at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge and no distribution fee. (See "How to Purchase Class Y Shares.") The other classes, Front-Payment Class Shares ("Class A Shares") and Level-Payment Class Shares ("Class C Shares") are not offered by this prospectus. See "General Information - Description of Classes." Monthly Income - Dividends are declared daily and paid monthly. At your choice, dividends are paid by check mailed to you, directly deposited into your financial institution account or automatically reinvested without sales charge in additional shares of the Trust at the then-current net asset value. Specific classes of shares will have different dividend amounts due to their particular expense levels. (See "Dividend and Tax Information.") Many Different Issues - You have the advantages of a portfolio which consists of over 195 issues with different maturities. (See "Investment of the Trust's Assets.") Local Portfolio Management - Qualivest Capital Management, Inc., a subsidiary of U.S. Bancorp ("Bancorp") and its subsidiary, United States National Bank of Oregon ("USNB"), serves as the Trust's Investment Adviser, providing experienced local professional management. The Trust pays fees at a rate of 0.20% of 1% of average annual net assets to its Adviser and fees at the same rate to its Administrator (for total fees at a rate of 0.40 of 1% of average annual net assets). (See "Table of Expenses," "Distribution Plan" and "Management Arrangements.") Bancorp is a $21 billion superregional financial services holding company organized under the laws of Oregon in 1968. USNB, headquartered in Portland, is a national banking association chartered in 1891. Other services of Bancorp and its subsidiaries include consumer financing, commercial finance, international banking, investment advisory, discount brokerage and venture capital. Redemptions - Liquidity - You may redeem any amount of your Class Y Shares account on any business day at the next determined net asset value by telephone, FAX or mail request, with proceeds being sent to a predesignated financial institution, if you have elected Expedited Redemption. Proceeds will be wired or transferred through the facilities of the Automated Clearing House, wherever possible, upon request, if in an amount of $1,000 or more, or will be mailed. For these and other redemption procedures see "How to Redeem Your Investment." There are no penalties or redemption fees for redemption of Class Y Shares. Certain Stabilizing Measures - The Trust will employ such traditional measures as varying maturities, upgrading credit standards for portfolio purchases, broadening diversification and increasing its position in cash, in an attempt to protect against declines in the value of its investments and other market risks. (See "Certain Stabilizing Measures.") Exchanges - You may exchange Class Y Shares of the Trust into Class Y Shares of other Aquila- sponsored tax-free municipal bond mutual funds or an equity fund. You may also exchange them into shares of the Aquila- sponsored money market funds. The exchange prices will be the respective net asset values of the shares. (See "Exchange Privilege.") Risks and Special Considerations - The share price, determined on each business day, varies with the market prices of the Trust's portfolio securities, which fluctuate with market conditions including prevailing interest rates. Accordingly, the proceeds of redemptions may be more or less than your original cost. (See "Factors Which May Affect the Value of the Trust's Investments and Their Yields.") The Trust's assets, being primarily or entirely Oregon issues, are subject to economic and other conditions affecting Oregon. (See "Risks and Special Considerations Regarding Investment in Oregon Obligations.") Moreover, the Trust is classified as a "non-diversified" investment company, because it may choose to invest in the obligations of a relatively limited number of issuers. (See "Investment of the Trust's Assets.") The Trust may also, to a limited degree, buy and sell futures contracts and options on futures contracts, although since inception the Trust has not done so and has no present intention to do so. There may be risks associated with these practices. (See "Certain Stabilizing Measures.") Statements and Reports - You will receive statements of your account monthly as well as each time you add to your account or take money out. Additionally, you will receive a Semi-Annual Report and an audited Annual Report.
TAX-FREE TRUST OF OREGON TABLE OF EXPENSES Class Y Shareholder Transaction Expenses Shares Maximum Sales Charge Imposed on Purchases None (as a percentage of the offering price) Maximum Sales Charge Imposed on Reinvested Dividends None Deferred Sales Charge None Redemption Fees None Exchange Fee None Annual Trust Operating Expenses (1) (as a percentage of average net assets) Investment Advisory Fee 0.20% All other expenses (2) 0.38% Administration Fee 0.20% Other Expenses (2) 0.18% Total Trust Operating Expenses (2) 0.58% Example (3) You would pay the following expenses on a $1,000 investment, assuming a 5% annual return and redemption at the end of each time period: 1 Year 3 Years 5 Years 10 Years $6 19 32 73 (1) Estimated based upon actual expenses incurred by the Trust during its most recent fiscal year. During that period, only Class A Shares were outstanding. (2) Does not reflect a 0.02% expense offset in custodian fees received for uninvested cash balances. Reflecting this offset, other expenses, all other expenses, and total Trust operating expenses for Class Y Shares would have been 0.16%, 0.36% and 0.56%, respectively. (3) The expense example is based upon the above annual Trust operating expenses. It is also based upon amounts at the beginning of each year which includes the prior year's assumed results. A year's results consist of an assumed 5% annual return less total annual operating expenses; the expense ratio was applied to an assumed average balance (the year's starting investment plus one-half the year's results). Each figure represents the cumulative expenses so determined for the period specified.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE SECURITIES AND EXCHANGE COMMISSION SPECIFIES THAT ALL MUTUAL FUNDS USE THE 5% ANNUAL RATE OF RETURN FOR PURPOSES OF PREPARING THE ABOVE EXAMPLE. The purpose of the above table is to assist the investor in understanding the various costs that an investor in the Trust will bear directly or indirectly. The assumed 5% annual return should not be interpreted as a prediction of an actual return, which may be higher or lower.
The following historical financial information applies only to shares of the Trust which have been designated Class A Shares, upon adoption of the class structure described in the Prospectus. Class A Shares are not offered by this Prospectus. Similar information does not exist for Class Y Shares which are offered by this Prospectus. TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD The following table of Financial Highlights as it relates to the five years ended September 30, 1995 has been audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon is included in the Trust's financial statements contained in its Annual Report, which are incorporated by reference into the Additional Statement. The information provided in the table should be read in conjunction with the financial statements and related notes. On April 23, 1990, Aquila Management Corporation, originally the Trust's Sub-Adviser and Administrator, became Administrator only. Year ended September 30, 1995 1994 1993 1992 1991 Net Asset Value, Beginning of Period $10.20 $10.95 $10.48 $10.15 $9.67 Income from Investment Operations: Net investment income 0.55 0.56 0.58 0.65 0.62 Net gain (loss) on securities (both realized and unrealized) 0.39 (0.75) 0.50 0.29 0.49 Total from Investment Operations 0.94 (0.19) 1.08 0.94 1.11 Less Distributions: Dividends from net investment income (0.55) (0.56) (0.58) (0.61) (0.63) Distributions from capital gains (0.04) - (0.03) - - Total Distributions (0.59) (0.56) (0.61) (0.61) (0.63) Net Asset Value, End of Period $10.55 $10.20 $10.95 $10.48 $10.15 Total Return (not reflecting sales load) 9.52% (1.77)% 10.64% 9.51% 11.83% Ratios/Supplemental Data Net Assets, End of Period (in thousands) $310,554 $316,317 $331,018 $249,953 $189,734 Ratio of Expenses to Average Net Assets 0.71% 0.68% 0.66% 0.66% 0.71% Ratio of Net Investment Income to Average Net Assets 5.38% 5.28% 5.46% 5.87% 6.30% Portfolio Turnover Rate 13% 11% 8% 11% 21% Net investment income per share and the ratios of income and expenses to average net assets before expense offset in custodian fees for uninvested cash balances would have been: Net Investment Income $0.55 $0.56 $0.58 $0.65 $0.62 Ratio of Expenses to Average Net Assets 0.73% 0.70% 0.68% 0.66% 0.73% Ratio of Net Investment Income to Average Net Assets 5.37% 5.26% 5.44% 5.87% 6.28% 1990 1989 1988 1987 1986 $9.76 $9.67 $9.11 $9.85 $9.60 0.66 0.73 0.61 0.65 0.17 (0.11) 0.01 0.60 (0.71) 0.25 0.55 0.74 1.21 (0.06) 0.42 (0.64) (0.65) (0.65) (0.68) (0.17) - - - - - (0.64) (0.65) (0.65) (0.68) (0.17) $9.67 $9.76 $9.67 $9.11 $9.85 5.76% 7.83% 13.66% (0.59)% 4.06% $140,713 $122,096 $102,361 $92,990 $36,117 0.71% 0.76% 0.80% 0.55% 0.61% 6.55% 6.61% 6.77% 6.88% 6.33% 25% 45% 24% 17% None $0.66 $0.73 $0.61 $0.62 $0.16 0.73% 0.78% 0.82% 0.83% 1.21% 6.53% 6.59% 6.75% 6.60% 5.73% For the period from June 16, 1986 (commencement of operations) to September 30, 1986. Not annualized. Annualized.
INTRODUCTION The Trust's shares are designed to be a suitable investment for investors who seek income exempt from Oregon State and regular Federal income taxes. You may invest in shares of the Trust as an alternative to direct investments in Oregon Obligations, as defined below, which may include obligations of certain non-Oregon issuers. The Trust offers you the opportunity to keep assets fully invested in a vehicle that provides a professionally managed portfolio of Oregon Obligations which may, but not necessarily will, be more diversified, higher yielding or more stable and more liquid than you might be able to obtain on an individual basis by direct purchase of Oregon Obligations. Through the convenience of a single security consisting of shares of the Trust, you are also relieved of the inconvenience associated with direct investments of fixed denominations, including the selecting, purchasing, handling, monitoring call provisions and safekeeping of Oregon Obligations. Oregon Obligations are a type of municipal obligation. Municipal obligations are issued by or on behalf of states, territories and possessions of the United States and their political subdivisions, agencies and instrumentalities to obtain funds for various public purposes. The two principal classifications of municipal obligations are "notes" and "bonds." Municipal notes are generally used to provide for short-term capital needs and generally have maturities of one year or less while municipal bonds have extended maturities. Municipal notes include: project notes, which sometimes carry a U.S. Government guarantee; tax anticipation notes; revenue anticipation notes; bond anticipation notes; construction loan notes and floating and variable rate demand notes. Municipal obligations include municipal lease/purchase agreements which are similar to installment purchase contracts for property or equipment. The purposes for which municipal obligations such as bonds are issued include the construction of a wide range of public facilities such as airports, highways, bridges, schools, hospitals, housing, mass transportation, streets and water and sewer works. Other public purposes for which municipal obligations may be issued include the refunding of outstanding obligations, the obtaining of funds for general operating expenses and the obtaining of funds to lend to other public institutions and facilities. The Trust is the only active portfolio of the Cascades Trust. INVESTMENT OF THE TRUST'S ASSETS In seeking its objective of providing as high a level of current income which is exempt from both Oregon State and regular Federal income taxes as is consistent with the preservation of capital, the Trust will invest in Oregon Obligations (as defined below). There is no assurance that the Trust will achieve its objective, which is a fundamental policy of the Trust. (See "Investment Restrictions.") As used in the Prospectus and the Additional Statement, the term "Oregon Obligations" means obligations, including those of certain non-Oregon issuers, of any maturity which pay interest which, in the opinion of bond counsel or other appropriate counsel, is exempt from regular Federal income taxes and not subject to Oregon income taxes. Although exempt from regular Federal income tax, interest paid on certain types of Oregon Obligations, and dividends which the Trust might pay from this interest, are preference items as to the Federal alternative minimum tax; for further information, see "Dividend and Tax Information." As a fundamental policy, at least 80% of the Trust's net assets will be invested in Oregon Obligations the income paid upon which will not be subject to the alternative minimum tax; accordingly, the Trust can invest up to 20% of its net assets in obligations which are subject to the Federal alternative minimum tax. The Trust may refrain entirely from purchasing these types of Oregon Obligations. (See "Dividend and Tax Information.") The non-Oregon bonds or other obligations the interest on which is exempt under present law from regular Federal and Oregon income taxes are the bonds or other obligations issued by or under the authority of Guam, the Northern Mariana Islands, Puerto Rico and the Virgin Islands. The Trust will not purchase Oregon Obligations of non-Oregon issuers unless Oregon Obligations of Oregon issuers of the desired quality, maturity and interest rate are not available. As an Oregon-oriented fund, at least 65% of the Trust's total assets will be invested in Oregon Obligations of Oregon issuers. The Trust invests only in Oregon Obligations and, possibly, in Futures and options on Futures (see below) for protective (hedging) purposes. In general, there are nine separate credit ratings ranging from the highest to the lowest quality standards for municipal obligations. So that the Trust will have a portfolio of quality oriented (investment grade) securities, the Oregon Obligations which the Trust will purchase must, at the time of purchase, either (i) be rated within the four highest credit ratings assigned by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"); or (ii) if unrated, be determined to be of comparable quality to municipal obligations so rated, by Qualivest Capital Management, Inc., the Trust's investment adviser (the "Adviser"), subject to the direction and control of the Trust's Board of Trustees. Municipal obligations rated in the fourth highest credit rating are considered by such rating agencies to be of medium quality and thus may present investment risks not present in more highly rated obligations. Such bonds lack outstanding investment characteristics and may in fact have speculative characteristics as well; changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case for higher grade bonds. If after purchase the rating of any rated Oregon Obligation is downgraded such that it could not then be purchased by the Trust, or, in the case of an unrated Oregon Obligation, if the Adviser determines that the unrated obligation is no longer of comparable quality to those rated obligations which the Trust may purchase, it is the current policy of the Trust to cause any such obligation to be sold as promptly thereafter as the Adviser in its discretion determines to be consistent with the Trust's objectives; such obligation remains in the Trust's portfolio until it is sold. In addition, because a downgrade often results in a reduction in the market price of a downgraded obligation, sale of such an obligation may result in a loss. See Appendix A to the Additional Statement for further information as to these ratings. The Trust can purchase industrial development bonds only if they meet the definition of Oregon Obligations, i.e., the interest on them is exempt from Oregon State and regular Federal income taxes. The Trust is classified as a "non-diversified" investment company under the Investment Company Act of 1940 (the "1940 Act"). The Trust also intends to continue to qualify as a "regulated investment company" under the Internal Revenue Code (the "Code"). One of the tests for such qualification under the Code is, in general, that at the end of each fiscal quarter of the Trust, at least 50% of its assets must consist of (i) cash; and (ii) securities which, as to any one issuer, do not exceed 5% of the value of the Trust's assets. If the Trust had elected to register under the 1940 Act as a "diversified" investment company, it would have to meet the same test as to 75% of its assets. The Trust may therefore not have as much diversification among securities, and thus diversification of risk, as if it had made this election under the 1940 Act. In general, the more the Trust invests in the securities of specific issuers, the more the Trust is exposed to risks associated with investments in those issuers. The Trust's assets, being primarily or entirely Oregon issues, are accordingly subject to economic and other conditions affecting Oregon. (See "Risk Factors and Special Considerations Regarding Investment in Oregon Obligations.") Certain Stabilizing Measures The Trust will employ such traditional measures as varying maturities, upgrading credit standards for portfolio purchases, broadening diversification and increasing its position in cash and cash equivalents in attempting to protect against declines in the value of its investments and other market risks. There can, however, be no assurance that these will be successful. Although the Trust has no current intention of using futures and options, to the limited degree described below, these may be used to attempt to hedge against changes in the market price of the Trust's Oregon Obligations caused by interest rate fluctuations. Futures and options could also provide a hedge against increases in the cost of securities the Trust intends to purchase. Although it does not currently do so, and since inception has not done so, the Trust may buy and sell futures contracts relating to indices on municipal bonds ("Municipal Bond Index Futures") and to U.S. government securities ("U.S. Government Securities Futures"); both kinds of futures contracts are "Futures." The Trust may also write and purchase put and call options on Futures. As a matter of fundamental policy the Trust will not buy or sell a Future or an option on a Future if thereafter more than 10% of its net assets would be in initial or variation margin on such Futures and options on them, and in premiums on such options. Under an applicable regulatory rule, the Trust will not enter into Futures or options for which the aggregate initial margins and premiums paid for options exceed 5% of the fair market value of the Trust's assets. (See the Additional Statement.) The primary risks associated with the use of Futures and options are: (i) imperfect correlation between the change in the market value of the securities held in the Trust's portfolio and the prices of Futures or options purchased or sold by the Trust; (ii) incorrect forecasts by the Adviser concerning interest rates which may result in the hedge being ineffective; and (iii) possible lack of a liquid secondary market for a Future or option; the resulting inability to close a Futures or options position could adversely affect the Trust's hedging ability. For a hedge to be completely effective, the price change of the hedging instrument should equal the price change of the security being hedged. The risk of imperfect correlation of these price changes is increased as the composition of the Trust's portfolio is divergent from the debt securities underlying the hedging instrument. To date, the Adviser has had no experience in the use of Futures or options on them. The liquidity of a secondary market in a Future may be adversely affected by "daily price fluctuation limits" established by commodity exchanges which restrict the amount of change in the contract price allowed during a single trading day. Thus, once a daily limit is reached, no further trades may be entered into beyond the limit, thereby preventing the liquidation of open positions. Prices have in the past reached the daily limit on a number of consecutive trading days. For further information about Futures and options, see the Additional Statement. When and if the Trust determines to use futures and options, the Prospectus will be supplemented. Floating and Variable Rate Demand Notes Floating and variable rate demand notes are tax-exempt obligations which may have a stated maturity in excess of one year, but permit the holder to demand payment of principal at any time, or at specified intervals not exceeding one year, in each case upon not more than 30-days' notice. The issuer of such notes normally has a corresponding right, after a given period, to prepay in its discretion the outstanding principal amount of the note plus accrued interest upon a specified number of days' notice to the noteholders. The interest rate on a floating rate demand note is based on a known lending rate, such as a bank's prime rate, and is adjusted automatically each time such rate is adjusted. The interest rate on a variable rate demand note is adjusted automatically at specified intervals. Participation Interests The Trust may purchase from financial institutions participation interests in Oregon Obligations (such as industrial development bonds and municipal lease/purchase agreements). A participation interest gives the Trust an undivided interest in the underlying Oregon Obligations in the proportion that the Trust's participation interest bears to the total amount of the underlying Oregon Obligations. All such participation interests must meet the Trust's credit requirements. See "Limitation to 10% as to Certain Investments." When-Issued and Delayed Delivery Purchases The Trust may buy Oregon Obligations on a when-issued or delayed delivery basis when it has the intention of acquiring them. The Oregon Obligations so purchased are subject to market fluctuation and no interest accrues to the Trust until delivery and payment take place; their value at the delivery date may be less than the purchase price. The Trust cannot enter into when-issued commitments exceeding in the aggregate 15% of the market value of the Trust's total assets, less liabilities other than the obligations created by when-issued commitments. If the Trust chooses to dispose of the right to acquire a when-issued obligation prior to its acquisition, it could, as with the disposition of any other portfolio holding, incur a gain or loss due to market fluctuation; any such gain would be a taxable short-term gain. The Trust places an amount of assets equal in value to the amount due on the settlement date for the when-issued or delayed delivery securities being purchased in a segregated account with the Custodian, which is marked to market every business day. See the Additional Statement for further information. Limitation to 10% as to Certain Investments The Trust cannot purchase Oregon Obligations that are not readily marketable if thereafter more than 10% of its net assets would consist of such investments. However, this 10% limit does not include any Oregon Obligations as to which the Trust can exercise the right to demand payment in full within three days and as to which there is a secondary market. Floating and variable rate demand notes and participation interests (including municipal lease/purchase obligations) are considered illiquid unless determined by the Board of Trustees to be readily marketable. (See the Additional Statement.) Current Policy as to Certain Obligations The Trust will not invest more than 25% of its total assets in (i) Oregon Obligations the interest on which is paid from revenues of similar type projects or (ii) industrial development bonds, unless the Prospectus and/or the Additional Statement are supplemented to reflect the change and to give additional information. Factors Which May Affect the Value of the Trust's Investments and Their Yields The value of the Oregon Obligations in which the Trust invests will fluctuate depending in large part on changes in prevailing interest rates. If the prevailing interest rates go up after the Trust buys Oregon Obligations, the value of these obligations will normally go down; if these rates go down, the value of these obligations will normally go up. Changes in value and yield based on changes in prevailing interest rates may have different effects on short-term Oregon Obligations than on long-term obligations. Long-term obligations (which often have higher yields) may fluctuate in value more than short-term ones. For this reason, the Trust may, to achieve a defensive position, shorten the average maturity of its portfolio. Risk Factors and Special Considerations Regarding Investment in Oregon Obligations The following is a discussion of the general factors that might influence the ability of Oregon issuers to repay principal and interest when due on the Oregon Obligations contained in the portfolio of the Trust. Such information is derived from sources that are generally available to investors and is believed by the Trust to be accurate, but has not been independently verified and may not be complete. Oregon's economy is substantially diversified among many industries. The lumber and forest products industry, an industry highly susceptible to recessionary cycles, has long been a significant component of the State's economy. However, a political environment supporting the reduction of logging on public lands has taken its toll on this industry and the pursuit of protection for the spotted owl and wild salmon runs have severely curtailed logging in certain areas. As employment in the lumber and forest products industries has declined, other industries have been picking up the slack. 1994 saw many manufacturing plants lured to the State. The ultimate decision of whether to locate in the State depends on a company's ability to secure property tax breaks from the county in which its plant will be located. A relatively new State property tax exemption program grants counties the right to offer property tax breaks for new plants costing more than $100 million to build. The principal sources of State tax revenues are the personal income and corporate income taxes; Oregon does not have a sales tax. Recent attempts to institute a sales tax have been unsuccessful. A recent attempt to introduce a "transaction tax" was unsuccessful. As a result, State tax revenues are particularly sensitive to economic recessions. In addition to general obligation bonds, the State and its political subdivisions issue revenue obligations payable from specific projects or sources, including lease rentals. There can be no assurance that a material downturn in the State's economy, with the resulting impact on the financial strength of State and local entities, will not adversely affect obligors of the obligations held in the Trust's portfolio to make the required payments on these obligations, and consequently, the market value of such obligations. Additionally, certain municipal securities held by the Trust may rely in whole or in part for repayment on ad valorem property taxes. There are existing limits under Oregon State law on the issuance of bonds supported by such taxes. In recent years several voter initiatives have sought to amend the State Constitution to "freeze" or roll back such taxes. On November 6, 1990, Oregon voters approved a property tax limitation measure. The adoption of the tax limitation measure may have an adverse effect on the general financial condition of cities, counties, school districts and other districts and may in some cases impair their ability to pay principal and interest on obligations. The tax limitation measure does permit tax levies to pay interest and principal on bonds issued on or before November 6, 1990, as well as indebtedness authorized by the Oregon Constitution (bonds issued by the State of Oregon under specific constitutional provisions), and general obligation bonds approved by the voters for capital construction or improvements. (See the Additional Statement for information about the tax limitation measure.) At present, it is difficult to assess the impact of the tax limitation measure, in part, because it will not be fully phased in until 1995-1996. In addition, the effect of this measure is also dependent on whether alternative revenue sources are obtained and, if so, the type and amount of such revenues. The adoption of the tax limitation measure may have an adverse effect on the general financial condition of affected cities, counties, school districts and other districts, and may, in some cases, impair their ability to pay obligations other than general obligation bonds. In addition, the adoption of the tax limitation measure will require the Legislature to provide funds from its general fund to replace tax revenues lost by the public school system through fiscal year 1995-96. This could have an adverse effect on the State's credit rating, particularly if alternative revenue sources are not obtained. Moreover, the tax limitation measure might contract the overall size of the Oregon municipal bond market and might have some adverse effect on the value of the Trust's portfolio. See the Additional Statement. The Oregon Constitution reserves to the people of the State initiative and referendum powers pursuant to which measures designed to amend the State Constitution or enact legislation can be placed on the statewide general election ballot for consideration by the voters. Over the past decade Oregon has witnessed increasing activity in the number of initiative petitions that have qualified for statewide general elections. From the 1988 elections through those of 1994, both the number of such petitions that qualified and the number of such petitions that were approved by the voters have increased. It is not possible to predict what petitions will qualify for submission to the voters in 1996 nor which will be approved. There is a relatively inactive market for municipal bonds of Oregon issuers other than the general obligations of the State itself. Consequently, the market price of such other bonds may be changeable. If the Trust were forced to sell a large volume of these bonds for any reason, such as redemptions of a large number of its shares, there is a risk that the large sale itself might adversely affect the value of the Trust's portfolio. INVESTMENT RESTRICTIONS The Trust has a number of policies about what it can and cannot do. Certain of these policies, identified in the Prospectus and Additional Statement as "fundamental policies," cannot be changed unless the holders of a "majority," as defined in the 1940 Act, of the Trust's outstanding shares vote to change them. (See the Additional Statement for a definition of such a majority.) All other policies can be changed from time to time by the Board of Trustees without shareholder approval. Some of the more important of the Trust's fundamental policies, not otherwise identified in the Prospectus, are set forth below; others are listed in the Additional Statement. 1. The Trust invests only in certain limited securities. The Trust cannot buy any securities other than the Oregon Obligations meeting the standards stated under "Investment of the Trust's Assets"; the Trust can also purchase and sell Futures and options on them within the limits there discussed. 2. The Trust has industry investment requirements. The Trust cannot buy the obligations of issuers in any one industry if more than 25% of its total assets would then be invested in securities of issuers of that industry; the Trust will consider that a non-governmental user of facilities financed by industrial development bonds is an issuer in an industry. 3. The Trust cannot make loans. The Trust can buy those Oregon Obligations which it is permitted to buy (see "Investment of the Trust's Assets"); this is investing, not making a loan. The Trust cannot lend its portfolio securities. 4. The Trust can borrow only in limited amounts for special purposes. The Trust can borrow from banks for temporary or emergency purposes but only up to 10% of its total assets. It can mortgage or pledge its assets only in connection with such borrowing and only up to the lesser of the amounts borrowed or 5% of the value of its total assets. However, this shall not prohibit margin arrangements in connection with the purchase or sale of Municipal Bond Index Futures, U.S. Government Securities Futures or options on them, or the payment of premiums on those options. The Trust will not borrow to purchase Oregon Obligations or to increase its income, but only to meet redemptions so that it will not have to sell Oregon Obligations to pay for redemptions. Interest on borrowings would reduce the Trust's income. Except in connection with borrowings, the Trust will not issue senior securities. The Trust will not purchase any Oregon Obligations, Futures or options on Futures while it has any outstanding borrowings which exceed 5% of the value of its total assets. NET ASSET VALUE PER SHARE The Trust's net asset value and offering price per share of each class are determined as of 4:00 p.m. New York time on each day that the New York Stock Exchange is open (a "business day"). The net asset value per share is determined by dividing the value of the net assets of the Trust (i.e., the value of the assets less liabilities) by the total number of shares outstanding. Determination of the value of the Trust's assets is subject to the direction and control of the Trust's Board of Trustees. In general, it is based on market value, except that Oregon Obligations maturing in 60 days or less are generally valued at amortized cost; see the Additional Statement for further information. HOW TO INVEST IN THE TRUST Institutional Class Shares (Class Y Shares) are offered only to institutional investors for investments held in a fiduciary, advisory, agency, custodial or similar capacity, or through them to their clients, and are not offered directly to retail customers. Class Y Shares are offered at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge and no distribution fee. How to Purchase Class Y Shares Class Y Shares of the Trust may be purchased through any investment broker or dealer (a "selected dealer") which has a sales agreement with Aquila Distributors, Inc. (the "Distributor") or through the Distributor. There are two ways to make an initial investment: (i) order the shares through your investment broker or dealer, if it is a selected dealer; or (ii) mail the Application with payment to Administrative Data Management Corp. (the "Agent") at the address on the Application. There is no sales charge on initial or subsequent investments. You are urged to complete an Application and send it to the Agent so that expedited shareholder services can be established at the time of your investment. The minimum initial investment for Class Y Shares is $1,000, except as otherwise stated in the Prospectus or Additional Statement. You may also make an initial investment of at least $50 by establishing an Automatic Investment Program for Automatic investments of at least $50 per month and paying at least $50. (See below and "Automatic Investment Program" in the Application.) Such investment must be drawn in United States dollars on a United States commercial or savings bank, credit union or a United States branch of a foreign commercial bank (each of which is a "Financial Institution"). You may make subsequent investments in Class Y Shares in any amount (unless you have an Automatic Withdrawal Plan). Your subsequent investment may be made through a selected dealer or by forwarding payment to the Agent, with the name(s) of account owner(s), the account number and the name of the Trust. With subsequent investments, please send the pre-printed stub attached to the Trust's confirmations. Subsequent investments of $50 or more in Class Y Shares can be made by electronic funds transfer from your demand account at a Financial Institution. To use electronic funds transfer for your purchases, your Financial Institution must be a member of the Automated Clearing House and the Agent must have received your completed Application designating this feature, or, after your account has been opened, a Ready Access Features form available from the Distributor or the Agent. A pre-determined amount can be regularly transferred for investment ("Automatic Investment"), or single investments can be made upon receipt by the Agent of telephone instructions from anyone ("Telephone Investment"). The maximum amount of each Telephone Investment is $50,000. Upon 30 days' written notice to shareholders, the Trust may modify or terminate these investment methods at any time or charge a service fee, although no such fee is currently contemplated. The offering price for Class Y Shares is the net asset value per share. The offering price determined on any day applies to all purchase orders received by the Agent from selected dealers that day, except that orders received by it after 4:00 p.m. New York time will receive that day's offering price only if such orders were received by selected dealers from customers prior to such time and transmitted to the Distributor prior to its close of business that day (normally 5:00 p.m. New York time); if not so transmitted, such orders will be filled at the next determined offering price. Selected dealers are required to transmit orders promptly. Investments by mail are made at the offering price next determined after receipt of the purchase order by the Agent. Purchase orders received on other than a business day will be executed on the next succeeding business day. Purchases by Automatic Investment and Telephone Investment will be executed on the first business day occurring on or after the date an order is considered received by the Agent at the price determined on that day. In the case of Automatic Investment your order will be executed on the date you specified for investment at the price determined on that day. If that day is not a business day your order will be executed at the price determined on the next business day. In the case of Telephone Investment your order will be filled at the next determined offering price. If your order is placed after the time for determining the net asset value of the Trust shares for any day it will be executed at the price determined on the following business day. The sale of shares will be suspended during any period when the determination of net asset value is suspended and may be suspended by the Distributor when the Distributor judges it in the Trust's best interest to do so. Possible Compensation for Dealers The Distributor, at its own expense, may also provide additional compensation to dealers in connection with sales of any class of shares of the Trust. Additional compensation may include payment or partial payment for advertising of the Trust's shares, payment of travel expenses, including lodging, incurred in connection with attendance at sales seminars taken by qualifying registered representatives to locations within or outside of the United States, other prizes or financial assistance to securities dealers in offering their own seminars or conferences. In some instances, such compensation may be made available only to certain dealers whose representatives have sold or are expected to sell significant amounts of such shares. Dealers may not use sales of the Trust's shares to qualify for the incentives to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the National Association of Securities Dealers, Inc. The cost to the Distributor of such promotional activities and such payments to participating dealers will not exceed the amount of the sales charges in respect of sales of all classes of shares of the Trust effected through such participating dealers, whether retained by the Distributor or reallowed to participating dealers. No such additional compensation to dealers in connection with sales of shares of the Trust will affect the price you pay for shares or the amount that the Trust will receive from such sales. Any of the foregoing payments to be made by the Distributor may be made instead by the Administrator out of its own funds, directly or through the Distributor. Brokers and Dealers may receive different levels of compensation for selling different classes of shares. Confirmations and Share Certificates All purchases of shares will be confirmed and credited to you in an account maintained for you at the Agent in full and fractional shares of the Trust (rounded to the nearest 1/1000th of a share). No Share certificates will be issued for Class Y Shares. The Trust and the Distributor reserve the right to reject any order for the purchase of shares. In addition, the offering of shares may be suspended at any time and resumed at any time thereafter. Distribution Plan The Trust has adopted a Distribution Plan (the "Plan") under Rule 12b-1 (the "Rule") under the 1940 Act. The Rule provides in substance that an investment company may not engage directly or indirectly in financing any activity which is primarily intended to result in the sale of its shares except pursuant to a written plan adopted under the Rule. No payments under the Plan from assets represented by Class Y Shares are authorized. The Plan contains provisions designed to protect against any claim against or involving the Trust that some of the expenses which might be considered to be sales-related which the Trust pays or may pay come within the purview of the Rule. The Trust believes that except for payments made with respect to Class A Shares and Class C Shares it is not financing any such activity and does not consider any payment enumerated in such provisions as so financing any such activity. If and to the extent that any payment as specifically listed in the Plan (see the Additional Statement) is considered to be primarily intended to result in or as indirect financing of any activity which is primarily intended to result in the sale of Trust shares, these payments are authorized under the Plan. In addition, if the Administrator, out of its own funds, makes payment for distribution expenses such payments are authorized. See the Additional Statement. HOW TO REDEEM YOUR INVESTMENT You may redeem all or any part of your Class Y Shares at the net asset value next determined after acceptance of your redemption request at the Agent. Redemptions can be made by the various methods described below. There is no minimum period for any investment in the Trust, except for shares recently purchased by check, Automatic Investment or Telephone Investment as discussed below. There are no redemption fees or penalties on redemption of Class Y Shares. A redemption may result in a transaction taxable to you. For your convenience the Trust offers expedited redemption for Class Y Shares to provide you with a high level of liquidity for your investment. Expedited Redemption Methods (Non-Certificate Shares) You have the flexibility of two expedited methods of initiating redemptions. They are available as to shares of any class not represented by certificates. 1. By Telephone. The Agent will accept instructions by telephone from anyone to redeem shares and make payments a) to a Financial Institution account you have predesignated or b) by check in the amount of $50,000 or less, mailed to you, if your shares are registered in your name at the Trust and the check is sent to your address of record, provided that there has not been a change of your address of record during the 30 days preceding your redemption request. You can make only one request for telephone redemption by check in any 7-day period. See "Redemption Payments", below for payment methods. Your name, your account number and your address of record must be supplied. To redeem an investment by this method, telephone: 800-872-6735 toll free or 908-855-5731 Note: The Trust, the Agent, and the Distributor will not be responsible for any losses resulting from unauthorized telephone transactions if the Agent follows reasonable procedures designed to verify the identity of the caller. The Agent will request some or all of the following information: account name(s) and number, name of the caller, the social security number registered to the account and personal identification. The Agent may also record calls. You should verify the accuracy of confirmation statements immediately upon receipt. 2. By FAX or Mail. You may also request redemption payments to a predesignated Financial Institution account by a letter of instruction sent to: Administrative Data Management Corp., Attn: Aquilasm Group of Funds, by FAX at 908-855-5730 or by mail at 581 Main Street, Woodbridge, NJ 07095-1198, indicating account name(s), account number, amount to be redeemed, and any payment directions, signed by the registered holder(s). Signature guarantees are not required. See "Redemption Payments," below for payment methods. If you wish to use the above procedures you should so elect on the Expedited Redemption section of the Application or the Ready Access Features form and provide the required information concerning your Financial Institution account number. The Financial Institution account must be in the exclusive name(s) of the shareholder(s) as registered with the Trust. You may change the designated Financial Institution account at any time by completing and returning a Ready Access Features form. For protection of your assets, this form requires signature guarantees and possible additional documentation. Regular Redemption Method If you own Class Y Shares registered on the books of the Trust, and you have not elected Expedited Redemption to a predesignated Financial Institution account, you must use the Regular Redemption Method. Under this redemption method you should send a letter of instruction to: Administrative Data Management Corp., Attn: Aquilasm Group of Funds, 581 Main Street, Woodbridge, NJ 07095-1198, containing: Account Name(s); Account Number; Dollar amount or number of shares to be redeemed or a statement that all shares held in the account are to be redeemed; Payment instructions (normally redemption proceeds will be mailed to your address as registered with the Trust); Signature(s) of the registered shareholder(s); and Signature guarantee(s), if required, as indicated below. For a redemption request to be in "proper form," the signature or signatures must be the same as in the registration of the account. In a joint account, the signatures of both shareholders are necessary. Signature guarantees may be required if sufficient documentation is not on file with the Agent. Additional documentation may be required where shares are held by certain types of shareholders such as corporations, partnerships, trustees or executors, or if redemption is requested by other than the shareholder of record. If redemption proceeds of $50,000 or less are payable to the record holder and are to be sent to the record address, no signature guarantee is required, except as noted above. In all other cases, signatures must be guaranteed by a member of a national securities exchange, a U.S. bank or trust company, a state-chartered savings bank, a federally chartered savings and loan association, a foreign bank having a U.S. correspondent bank, a participant in the Securities Transfer Association Medallion Program (STAMP), The Stock Exchanges Medallion Program (SEMP) or The New York Stock Exchange, Inc. Medallion Signature Program (MSP). A notary public is not an acceptable signature guarantor. Redemption Payments Redemption payments will ordinarily be mailed to you at your address of record. If you so request and the amount of your redemption proceeds is $1,000 or more, the proceeds will, wherever possible, be wired or transferred through the facilities of the Automated Clearing House to the Financial Institution account specified in the Expedited Redemption section of your Application or Ready Access Features form. The Trust may impose a charge, not exceeding $5.00 per wire redemption, after written notice to shareholders who have elected this redemption procedure. The Trust has no present intention of making this charge. Upon 30 days' written notice to shareholders, the Trust may modify or terminate the use of the Automated Clearing House to make redemption payments at any time or charge a service fee, although no such fee is presently contemplated. If any such changes are made, the Prospectus will be supplemented to reflect them. If you use a broker or dealer to arrange for a redemption, it may charge you a fee for this service. The Trust will normally make payment for all shares redeemed on the next business day (see "Net Asset Value Per Share") following acceptance of the redemption request made in compliance with one of the redemption methods specified above. Except as set forth below, in no event will payment be made more than seven days after acceptance of such a redemption request. However, the right of redemption may be suspended or the date of payment postponed (i) during periods when the New York Stock Exchange is closed for other than weekends and holidays or when trading on such Exchange is restricted as determined by the Securities and Exchange Commission by rule or regulation; (ii) during periods in which an emergency, as determined by the Securities and Exchange Commission, exists which causes disposal of, or valuation of the net asset value of, the portfolio securities to be unreasonable or impracticable; or (iii) for such other periods as the Securities and Exchange Commission may permit. Payment for redemption of shares recently purchased by check (irrespective of whether the check is a regular check or a certified, cashier's or official bank check) or by Automatic Investment or Telephone Investment may be delayed up to 15 days or until (i) the purchase check or Automatic Investment or Telephone Investment has been honored or (ii) the Agent has received assurances by telephone or in writing from the Financial Institution on which the purchase check was drawn, or from which the funds for Automatic Investment or Telephone Investment were transferred, satisfactory to the Agent and the Trust, that the purchase check or Automatic Investment or Telephone Investment will be honored. Possible delays in payment of redemption proceeds can be eliminated by using wire payments or Federal Reserve drafts to pay for purchases. If the Trustees determine that it would be detrimental to the best interests of the remaining shareholders of the Trust to make payment wholly or partly in cash, the Trust may pay the redemption price in whole or in part by the distribution in kind of securities from the portfolio of the Trust, in lieu of cash, in conformity with applicable rules of the Securities and Exchange Commission. See the Additional Statement for details. The Trust has the right to compel the redemption of shares held in any account if the aggregate net asset value of such shares is less than $500 as a result of shareholder redemptions or failure to meet the minimum investment level under an Automatic Purchase Program. If the Board elects to do this, shareholders who are affected will receive prior written notice and will be permitted 60 days to bring their accounts up to the minimum before this redemption is processed. AUTOMATIC WITHDRAWAL PLAN You may establish an Automatic Withdrawal Plan if you own or purchase shares Class Y Shares of the Trust having a net asset value of at least $5,000. Under an Automatic Withdrawal Plan you will receive a monthly or quarterly check in a stated amount, not less than $50. If such a plan is established, all dividends and distributions must be reinvested in your shareholder account. Redemption of shares to make payments under the Automatic Withdrawal Plan will give rise to a gain or loss for tax purposes. See the Automatic Withdrawal Plan provisions of the Application included in the Prospectus, the Additional Statement under "Automatic Withdrawal Plan," and "Dividend and Tax Information" below. MANAGEMENT ARRANGEMENTS The Board of Trustees The business and affairs of the Trust are managed under the direction and control of its Board of Trustees. The Additional Statement lists the Trust's Trustees and officers and provides further information about them. The Advisory Agreement Qualivest Capital Management, Inc. (the "Adviser"), a subsidiary of U.S. Bancorp, supervises the investment program of the Trust and the composition of its portfolio. The principal subsidiary of U.S. Bancorp is United States National Bank of Oregon. The services of the Adviser are rendered under an Investment Advisory Agreement (the "Advisory Agreement") which provides, subject to the control of the Board of Trustees, for investment supervision and for either keeping the accounting records of the Trust, including the computation of the net asset value per share and the dividends, or, at the Adviser's expense and responsibility, delegating these accounting duties in whole or in part to a company satisfactory to the Trust. The Advisory Agreement states that the Adviser shall, at its expense, provide to the Trust all office space and facilities, equipment and clerical personnel necessary for the carrying out of the Adviser's duties under the Advisory Agreement. Under the Advisory Agreement, the Adviser pays all compensation of those officers and employees of the Trust and of those Trustees, if any, who are affiliated with the Adviser. Under the Advisory Agreement, the Trust bears the cost of preparing and setting in type its prospectuses, statements of additional information, and reports to 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. Under the Advisory Agreement, all costs and expenses not expressly assumed by the Adviser or by the Administrator under the Administration Agreement or by the Trust's Distributor (principal underwriter) are paid by the Trust. The Advisory Agreement lists examples of such expenses borne by the Trust, the major categories of such expenses being: legal and audit expenses, custodian and or shareholder servicing agent fees and expenses, stock issuance and redemption costs, certain printing costs, registration costs of the Trust and its shares under Federal and State securities laws, interest, taxes and brokerage commissions, and non-recurring expenses, including litigation. Under the Advisory Agreement, the Trust agrees to pay the Adviser, and the Adviser agrees to accept as full compensation for all services rendered by the Adviser 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 0.25 of 1% of such net asset value provided, however, that for any day that the Trust pays or accrues a fee under the Distribution Plan of the Trust based upon the assets of the Trust, such annual fee is payable at the rate of 0.20 of 1% of all of the Trust's average annual net assets. (Since the Administrator also receives a fee from the Trust under the Administration Agreement, the total investment advisory and administration fees which the Trust pays are at the annual rate of 0.50 of 1% of such net assets, or, 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 above the Base Amount, at 0.40 of 1% of such net asset value; see below.) Effective July 1, 1995, such combined annual fees are payable at the rate of 0.40 of 1% of all of the Trust's average annual net assets 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 Adviser and the Administrator may, in order to attempt to achieve a competitive yield on the shares of the Trust, each waive all or part of any such fee. Under the Advisory Agreement, the Adviser agrees that the above fee shall be reduced, but not below zero, by an amount equal to one-half of the amount, if any, by which the total expenses of the Trust in any fiscal year, exclusive of taxes, interest and brokerage fees, shall exceed the lesser of (i) 2.5% of the first $30 million of average annual net assets of the Trust plus 2% of the next $70 million of such assets and 1.5% of its average annual net assets in excess of $100 million, or (ii) 25% of the Trust's total annual investment income. The Advisory Agreement contains provisions as to the allocation of the portfolio transactions of the Trust; see the Additional Statement. Under these provisions, the Adviser is authorized to consider sales of shares of the Trust or of any other investment company or companies having the same investment adviser, sub-adviser, administrator or principal underwriter as the Trust. The Administration Agreement Under an Administration Agreement (the "Administration Agreement"), Aquila Management Corporation as Administrator, at its own expense, provides office space, personnel, facilities and equipment for the performance of its functions thereunder and as is necessary in connection with the maintenance of the headquarters of the Trust and pays all compensation of the Trust's Trustees, officers and employees who are affiliated persons of the Administrator. Prior to April 23, 1990, Aquila Management Corporation acted as sub-adviser and administrator under a sub-advisory and administration agreement, performing substantially the same functions for the same compensation. Under the Administration Agreement, subject to the control of the Trust's Board of Trustees, the Administrator provides all administrative services to the Trust other than those relating to its investment portfolio and the maintenance of its accounting books and records. Such administrative services include but are not limited to maintaining books and records (other than accounting books and records) of the Trust, and overseeing all relationships between the Trust and its shareholder servicing 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 effective operation of the Trust and for the sale, servicing, or redemption of the Trust's shares. See the Additional Statement for a further description of functions listed in the Administration Agreement as part of such duties. Under the Administration Agreement, the Trust pays a fee payable monthly and computed on the net asset value of the Trust at the end of each business day at the annual rate of 0.25 of 1% of such net asset value provided, however, that for any day that the Trust pays or accrues a fee under the Distribution Plan of the Trust based upon the assets of the Trust, such annual fee is payable at the rate of 0.20 of 1% of all of the Trust's average annual net assets. The Administrator has agreed that the above fee shall be reduced, but not below zero, by an amount equal to one-half of the amount, if any, by which the total expenses of the Trust in any fiscal year, exclusive of taxes, interest and brokerage fees, exceed the lesser of (i) 2.5% of the first $30 million of average annual net assets of the Trust plus 2% of the next $70 million of such assets and 1.5% of its average annual net assets in excess of $100 million, or (ii) 25% of the Trust's total annual investment income. Information as to the Adviser, the Administrator and the Distributor The Adviser is a subsidiary of U.S. Bancorp ("Bancorp") and its subsidiary, United States National Bank of Oregon ("USNB"). Bancorp is a $21 billion superregional financial services holding company organized under the laws of Oregon in 1968. USNB, headquartered in Portland, is a national banking association, chartered in 1891. It offers a wide variety of full-service and commercial banking operations in over 200 locations in Oregon. Other services of Bancorp and it subsidiaries include mortgage banking, lease financing, consumer financing, commercial finance, international banking, investment advisory, insurance agency and credit life insurance services, discount brokerage and venture capital. As of September 30, 1994, the Adviser had under management nearly $5.2 billion in assets. See the Additional Statement as to the legality, under the Glass-Steagall Act, of the Adviser acting as the Trust's investment adviser. In general, under that Act, the Adviser will not, among other things, be involved in the promotion or distribution of shares of the Trust. Mr. Edgar M. Potts, with the position of Fixed-Income Manager, is the officer of the Adviser who manages the Trust's portfolio. He has served as such since the Trust's inception in 1986. He has been employed by the Adviser since 1977, before that by the Adviser's parent company, U.S. National Bank. He has 35 years of investment experience in those positions and in other financial institutions. He has a B.S. in economics from Georgetown University. Mr. Stephen J. Galiani is the backup portfolio manager. Mr. Galiani has been employed by the Adviser since 1994. He was president of Galiani Asset Management, a private investment advisory firm from 1990 to 1994. Prior to owning his own firm, Mr. Galiani was Vice President and Senior Portfolio Manager of the municipal bond mutual funds for the Keystone family of mutual funds with over $2 billion in municipal debt assets. Before managing Keystone mutual funds, Mr. Galiani was Vice President and Portfolio Manager of municipal bond portfolios for the Eaton Vance Corporation. Mr. Galiani has an MBA from Boston University, School of Management. The Trust's Administrator is founder and administrator to the Aquilasm Group of Funds, which consists of tax-free municipal bond funds, money market funds and an equity fund. As of December 31, 1995, these funds had aggregate assets of approximately $2.7 billion, of which approximately $1.9 billion consisted of assets of tax-free municipal bond funds. The Administrator, which was founded in 1984, is controlled by Mr. Lacy B. Herrmann (directly, through a trust and through share ownership by his wife). See the Additional Statement for information on Mr. Herrmann. For the fiscal year of the Trust ended September 30, 1995, fees of $729,908 were paid or accrued to each of the Adviser and the Administrator. The Distributor currently handles the distribution of the shares of thirteen funds (seven tax-free municipal bond funds, five money market funds 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. At the date of this Prospectus, there is a proposed transaction whereby all of the shares of the Distributor, which are currently owned by Mr. Herrmann, will be owned by certain directors and/or officers of the Administrator and/or the Distributor including Mr. Herrmann. DIVIDEND AND TAX INFORMATION Dividends and Distributions The Trust will declare all of its net income, as defined below, as dividends on every day, including weekends and holidays, on those shares outstanding for which payment was received by the close of business on the preceding business day. Net income for dividend purposes includes all interest income accrued by the Trust since the previous dividend declaration, including accretion of any original issue discount, less expenses paid or accrued. As such net income will vary, the Trust's dividends will also vary. Dividends and other distributions paid by the Trust with respect to all classes of the Trust's shares are calculated at the same time and in the same manner. In addition, the dividends of each class can vary because each class will bear certain class-specific charges. It is the Trust's present policy to pay dividends so that they will be received or credited by approximately the first day of each month. Shareholders may elect to have dividends deposited without charge by electronic funds transfers into an account at a Financial Institution which is a member of the Automated Clearing House by completing a Ready Access Features form. Redeemed shares continue to earn dividends through and including the day which is the earlier of (i) the day before the day on which the redemption proceeds are mailed, wired or transferred by the facilities of the Automated Clearing House by the Agent or paid by the Agent to a selected dealer; or (ii) the day which is the third day on which the New York Stock Exchange is open after the day on which the net asset value of the redeemed shares has been determined. (See "How To Redeem Your Investment.") Net investment income includes amounts of income from the Oregon Obligations in the Trust's portfolio which are allocated as "exempt-interest dividends." "Exempt-interest dividends" are exempt from regular Federal income tax. The allocation of "exempt-interest dividends" will be made by the use of one designated percentage applied uniformly to all income dividends declared during the Trust's tax year. Such designation will normally be made in the first month after the end of each of the Trust's fiscal years as to income dividends paid in the prior year. It is possible that in certain circumstances, a small portion of the dividends paid by the Trust will be subject to income taxes. During the Trust's fiscal year ended September 30, 1995, 98.98% of the Trust's dividends were "exempt-interest dividends." For the calendar year 1995, 0.74% of the total dividends paid were taxable as ordinary income and 1.76% were taxable as long-term capital gains. (These amounts relate to dividends on Class A Shares; no Class C Shares were outstanding during that period.) The percentage of income designated as tax-exempt for any particular dividend may be different from the percentage of the Trust's income that was tax-exempt during the period covered by the dividend. Distributions ("short-term gains distributions") from net realized short-term gains, if any, and distributions ("long-term gains distributions"), if any, from the excess of net long-term capital gains over net short-term capital losses realized through October 31st of each year and not previously paid out will be paid out after that date; the Trust may also pay supplemental distributions after the end of its fiscal year. If net capital losses are realized in any year, they are charged against capital and not against net investment income which is distributed regardless of gains or losses. The Trust may be required to impose backup withholding at a rate of 31% upon payment of redemptions to shareholders, and from short- and long-term gains distributions (if any) and any other distributions that do not qualify as "exempt- interest dividends," if shareholders do not comply with provisions of the law relating to the furnishing of taxpayer identification numbers and reporting of dividends. Unless you request otherwise by letter addressed to the Agent or by filing an appropriate application prior to a given ex-dividend date, dividends and distributions will be automatically reinvested in full and fractional shares of the Trust at net asset value on the record date for the dividend or distribution or other date fixed by the Board of Trustees. An election to receive cash will continue in effect until written notification of a change is received by the Agent. All shareholders, whether their dividends are received in cash or are being reinvested, will receive a monthly account summary indicating the current status of their investment. There is no fixed dividend rate. Corporate shareholders of the Trust are not entitled to any deduction for dividends received from the Trust. Tax Information The Trust qualified during its last fiscal year as a "regulated investment company" under the Code, and intends to continue to so qualify. If it does so qualify, it will not be liable for Federal income taxes on amounts paid by it as dividends and distributions. However, the Code contains a number of complex tests relating to such qualification and it is possible although not likely that the Trust might not meet one or more of these tests in any particular year. If it does not so qualify, it would be treated for tax purposes as an ordinary corporation, would receive no tax deduction for payments made to shareholders and would be unable to pay dividends or distributions which would qualify as "exempt-interest dividends" or "capital gains dividends," as discussed below. The Trust intends to qualify during each fiscal year under the Code to pay "exempt-interest dividends" to its shareholders. Exempt-interest dividends which are derived from net income earned by the Trust on Oregon Obligations will be excludable from gross income of the shareholders for regular Federal income tax purposes. Capital gains dividends are not included in exempt-interest dividends. Although "exempt-interest dividends" are not taxed, each taxpayer must report the total amount of tax-exempt interest (including exempt-interest dividends from the Trust) received or acquired during the year. The Omnibus Budget Reconciliation Act of 1993 requires that either gains realized by the Trust on the sale of municipal obligations acquired after April 30, 1993 at a price which is less than face or redemption value be included as ordinary income to the extent such gains do not exceed such discount or that the discount be amortized and included ratably in taxable income. There is an exception to the foregoing treatment if the amount of the discount is less than 0.25% of face or redemption value multiplied by the number of years from acquisition to maturity. The Trust will report such ordinary income in the years of sale or redemption rather than amortize the discount and report it ratably. To the extent the resultant ordinary taxable income is distributed to shareholders, it will be taxable to them as ordinary income. Capital gains dividends (net long-term gains over net short-term losses which the Trust distributes and so designates) are reportable by shareholders as long-term capital gains. This is the case whether the shareholder takes the distribution in cash or elects to have the distribution reinvested in Trust shares and regardless of the length of time the shareholder has held his or her shares. Capital gains are taxed at the same rates as ordinary income, except that for individuals, trusts and estates the maximum tax rate on capital gains distributions is 28% even if the applicable rate on ordinary income for such taxpayers is higher than 28%. Short-term gains, when distributed, are taxed to shareholders as ordinary income. Capital losses of the Trust are not distributed but carried forward by the Trust to offset gains in later years and thereby lessen the later-year capital gains dividends and amounts taxed to shareholders. The Trust's gains or losses on sales of Oregon Obligations will be long-term or short-term depending upon the length of time the Trust has held such obligations. Capital gains and losses of the Trust will also include gains and losses on Futures and options, if any, including gains and losses actually realized on sales and exchanges and gains and losses deemed to be realized. Those deemed to be realized are on Futures and options held by the Trust at year-end, which are "marked to the market," that is, deemed sold for fair market value. Net gains or losses realized and deemed realized on Futures and options will be reportable by the Trust as long-term to the extent of 60% of the gains or losses and short-term to the extent of 40% regardless of the actual holding period of such investments. Information as to the tax status of the Trust's dividends and distributions will be mailed to shareholders annually. Under the Code, interest on loans incurred by shareholders to enable them to purchase or carry shares of the Trust may not be deducted for regular Federal tax purposes. In addition, under rules used by the Internal Revenue Service for determining when borrowed funds are deemed used for the purpose of purchasing or carrying particular assets, the purchase of shares of the Trust may be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchase of shares. The receipt of exempt-interest dividends from the Trust by an individual shareholder may result in some portion of any social security payments or railroad retirement benefits received by the shareholder or the shareholder's spouse being included in taxable income. Persons who are "substantial users" (or persons related thereto) of facilities financed by industrial development bonds or private activity bonds should consult their own tax advisers before purchasing shares. While interest from all Oregon Obligations is tax-exempt for purposes of computing the shareholder's regular tax, interest from so-called private activity bonds issued after August 7, 1986, constitutes a tax preference for both individuals and corporations and thus will enter into a computation of the alternative minimum tax. Whether or not that computation will result in a tax will depend on the entire content of the taxpayer's return. The Trust will not invest in the types of Oregon Obligations which would give rise to interest that would be subject to alternative minimum taxation if more than 20% of its net assets would be so invested, and may refrain from investing in that type of bond completely. The 20% limit is a fundamental policy of the Trust. Corporate shareholders must add to or subtract from alternative minimum taxable income, as calculated before taking into consideration this adjustment, 75% of the difference between what is called adjusted current earnings (essentially current earnings and profits) and alternative minimum taxable income, as previously calculated. Since tax-exempt bond interest is included in earnings and profits and therefore in adjusted current earnings, this adjustment will tend to make it more likely that corporate shareholders will be subject to the alternative minimum tax. As of the date of the Prospectus, Congress is considering a number of changes affecting taxation. It is not possible to predict which, if any, of such changes will become law. Tax Effects of Redemptions Normally, when you redeem shares of the Trust you will recognize capital gain or loss measured by the difference between the proceeds received in the redemption and the amount you paid for the shares. The gain or loss will be long-term if you held the redeemed shares for over a year, and short-term, if for a year or less. However, if shares held for six months or less are redeemed and you have a loss, two special rules apply: the loss is reduced by the amount of exempt-interest dividends, if any, which you received on the redeemed shares, and any loss over and above the amount of such exempt-interest dividends is treated as a long-term loss to the extent you have received capital gains dividends on the redeemed shares. Oregon Tax Information Individual shareholders of the Trust, resident in Oregon, will not be subject to Oregon personal income tax on distributions received from the Trust to the extent such distributions are attributable to interest on tax-exempt obligations of the State of Oregon and its political subdivisions and authorities or on obligations issued by or under the authority of the governments of Puerto Rico, the Virgin Islands, Guam and the Northern Mariana Islands, provided that the Trust complies with the requirement of the Code that at least 50% of its assets at the close of each quarter of its taxable year is invested in state, municipal or other obligations the interest on which is exempt from federal income tax under Section 103(a) thereof. Other distributions from the Trust, including all long-term and short-term capital gains, will generally not be exempt from Oregon income tax. Trust distributions are expected to be fully includable in income in determining the Oregon excise tax on corporations. Shares of the Trust will not be subject to the Oregon property tax. Shareholders of the Trust should consult their tax advisers about other state and local tax consequences of their investment in the Trust. EXCHANGE PRIVILEGE There is an exchange privilege as set forth below among this Trust and certain tax-free municipal bond funds and an equity fund (the "Bond or Equity Funds") and certain money market funds (the "Money-Market Funds"), all of which are sponsored by Aquila Management Corporation and Aquila Distributors, Inc., and have the same Administrator and Distributor as the Trust. All exchanges are subject to certain conditions described below. As of the date of the Prospectus, the Aquila-sponsored Bond or Equity Funds are this Trust, Aquila Rocky Mountain Equity Fund, Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky, Tax-Free Fund For Utah and Narragansett Insured Tax-Free Income Fund; the Aquila Money-Market Funds are Capital Cash Management Trust, Pacific Capital Cash Assets Trust (Original Shares), Pacific Capital Tax-Free Cash Assets Trust (Original Shares), Pacific Capital U.S. Treasuries Cash Assets Trust (Original Shares) and Churchill Cash Reserves Trust. Class Y Shares of the Trust may be exchanged only for Class Y Shares of the Bond or Equity Funds or for shares of a Money- Market Fund. Under the Class Y exchange privilege, once Class Y Shares of any Bond or Equity Fund have been purchased, those shares (and any shares acquired as a result of reinvestment of dividends and/or distributions) may be exchanged any number of times between Money-Market Funds and Class Y Shares of the Bond or Equity Funds without the payment of any sales charge. The "Class Y Eligible Shares" of any Bond or Equity Fund are those shares which were (a) acquired by direct purchase including by exchange by an institutional investor from a Money- Market Fund, or which were received in exchange for shares of Class Y Shares another Bond or Equity Fund; or (b) acquired as a result of reinvestment of dividends and/or distributions on otherwise Class Y Eligible Shares. Shares of a Money-Market Fund not acquired in exchange of Class Y Eligible Shares of a Bond or Equity Fund can be exchanged for Class Y Shares of a Bond or Equity Fund only by persons eligible to make an initial purchase of Class Y Shares. This Trust, as well as the Money-Market Funds and 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 are at least equal to the minimum investment requirements of the investment company whose shares are being acquired and (iii) the ownership of the accounts from which and to which the exchange is made are identical. The Agent will accept telephone exchange instructions from anyone. To make a telephone exchange telephone: 800-872-6735 toll free or 908-855-5731 Note: The Trust, the Agent, and the Distributor will not be responsible for any losses resulting from unauthorized telephone transactions if the Agent follows reasonable procedures designed to verify the identity of the caller. The Agent will request some or all of the following information: account name(s) and number, name of the caller, the social security number registered to the account and personal identification. The Agent may also record calls. You should verify the accuracy of confirmation statements immediately upon receipt. Exchanges of Class Y Shares will be effected at the relative net asset values of the Class Y Shares being exchanged next determined after receipt by the Agent of your exchange request. Prices for exchanges are determined in the same manner as for purchases of the Trust's shares. See "How to Invest in the Trust". An exchange is treated for Federal tax purposes as a redemption and purchase of shares and may result in the realization of a capital gain or loss, depending on the cost or other tax basis of the shares exchanged and the holding period (see the Additional Statement); no representation is made as to the deductibility of any such loss should such occur. Dividends paid by the Money-Market Funds are taxable, except to the extent that a portion or all of the dividends paid by Pacific Capital Tax-Free Cash Assets Trust (a tax-free Money-Market Fund) are exempt from regular Federal income tax, and to the extent that a portion or all of the dividends paid by Pacific Capital U.S. Treasuries Cash Assets Trust (which invests in U.S. Treasury obligations) are exempt from state income taxes. Dividends paid by Aquila Rocky Mountain Equity Fund are taxable. If your state of residence is not the same as that of the issuers of obligations in which a tax-free municipal Bond Fund or a tax-free Money-Market Fund invests, the dividends from that fund may be subject to income tax of the state in which you reside. Accordingly, you should consult your tax adviser before acquiring shares of such a Bond Fund or a tax-free Money-Market Fund under the exchange privilege arrangement. If you are considering an exchange into one of the funds listed above, you should send for and carefully read its Prospectus. GENERAL INFORMATION Performance Advertisements, sales literature and communications to shareholders may contain various measures of the Trust's performance including current yield, taxable equivalent yield, various expressions of total return, current distribution rate and taxable equivalent distribution rate. Average annual total return figures, as prescribed by the Securities and Exchange Commission, represent the average annual percentage change in value of a hypothetical $1,000 purchase, invested at the maximum public offering price (offering price includes the applicable sales charge) for 1- and 5-year periods and for a period since the inception of the Trust, to the extent applicable, through the end of such periods, assuming reinvestment (without sales charge) of all distributions. The Trust may also furnish total return quotations for other periods or based on investments at various applicable sales charge levels or at net asset value. For such purposes total return equals the total of all income and capital gains paid to shareholders, assuming reinvestment of all distributions, plus (or minus) the change in the value of the original investment, expressed as a percentage of the purchase price. See the Additional Statement. Current yield reflects the income per share earned by each of the Trust's portfolio investments; it is calculated by (i) dividing the Trust's net investment income per share during a recent 30-day period by (ii) the maximum public offering price on the last day of that period and by (iii) annualizing the result. Taxable equivalent yield shows the yield from a taxable investment that would be required to produce an after-tax yield equivalent to that of the Trust, which invests in tax-exempt obligations. It is computed by dividing the tax-exempt portion of the Trust's yield (calculated as indicated) by one minus a stated income tax rate and by adding the product to the taxable portion (if any) of the Trust's yield. See the Additional Statement. Current yield and taxable equivalent yield, which are calculated according to a formula prescribed by the Securities and Exchange Commission (see the Additional Statement), are not indicative of the dividends or distributions which were or will be paid to the Trust's shareholders. Dividends or distributions paid to shareholders are reflected in the current distribution rate or taxable equivalent distribution rate which may be quoted to shareholders. The current distribution rate is computed by (i) dividing the total amount of dividends per share paid by the Trust during a recent 30-day period by (ii) the current maximum offering price and by (iii) annualizing the result. A taxable equivalent distribution rate shows the taxable distribution rate that would be required to produce an after-tax distribution rate equivalent to the Trust's distribution rate (calculated as indicated above). The current distribution rate, unlike yield figures, is not limited to investment performance, but takes into account expenses as well; it also differs from the current yield computation because it could include distributions to shareholders from sources, if any, other than dividends and interest, such as short-term capital gains or return of capital. If distribution rates are quoted in advertising, they will be accompanied by calculations of current yield in accordance with the formula of the Securities and Exchange Commission. In each case performance figures are based upon past performance, reflect as appropriate all recurring charges against the Trust's income net of fee waivers and reimbursement of expenses, if any, and will assume the payment of the maximum sales charge on the purchase of shares, but not on reinvestment of income dividends. The investment results of the Trust, like all other investment companies, will fluctuate over time; thus, performance figures should not be considered to represent what an investment may earn in the future or what the Trust's yield, tax equivalent yield, distribution rate, taxable equivalent distribution rate or total return may be in any future period. The annual report of the Trust contains additional performance information that will be made available upon request and without charge. Description of the Trust and its Shares The Trust is a series of The Cascades Trust (the "Business Trust") formed in 1985 under the name Tax-Free Trust of Oregon. On August 10, 1989, the name of the Business Trust was changed to The Cascades Trust. The Business Trust presently has only one active series, the original series, which continues to be called Tax-Free Trust of Oregon. The Business Trust is an open-end, non-diversified management investment company organized as a Massachusetts business trust. (See "Investment of the Trust Assets" above for further information about the Trust's status as "non-diversified"). The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares and to divide or combine the shares into a greater or lesser number of shares without thereby changing the proportionate beneficial interests in the Business Trust. Each share represents an equal proportionate interest in the Trust with each other share of its class; shares of the respective classes represent proportionate interests in the Trust in accordance with their respective net asset values. Income, direct liabilities and direct operating expenses of each series will be allocated directly to each series, and general liabilities and expenses, if any, of the Business Trust will be allocated among the series in a manner acceptable to the Board of Trustees. Upon liquidation of a series, shareholders of the series are entitled to share pro-rata in the net assets of that series available for distribution to shareholders and upon liquidation of the Business Trust, the respective series are entitled to share proportionately in the assets available to the Business Trust after allocation to the various series. Shareholders of each series 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 that series classes at that time. All shares are presently divided into three classes; however, if they deem it advisable and in the best interests of shareholders, the Board of Trustees of the Trust may create additional classes of shares (subject to rules and regulations of the Securities and Exchange Commission or by exemptive order) or the Board of Trustees may, at its own discretion, create additional series of shares, each of which may have separate assets and liabilities (in which case any such series will have a designation including the word "Series"). See the Additional Statement for further information about possible additional series. Shares are fully paid and non-assessable, except as set forth under the caption "General Information" in the Additional Statement; the holders of shares have no pre-emptive or conversion rights. The other two classes of shares of the Trust are Front- Payment Class Shares ("Class A Shares") and Level-Payment Class Shares ("Class C Shares"), which are fully described in a separate prospectus that can be obtained by calling the Trust at 800-872- 6735. The primary distinction among the Trust's three classes of shares lies in their different sales charge structures and ongoing expenses, which are likely to be reflected in differing yields and other measures of investment performance. All three 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 Distribution Plan and has exclusive voting rights with respect to its Plan. There are no Distribution fees with respect to Class Y Shares. Dividends and other distributions paid by the Trust with respect to shares of each Class are calculated in the same manner and at the same time, but may differ depending upon the distribution and service fees, if any, and other class-specific expenses borne by each Class. The Trust's Distribution Plan has three parts. In addition to the defensive provisions described above, Parts I and II of the Plan authorize payments, to certain "Qualified Recipients," out of the Trust assets allocable to the Class A Shares and Class C Shares, respectively. See the Additional Statement. The Trust has also adopted a Shareholder Services Plan under which the Trust is authorized to make certain payments out of the Trust assets allocable to the Class C Shares. See the Additional Statement. Ownership of Shares of the Trust As of April 2, 1996, BHC Securities, Inc., 2005 Market Street, Philadelphia, PA held of record 2,590,644 shares (9.7%) of the Trust and Merrill Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561, New Brunswick, NJ held of record 2,590,644 shares (8.9%) of the Trust, all of which were Class A Shares. The Trust's management is not aware of any other person owning of record or beneficially 5% or more of the Trust's outstanding shares as of that date. On the basis of information received from those record owners, the Trust's management believes that all of such shares are held for the benefit of brokerage clients. Voting Rights At any meeting of shareholders, shareholders are entitled to one vote for each dollar of net asset value (determined as of the record date for the meeting) per share held (and proportionate fractional votes for fractional dollar amounts). Shareholders will vote on the election of Trustees and on other matters submitted to the vote of shareholders. Shares vote by classes on any matter specifically affecting one or more classes, such as an amendment of an applicable part of the Distribution Plan. Rule 18f-2 under the Investment Company Act of 1940 provides that matters submitted to shareholders affecting any series must be approved by a majority of the outstanding voting securities of such series, voting separately from the other series, unless it is clear that the interests of each series in the matter are identical or the matter does not affect a series. However, the rule exempts the selection of accountants and the election of Trustees from the separate voting requirement. No amendment may be made to the Declaration of Trust without the affirmative vote of the holders of a majority of the outstanding shares of the Trust, except that the Trust's Board of Trustees may change the name of the Trust. The Trust may be terminated (i) upon the sale of its assets to another issuer, or (ii) upon liquidation and distribution of the assets of the Trust, in either case if such action is approved by the vote of the holders of a majority of the outstanding shares of the Trust. If not so terminated, the Trust will continue indefinitely. APPLICATION FOR TAX-FREE TRUST OF OREGON FOR CLASS Y SHARES ONLY PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO: ADM, ATTN: AQUILA SM GROUP OF FUNDS 581 MAIN STREET, WOODBRIDGE, NJ 07095-1198 1-800-872-6735 STEP 1 A. ACCOUNT REGISTRATION ___Individual Use line 1 ___Joint Account* Use lines 1&2 ___For a Minor Use line 3 ___For Trust, Corporation, Partnership or other Entity Use line 4 * Joint Accounts will be Joint Tenants with rights of survivorship unless otherwise specified. ** Uniformed Gifts/Transfers to Minors Act. Please type or print name exactly as account is to be registered 1.________________________________________________________________ First Name Middle Initial Last Name Social Security Number 2.________________________________________________________________ First Name Middle Initial Last Name Social Security Number 3.________________________________________________________________ Custodian's First Name Middle Initial Last Name Custodian for ____________________________________________________ Minor's First Name Middle Initial Last Name Under the ___________UGTMA** _____________________________________ Name of State Minors Social Security Number 4. ____________________________________________________ ____________________________________________________ (Name of Corporation or Partnership. If a Trust, include the name(s) of Trustees in which account will be registered and the name and date of the Trust Instrument. Account for a Pension or Profit Sharing Plan or Trust may be registered in the name of the Plan or Trust itself.) ___________________________________________________________________ Tax I.D. Number Authorized Individual Title B. MAILING ADDRESS AND TELEPHONE NUMBER ____________________________________________________ Street or PO Box City _______________________________(______)______________ State Zip Daytime Phone Number Occupation:________________________Employer:________________________ Employers Address:__________________________________________________ Street Address: City State Zip Citizen or resident of: ___ U.S. ___ Other Check here ___ if you are a non-U.S. Citizen or resident and not subject to back-up withholding (See certification in Step 4, Section B, below.) C. INVESTMENT DEALER OR BROKER: (Important - to be completed by Dealer or Broker) _______________________ _____________________________ Dealer Name Branch Number _______________________ _____________________________ Street Address Rep. Number/Name _______________________ (_______)_____________________ City State Zip Area Code Telephone STEP 2 PURCHASES OF SHARES A. INITIAL INVESTMENT Indicate Method of Payment (For either method, make check payable to: TAX-FREE TRUST OF OREGON) ___Initial Investment $ ______________ (Minimum investment $1,000) ___Automatic Investment $______________ (Minimum $50) For Automatic Investment of at least $50 per month, you must complete Step 3, Section A, Step 4, Sections A & B and ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK. B. DISTRIBUTIONS All income dividends and capital gains distributions are automatically reinvested in additional shares at Net Asset Value unless otherwise indicated below. Dividends are to be:___ Reinvested ___Paid in cash* Capital Gains Distributions are to be: ___ Reinvested ___ Paid in cash* * For cash dividends, please choose one of the following options: ___ Deposit directly into my/our Financial Institution account. ATTACHED IS A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK showing the Financial Institution account where I/we would like you to deposit the dividend. (A Financial Institution is a commercial bank, savings bank or credit union.) ___ Mail check to my/our address listed in Step 1. STEP 3 SPECIAL FEATURES A. AUTOMATIC INVESTMENT PROGRAM (Check appropriate box) ___ Yes ___ No This option provides you with a convenient way to have amounts automatically drawn on your Financial Institution account and invested in your Tax-Free Trust of Oregon Account. To establish this program, please complete Step 4, Sections A & B of this Application. I/We wish to make regular monthly investments of $ _________________ (minimum $50) on the ___ 1st day or ___ 16th day of the month (or on the first business day after that date). (YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK) B. TELEPHONE INVESTMENT (Check appropriate box) ___ Yes ___ No This option provides you with a convenient way to add to your account (minimum $50 and maximum $50,000) at any time you wish by simply calling the Trust toll-free at 1-800-872-6735. To establish this program, please complete Step 4, Sections A & B of this Application. (YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK) C. AUTOMATIC WITHDRAWAL PLAN (Minimum investment $5,000) Application must be received in good order at least 2 weeks prior to 1st actual liquidation date. (Check appropriate box) ___ Yes ___ No Please establish an Automatic Withdrawal Plan for this account, subject to the terms of the Automatic Withdrawal Plan Provisions set forth below. To realize the amount stated below, Administrative Data Management Corp. (the Agent) is authorized to redeem sufficient shares from this account at the then current Net Asset Value, in accordance with the terms below: Dollar Amount of each withdrawal $ ______________beginning________________ . Minimum: $50 Month/Year Payments to be made: ___ Monthly or ___ Quarterly Checks should be made payable as indicated below. If check is payable to a Financial Institution for your account, indicate Financial Institution name, address and your account number. _______________________________ ______________________________________ First Name Middle Initial Last Name Financial Institution Name _______________________________ ______________________________________ Street Financial Institution Street Address _______________________________ ______________________________________ City State Zip City State Zip ____________________________________ Financial Institution Account Number D. TELEPHONE EXCHANGE (Check appropriate box) ___ Yes ___ No This option allows you to effect exchanges among accounts in your name within the Aquila SM Group of Funds by telephone. The Agent is authorized to accept and act upon my/our or any other persons telephone instructions to execute the exchange of shares of one Aquila-sponsored fund for shares of another Aquila-sponsored fund with identical shareholder registration in the manner described in the Prospectus. Except for gross negligence in acting upon such telephone instructions to execute an exchange, and subject to the conditions set forth herein, I/we understand and agree to hold harmless the Agent, each of the Aquila Funds, and their respective officers, directors, trustees, employees, agents and affiliates against any liability, damage, expense, claim or loss, including reasonable costs and attorneys fees, resulting from acceptance of, or acting or failure to act upon, this Authorization. E. EXPEDITED REDEMPTION (Check appropriate box) ___ Yes ___ No The proceeds will be deposited to your Financial Institution account listed. Cash proceeds in any amount from the redemption of shares will be mailed or wired, whenever possible, upon request, if in an amount of $1,000 or more to my/our account at a Financial Institution. The Financial Institution account must be in the same name(s) as this Trust account is registered. (YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK). _______________________________ ____________________________________ Account Registration Financial Institution Account Number _______________________________ ____________________________________ Financial Institution Name Financial Institution Transit/Routing Number _______________________________ ____________________________________ Street City State Zip STEP 4 Section A DEPOSITORS AUTHORIZATION TO HONOR DEBITS IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B. I/We authorize the Financial Institution listed below to charge to my/our account any drafts or debits drawn on my/our account initiated by the Agent, Administrative Data Management Corp., and to pay such sums in accordance therewith, provided my/our account has sufficient funds to cover such drafts or debits. I/We further agree that your treatment of such orders will be the same as if I/we personally signed or initiated the drafts or debits. I/We understand that this authority will remain in effect until you receive my/our written instructions to cancel this service. I/We also agree that if any such drafts or debits are dishonored, for any reason, you shall have no liabilities. Financial Institution Account Number _______________________________________ Name and Address where my/our account is maintained Name of Financial Institution______________________________________________ Street Address_____________________________________________________________ City___________________________________________State _________ Zip ________ Name(s) and Signature(s) of Depositor(s) as they appear where account is registered ______________________________________________ (Please Print) X_____________________________________________ __________________ (Signature) (Date) ______________________________________________ (Please Print) X_____________________________________________ __________________ (Signature) (Date) INDEMNIFICATION AGREEMENT To: Financial Institution Named Above So that you may comply with your depositor's request, Aquila Distributors, Inc. (the "Distributor") agrees: 1 Electronic Funds Transfer debit and credit items transmitted pursuant to the above authorization shall be subject to the provisions of the Operating Rules of the National Automated Clearing House Association. 2 To indemnify and hold you harmless from any loss you may suffer in connection with the execution and issuance of any electronic debit in the normal course of business initiated by the Agent (except any loss due to your payment of any amount drawn against insufficient or uncollected funds), provided that you promptly notify us in writing of any claim against you with respect to the same, and further provided that you will not settle or pay or agree to settle or pay any such claim without the written permission of the Distributor. 3 To indemnify you for any loss including your reasonable costs and expenses in the event that you dishonor, with or without cause, any such electronic debit. STEP 4 Section B SHAREHOLDER AUTHORIZATION/SIGNATURE(S) REQUIRED - - The undersigned warrants that he/she has full authority and is of legal age to purchase shares of the Trust and has received and read a current Prospectus of the Trust and agrees to its terms. - - I/We authorize the Trust and its agents to act upon these instructions for the features that have been checked. - - I/We acknowledge that in connection with an Automatic Investment or Telephone Investment, if my/our account at the Financial Institution has insufficient funds, the Trust and its agents may cancel the purchase transaction and are authorized to liquidate other shares or fractions thereof held in my/our Trust account to make up any deficiency resulting from any decline in the net asset value of shares so purchased and any dividends paid on those shares. I/We authorize the Trust and its agents to correct any transfer error by a debit or credit to my/our Financial Institution account and/or Trust account and to charge the account for any related charges. I/We acknowledge that shares purchased either through Automatic Investment or Telephone Investment are subject to applicable sales charges. - - The Trust, the Agent and the Distributor and their Trustees, directors, employees and agents will not be liable for acting upon instructions believed to be genuine, and will not be responsible for any losses resulting from unauthorized telephone transactions if the Agent follows reasonable procedures designed to verify the identity of the caller. The Agent will request some or all of the following information: account name and number; name(s) and social security number registered to the account and personal identification; the Agent may also record calls. Shareholders should verify the accuracy of confirmation statements immediately upon receipt. Under penalties of perjury, the undersigned whose Social Security (Tax I.D.) Number is shown above certifies (i) that Number is my correct taxpayer identification number and (ii) currently I am not under IRS notification that I am subject to backup withholding (line out (ii) if under notification). If no such Number is shown, the undersigned further certifies, under penalties of perjury, that either (a) no such Number has been issued, and a Number has been or will soon be applied for; if a Number is not provided to you within sixty days, the undersigned understands that all payments (including liquidations) are subject to 31% withholding under federal tax law, until a Number is provided and the undersigned may be subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a citizen or resident of the U.S.; and either does not expect to be in the U.S. for 183 days during each calendar year and does not conduct a business in the U.S. which would receive any gain from the Trust, or is exempt under an income tax treaty. NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST, ALL TRUSTEES MUST SIGN.* __________________________ ____________________________ _________ Individual (or Custodian) Joint Registrant, if any Date __________________________ ____________________________ _________ Corporate Officer, Partner, Title Date Trustee, etc. * For Trust, Corporations or Associations, this form must be accompanied by proof of authority to sign, such as a certified copy of the corporate resolution or a certificate of incumbency under the trust instrument. SPECIAL INFORMATION - - Certain features (Automatic Investment, Telephone Investment, Expedited Redemption and Direct Deposit of Dividends) are effective 15 days after this form is received in good order by the Trusts Agent. - - You may cancel any feature at any time, effective 3 days after the Agent receives written notice from you. - - Either the Trust or the Agent may cancel any feature, without prior notice, if in its judgment your use of any feature involves unusual effort or difficulty in the administration of your account. - - The Trust reserves the right to alter, amend or terminate any or all features or to charge a service fee upon 30 days written notice to shareholders except if additional notice is specifically required by the terms of the Prospectus. BANKING INFORMATION - - If your Financial Institution account changes, you must complete a Ready Access features form which may be obtained from Aquila Distributors at 1-800-872-6734 and send it to the Agent together with a "voided" check or pre-printed deposit slip from the new account. The new Financial Institution change is effective in 15 days after this form is received in good order by the Trust's Agent. AUTOMATIC WITHDRAWAL PLAN PROVISIONS By requesting an Automatic Withdrawal Plan, the applicant agrees to the terms and conditions applicable to such plans, as stated below. 1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as agent for the person (the "Planholder") who executed the Plan authorization. 2. Certificates will not be issued for shares of the Trust purchased for and held under the Plan, but the Agent will credit all such shares to the Planholder on the records of the Trust. Any share certificates now held by the Planholder may be surrendered unendorsed to the Agent with the application so that the shares represented by the certificate may be held under the Plan. 3. Dividends and distributions will be reinvested in shares of the Trust at Net Asset Value without a sales charge. 4. Redemptions of shares in connection with disbursement payments will be made at the Net Asset Value per share in effect at the close of business on the last business day of the month or quarter. 5. The amount and the interval of disbursement payments and the address to which checks are to be mailed may be changed, at any time, by the Planholder on written notification to the Agent. The Planholder should allow at least two weeks time in mailing such notification before the requested change can be put in effect. 6. The Planholder may, at any time, instruct the Agent by written notice (in proper form in accordance with the requirements of the then current Prospectus of the Trust) to redeem all, or any part of, the shares held under the Plan. In such case the Agent will redeem the number of shares requested at the Net Asset Value per share in effect in accordance with the Trust's usual redemption procedures and will mail a check for the proceeds of such redemption to the Planholder. 7. The Plan may, at any time, be terminated by the Planholder on written notice to the Agent, or by the Agent upon receiving directions to that effect from the Trust. The Agent will also terminate the Plan upon receipt of evidence satisfactory to it of the death or legal incapacity of the Planholder. Upon termination of the Plan by the Agent or the Trust, shares remaining unredeemed will be held in an uncertificated account in the name of the Planholder, and the account will continue as a dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder, his executor or guardian, or as otherwise appropriate. 8. The Agent shall incur no liability to the Planholder for any action taken or omitted by the Agent in good faith. 9. In the event that the Agent shall cease to act as transfer agent for the Trust, the Planholder will be deemed to have appointed any successor transfer agent to act as his agent in administering the Plan. 10.Purchases of additional shares concurrently with withdrawals are undesirable because of sales charges when purchases are made. Accordingly, a Planholder may not maintain this Plan while simultaneously making regular purchases. While an occasional lump sum investment may be made, such investment should normally be an amount equivalent to three times the annual withdrawal or $5,000, whichever is less. INVESTMENT ADVISER Qualivest Capital Management, Inc. A subsidiary of U.S. Bancorp and its subsidiary, United States National Bank of Oregon 111 S.W. Fifth Avenue U.S. Bancorp Tower Portland, Oregon 97204 ADMINISTRATOR Aquila Management Corporation 380 Madison Avenue, Suite 2300 New York, New York 10017 BOARD OF TRUSTEES Lacy B. Herrmann, Chairman Vernon R. Alden Warren C. Coloney James A. Gardner Diana P. Herrmann Ann R. Leven Raymond H. Lung Richard C. Ross OFFICERS Lacy B. Herrmann, President W. Dennis Cheroutes, Senior Vice President Sally Wilson Church, Vice President Nancy Kayani, Vice President Rose F. Marotta, Chief Financial Officer Richard F. West, Treasurer Edward M.W. Hines, Secretary DISTRIBUTOR Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300 New York, New York 10017 TRANSFER AND SHAREHOLDER SERVICING AGENT Administrative Data Management Corp. 581 Main Street Woodbridge, New Jersey 07095-1198 CUSTODIAN Bank One Trust Company, N.A. 100 East Broad Street Columbus, Ohio 43271 INDEPENDENT AUDITORS KPMG Peat Marwick LLP 345 Park Avenue New York, New York 10154 COUNSEL Hollyer Brady Smith Troxell Barrett Rockett Hines & Mone LLP 551 Fifth Avenue New York, New York 10176 TABLE OF CONTENTS Highlights Table Of Expenses Financial Highlights Introduction Investment Of The Trust's Assets Investment Restrictions Net Asset Value Per Share How To Invest In The Trust How To Redeem Your Investment Automatic Withdrawal Plan Management Arrangements Dividend And Tax Information Exchange Privilege General Information Application AQUILA [EAGLE LOGO] TAX-FREE TRUST OF OREGON [LOGO] A tax-free income investment A Series of The Cascades Trust PROSPECTUS One of The Aquilasm Group of Funds Aquila Tax-Free Trust of Oregon 380 Madison Avenue Suite 2300 New York, New York 10017 800-USA-OREG (800-872-6734) 212-697-6666 Statement of Additional Information April 5, 1996 This Statement of Additional Information (the "Additional Statement") is not a Prospectus. The Additional Statement should be read in conjunction with the Prospectus (the "Prospectus") dated April 5, 1996, of Tax-Free Trust of Oregon (the "Trust"), which may be obtained from the Trust's Shareholder Servicing Agent, Administrative Data Management Corp. by writing to it at: 10 Woodbridge Center Drive, Woodbridge, NJ 07095-1198 or by calling the following numbers: 800-872-6735 toll free or 908-855-5731 or from Aquila Distributors, Inc., the Trust's Distributor, by writing to it at 380 Madison Avenue, Suite 2300, New York, New York 10017; or by calling: 800-872-6734 toll free or 212-697-6666 The Annual Report of the Trust for the fiscal year ended September 30, 1995, will be delivered with the Additional Statement. TABLE OF CONTENTS Investment of the Trust's Assets . . . . . . . . . . . . . . . .2 Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . .7 Performance . . . . . . . . . . . . . . . . . . . . . . . . . .9 Investment Restrictions . . . . . . . . . . . . . . . . . . . 12 Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 13 Limitation of Redemptions in Kind . . . . . . . . . . . . . . 16 Trustees and Officers . . . . . . . . . . . . . . . . . . . . 16 Additional Information as to Management Arrangements . . . . . 22 Computation of Net Asset Value . . . . . . . . . . . . . . . . 26 Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 27 Additional Tax Information . . . . . . . . . . . . . . . . . . 28 General Information . . . . . . . . . . . . . . . . . . . . . 28 Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 30 INVESTMENT OF THE TRUST'S ASSETS The investment objective and policies of the Trust are described in the Prospectus, which refers to the matters described below. See the Prospectus for the definition of "Oregon Obligations." Ratings The ratings assigned by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") represent their respective opinions of the quality of the municipal bonds and notes which they undertake to rate. It should be emphasized, however, that ratings are general and not absolute standards of quality. Consequently, obligations with the same maturity, stated interest rate and rating may have different yields, while obligations of the same maturity and stated interest rate with different ratings may have the same yield. See Appendix A to this Additional Statement for further information about the ratings of Moody's and S&P as to the various rated Oregon Obligations which the Trust may purchase. The table below gives information as to the percentage of Trust net assets invested, as of September 30, 1995, in Oregon Obligations in the various rating categories: Highest rating (1) 43.6% Second highest rating (2) 47.9% Third highest rating (3) 7.2% Fourth highest rating (4) 0.2% Not rated: 1.2% 100.0% (1) Aaa of Moody's or AAA of S&P. (2) Aa of Moody's or AA of S&P. (3) A of Moody's or A of S&P. (4) Baa of Moody's or BBB of S&P. When-Issued and Delayed Delivery Obligations The Trust may buy Oregon Obligations on a when-issued or delayed delivery basis. The purchase price and the interest rate payable on the Oregon Obligations are fixed on the transaction date. At the time the Trust makes the commitment to purchase Oregon Obligations on a when-issued or delayed delivery basis, it will record the transaction and thereafter reflect the value each day of such Oregon Obligations in determining its net asset value. The Trust will make commitments for such when-issued transactions only when it has the intention of actually acquiring the Oregon Obligations. The Trust places an amount of assets equal in value to the amount due on the settlement date for the when-issued or delayed delivery securities being purchased in a segregated account with the Custodian, which is marked to market every business day. On delivery dates for such transactions, the Trust will meet its commitments by selling the Oregon Obligations held in the separate account and/or from cash flow. Determination of the Marketability of Certain Securities In determining marketability of floating and variable rate demand notes and participation interests (including municipal lease/purchase obligations) the Board of Trustees will consider the following factors, not all of which may be applicable to any particular issue: the quality, maturity and coupon rate of the issue, ratings received from the nationally recognized statistical rating organizations and any changes or prospective changes in such ratings, the likelihood that the issuer will continue to appropriate the required payments for the issue, recent purchases and sales of the same or similar issues, the general market for municipal securities of the same or similar quality, the 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 bond indices ("Municipal Bond Index Futures") and to U.S. Government securities ("U.S. Government Securities Futures," together referred to as "Futures"), and exchange traded options based on Futures as a possible means to protect the asset value of the Trust during periods of changing interest rates, although in fact the Trust may never do so. 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 Bond Index Futures currently are based on a long-term municipal bond index developed by the Chicago Board of Trade ("CBT") and The Bond Buyer (the "Municipal Bond Index"). Financial futures contracts based on the Municipal Bond Index began trading on June 11, 1985. The Municipal Bond Index is comprised of 40 tax-exempt municipal revenue and general obligation bonds. Each bond included in the Municipal Bond Index must be rated A or higher by Moody's or S&P and must have a remaining maturity of 19 years or more. Twice a month new issues satisfying the eligibility requirements are added to, and an equal number of old issues are deleted from, the Municipal Bond Index. The value of the Municipal Bond Index is computed daily according to a formula based on the price of each bond in the Municipal Bond Index, as evaluated by six dealer-to-dealer brokers. The Municipal Bond Index futures contract is traded only on the CBT. Like other contract markets, the CBT assures performance under futures contracts through a clearing corporation, a nonprofit organization managed by the exchange membership which is also responsible for handling daily accounting of deposits or withdrawals of margin. There are at present U.S. Government financial futures contracts based on long-term Treasury bonds, Treasury notes, GNMA Certificates and three-month Treasury bills. U.S. Government Securities Futures have traded longer than Municipal Bond Index Futures, and the depth and liquidity available in the trading markets for them are in general greater. Call Options on Futures Contracts. The Trust may also purchase and sell exchange related call and put options on Futures. The purchase of a call option on a Future is analogous to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the Future upon which it is based, or upon the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying debt securities. Like the purchase of a futures contract, the Trust may purchase a call option on a Future to hedge against a market advance when the Trust is not fully invested. The writing of a call option on a Future constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the Future. If the price at expiration of the Future is below the exercise price, the Trust will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Trust's portfolio holdings. Put Options on Futures Contracts. The purchase of put options on a Future is analogous to the purchase of protective put options on portfolio securities. The Trust may purchase a put option on a Future to hedge the Trust's portfolio against the risk of rising interest rates. The writing of a put option on a Future constitutes a partial hedge against increasing prices of the securities which are deliverable upon exercise of the Future. If the Future price at expiration is higher than the exercise price, the Trust will retain the full amount of the option premium which provides a partial hedge against any increase in the price of securities which the Trust intends to purchase. The writer of an option on a Future is required to deposit initial and variation margin pursuant to requirements similar to those applicable to Futures. Premiums received from the writing of an option will be included in initial margin. The writing of an option on a Future involves risks similar to those relating to Futures. Risk Factors in Futures Transactions and Options One risk in employing Futures or options on them to attempt to protect against the price volatility of the Trust's Oregon Obligations is that the Adviser could be incorrect in its expectations as to the extent of various interest rate movements or the time span within which the movements take place. For example, if the Trust sold a Future in anticipation of an increase in interest rates, and then interest rates went down instead, the Trust would lose money on the sale. Another risk as to Futures or options on them arises because of the imperfect correlation between movement in the price of the Future and movements in the prices of the Oregon Obligations which are the subject of the hedge. The risk of imperfect correlation increases as the composition of the Trust's portfolio diverges from the municipal bonds included in the applicable index or from the security underlying the U.S. Government Securities Futures. The price of the Future or option may move more than or less than the price of the Oregon Obligations being hedged. If the price of the Future or option moves less than the price of the Oregon Obligations which are the subject of the hedge, the hedge will not be fully effective but, if the price of the Oregon Obligations being hedged has moved in an unfavorable direction, the Trust would be in a better position than if it had not hedged at all. If the price of the Oregon Obligations being hedged has moved in a favorable direction, this advantage will be partially offset by the Future or option. If the price of the Future or option has moved more than the price of the Oregon Obligations, the Trust will experience either a loss or gain on the Future or option which will not be completely offset by movements in the price of the Oregon Obligations which are the subject of the hedge. To compensate for the imperfect correlation of movements in the price of the Oregon Obligations being hedged and movements in the price of the Futures or options, the Trust may buy or sell Futures or options in a greater dollar amount than the dollar amount of the Oregon Obligations being hedged if the historical volatility of the prices of the Oregon Obligations being hedged is less than the historical volatility of the debt securities underlying the hedge. It is also possible that, where the Trust has sold Futures or options to hedge its portfolio against decline in the market, the market may advance and the value of the Oregon Obligations held in the Trust's portfolio may decline. If this occurred the Trust would lose money on the Future or option and also experience a decline in value of its portfolio securities. Where Futures or options are purchased to hedge against a possible increase in the price of Oregon Obligations before the Trust is able to invest in them in an orderly fashion, it is possible that the market may decline instead; if the Trust then concludes not to invest in them at that time because of concern as to possible further market decline or for other reasons, the Trust will realize a loss on the Futures or options that is not offset by a reduction in the price of the Oregon Obligations which it had anticipated purchasing. The particular municipal bonds comprising the index underlying Municipal Bond Index Futures will vary from the bonds held by the Trust. The correlation of the hedge with such bonds may be affected by disparities in the average maturity, ratings, geographical mix or structure of the Trust's investments as compared to those comprising the Index, and general economic or political factors. In addition, the correlation between movements in the value of the Municipal Bond Index may be subject to change over time, as additions to and deletions from the Municipal Bond Index alter its structure. The correlation between U.S. Government Securities Futures and the municipal bonds held by the Trust may be adversely affected by similar factors and the risk of imperfect correlation between movements in the prices of such Futures and the prices of Municipal Bonds held by the Trust may be greater. Trading in Municipal Bond Index Futures may be less liquid than that in other Futures. The trading of Futures and options is also subject to certain market risks, such as inadequate trading activity and limits on upward or downward price movement which could at times make it difficult or impossible to liquidate existing positions. Regulatory Aspects of Futures and Options The Trust will, due to requirements under the Investment Company Act of 1940 (the "1940 Act"), deposit in a segregated account with its custodian bank Oregon Obligations maturing in one year or less or cash, in an amount equal to the fluctuating market value of long Futures or options it has purchased, less any margin deposited on long positions. The Trust must operate within certain restrictions as to its long and short positions in Futures under 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 as a "commodity pool operator" (as defined under the CEA), and must represent to the CFTC that the Trust will operate within such restrictions. Under these restrictions the Trust will not, as to any positions, whether long, short or a combination thereof, enter into Futures or options for which the aggregate initial margins and premiums paid for options exceed 5% of the fair market value of its assets. Under the restrictions, the Trust also must, as to its short positions, use Futures and options solely for bona-fide hedging purposes within the meaning and intent of the applicable provisions under the CEA. As to the Trust's long positions which are used as part of its portfolio strategy and are incidental to its activities in the underlying cash market, the "underlying commodity value" (see below) of its Futures must not exceed the sum of (i) cash set aside in an identifiable manner, or short-term U.S. debt obligations or other U.S. dollar-denominated high quality short-term money market instruments so set aside, plus any funds deposited as margin; (ii) cash proceeds from existing investments due in 30 days and (iii) accrued profits held at the futures commission merchant. (There is described above the segregated account which the Trust must maintain with its custodian bank as to its Futures and options activities due to requirements other than those of the CFTC Rule; the Trust will, as to long positions, be required to abide by the more restrictive of this other requirement or the above requirements of the CFTC Rule.) The "underlying commodity value" of a Future or option is computed by multiplying the size of the Future by the daily settlement price of the Future or option. The "sale" of a Future means the acquisition by the Trust of an obligation to deliver an amount of cash equal to a specified dollar amount times the difference between the value of the index or government security at the close of the last trading day of the Future and the price at which the Future is originally struck (which the Trust anticipates will be lower because of a subsequent rise in interest rates and a corresponding decline in the index value). This is referred to as having a "short" Futures position. The "purchase" of a Future means the acquisition by the Trust of an obligation to take delivery of such an amount of cash. In this case, the Trust anticipates that the closing value will be higher than the price at which the Future is originally struck. This is referred to as having a "long" Futures position. No physical delivery of the bonds making up the index or the U.S. government securities, as the case may be, is made as to either a long or a short Futures position. Portfolio Turnover A portfolio turnover rate is, in general, the percentage computed by taking the lesser of purchases or sales of portfolio securities for a year and dividing it by the monthly average value of such securities during the year, excluding certain short-term securities. Since the turnover rate of the Trust will be affected by a number of factors, the Trust is unable to predict what rate the Trust will have in any particular period or periods, although such rate is not expected to exceed 100%. However, the rate could be substantially higher or lower in any particular period. MUNICIPAL BONDS The two principal classifications of municipal bonds are "general obligation" bonds and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and unlimited taxing power for the payment of principal and interest. Revenue or special tax bonds are payable only from the revenues derived from a particular facility or class of facilities or projects or, in a few cases, from the proceeds of a special excise or other tax, but are not supported by the issuer's power to levy unlimited general taxes. There are, of course, variations in the security of municipal bonds, both within a particular classification and between classifications, depending on numerous factors. The yields of municipal bonds depend on, among other things, general financial conditions, general conditions of the municipal bond market, size of a particular offering, the maturity of the obligation and rating of the issue. Since the Trust may invest in industrial development bonds or private activity bonds, the Trust may not be an appropriate investment for entities which are "substantial users" of facilities financed by those bonds or for investors who are "related persons" of such users. Generally, an individual will not be a "related person" under the Internal Revenue Code unless such investor or his or her immediate family (spouse, brothers, sisters and lineal descendants) own directly or indirectly in the aggregate more than 50 percent of the equity of a corporation or is a partner of a partnership which is a "substantial user" of a facility financed from the proceeds of those bonds. A "substantial user" of such facilities is defined generally as a "non-exempt person who regularly uses a part of [a] facility" financed from the proceeds of industrial development or private activity bonds. As indicated in the Prospectus, there are certain Oregon Obligations the interest on which is subject to the Federal alternative minimum tax on individuals. While the Trust may purchase these obligations, it may, on the other hand, refrain from purchasing particular Oregon Obligations due to this tax consequence. Also, as indicated in the Prospectus, the Trust will not purchase obligations of Oregon issuers the interest on which is subject to regular Federal income tax. The foregoing may reduce the number of issuers of obligations which are available to the Trust. Oregon Property Tax Restrictions On November 6, 1990, Oregon voters approved a property tax limitation measure. When the tax limitation measure is fully phased in, it limits the amount of taxes which may be imposed by local governments upon property to $15 per $1,000 of real market value. Property taxes to fund the public school system decrease from a maximum of $15 per $1,000 in fiscal year 1991-92 to $5 per $1,000 in 1995-96 and thereafter. Property taxes to fund government operations other than the public school system are limited to $10 per $1,000 in fiscal year 1991-92 and thereafter. Property taxes are categorized as those revenues raised to fund the public school system (defined as educational or support services by any government from pre-kindergarten through post-graduate training) and those used to fund all government operations other than the public school system. The State Legislature is required to replace from the State's general fund the revenues lost by the public school system during the fiscal years 1991-92 through 1995-96. The amount of each year's replacement revenue is calculated by using the loss of school property tax revenue in each prior year plus six percent. The State is obliged to replace funds lost from property taxes; however, it is under no obligation to maintain levels of State school support from other sources at previous levels. Therefore the total amount of funding available to school districts for operations is expected to be reduced. The impact on each school district will vary. At present, it is difficult to assess the impact of the tax limitation measure, in part, because it will not be fully phased in until fiscal year 1995-1996. In addition, the effect of the measure is also dependent on whether alternative revenue sources are obtained and, if so, the type and amount of such revenues. The adoption of the tax limitation measure may have an adverse effect on the general financial condition of affected cities, counties, school districts and other districts, and may, in some cases, impair their ability to pay obligations other than general obligation bonds. In addition, the adoption of the tax limitation measure will require the Legislature to provide funds from its general fund to replace tax revenues lost by the public school system through fiscal year 1995-96. This could have an adverse effect on the State's credit rating, particularly if alternative revenue sources are not obtained. Moreover, the tax limitation measure might contract the overall size of the Oregon municipal bond market and might have some adverse effect the value of the Trust's portfolio. PERFORMANCE As noted in the Prospectus, the Trust may from time to time quote various performance figures to illustrate its past performance. Performance quotations by investment companies are subject to rules of the Securities and Exchange Commission ("SEC"). These rules require the use of standardized performance quotations or, alternatively, that every non-standardized performance quotation furnished by the Trust be accompanied by certain standardized performance information computed as required by the SEC. Current yield and average annual compounded total return quotations used by the Trust are based on these standardized methods and are computed separately for each of the Trust's three classes. Prior to April 5, 1996, the Trust had outstanding only one class of shares which are currently designated Class A Shares, "Front Payment Class Shares." On that date the trust began to offer shares of two other classes, Class C Shares, "Level Payment Class Shares" and Class Y Shares, "Institutional Class Shares." During the historical periods listed below, there were no Class C Shares or Class Y Shares outstanding and the information below relates solely to Class A Shares. Each of these and other methods that may be used by the Trust are described in the following material. Total Return Average annual total return is determined by finding the average annual compounded rates of return over 1- and 5-year periods and a period since the inception of the operations of the Trust (on June 16, 1986) that would equate an initial hypothetical $1,000 investment to the value such an investment would have if it were completely redeemed at the end of each such period. The calculation assumes the maximum sales charge is deducted from the hypothetical initial $1,000 purchase, that on each reinvestment date during each such period any capital gains are reinvested at net asset value, and all income dividends are reinvested at net asset value, without sales charge (because the Trust does not impose any sales charge on reinvestment of dividends). The computation further assumes that the entire hypothetical account was completely redeemed at the end of each such period. Investors should note that the maximum sales charge (4%) of the offering price, reflected in the following quotations is a one time charge, paid at the time of initial investment. The greatest impact of this charge is during the early stages of an investment in the Trust. Actual performance will be affected less by this one time charge the longer an investment remains in the Trust. The average annual compounded rates of return for the Trust for the 1- and 5-year periods ended September 30, 1995, were 5.09% and 6.96%, respectively. The average annual compounded rate of return for the Trust from inception to September 30, 1995, was 7.01%. These figures were calculated according to the following SEC formula: n P(1+T) = ERV where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1- and 5-year periods or the period since inception, at the end of each such period. As discussed in the Prospectus, the Trust may quote total rates of return in addition to its average annual total return. Such quotations are computed in the same manner as the Trust's average annual compounded rate, except that such quotations will be based on the Trust's actual return for a specified period as opposed to its average return over the periods described above. The total returns for the Trust for the 1- and 5-year periods ended September 30, 1995 were 5.09% and 39.98%, respectively. The total return for the Trust from inception to September 30, 1995, was 87.67%. In general, actual total rate of return will be lower than average annual rate of return because the average annual rate of return reflects the effect of compounding. See discussion of the impact of the sales charge on quotations of rates of return, above. Yield Current yield reflects the income per share earned by the Trust's portfolio investments. Current yield is determined by dividing the net investment income per share earned during a 30-day base period by the maximum offering price per share on the last day of the period and annualizing the result. Expenses accrued for the period include any fees charged to all shareholders during the base period net of fee waivers and reimbursements of expenses, if any. The yield for the Trust for the 30-day period ended on September 30, 1995, (the date of the Trust's most recent audited financial statements, which are included in the Trust's Annual Report for the year ended September 30, 1995) was 4.24%. These figures were obtained using the Securities and Exchange Commission formula: 6 Yield = 2 [(a-b + 1) -1] ---- cd where a = interest earned during the period b = expenses accrued for the period (net of waivers and reimbursements) c = the average daily number of shares outstanding during the period that were entitled to receive dividends d = the maximum offering price per share on the last day of the period Taxable Equivalent Yield The Trust may also quote a taxable equivalent yield which shows the taxable yield that would be required to produce an after-tax yield equivalent to that of a fund which invests in tax-exempt obligations. Such yield is computed by dividing that portion of the yield of the Trust (computed as indicated above) which is tax-exempt by one minus the highest applicable combined federal and Oregon income tax rate (and adding the result to that portion of the yield of the Trust that is not tax-exempt, if any). The taxable equivalent yield for the Trust for the 30-day period ended on September 30, 1995 (the date of the Trust's most recent audited financial statements, which are included in the Trust's annual report for the year ended September 30, 1995) was 7.83%. The Oregon and the combined Oregon and Federal income tax rates upon which the Trust's tax equivalent yield quotations are based are 9.0% and 46.12%, respectively. From time to time, as any changes to such rates become effective, tax equivalent yield quotations advertised by the Trust will be updated to reflect such changes. Any tax rate increases will tend to make a tax-free investment, such as the Trust, relatively more attractive than taxable investments. Therefore, the details of specific tax increases may be used in Trust sales material. Current Distribution Rate Current yield and tax equivalent yield, which are calculated according to a formula prescribed by the SEC, are not indicative of the amounts which were or will be paid to the Trust's shareholders. Amounts paid to shareholders are reflected in the quoted current distribution rate or taxable equivalent distribution rate. The current distribution rate is computed by (i) dividing the total amount of dividends per share paid by the Trust during a recent 30-day period by (ii) the current maximum offering price and by (iii) annualizing the result. A taxable equivalent distribution rate shows the taxable distribution rate that would be required to produce an after-tax distribution rate equivalent to the Trust's current distribution rate (calculated as indicated above). The current distribution rate can differ from the current yield computation because it could include distributions to shareholders from additional sources (i.e., sources other than dividends and interest), such as short-term capital gains. If distribution rates are published, they will be accompanied by calculations of current yield in accordance with the formula of the Securities and Exchange Commission. Other Performance Quotations With respect to those categories of investors who are permitted to purchase shares of the Trust at net asset value, the Trust may quote a "Current Distribution Rate for Net Asset Value Investments." This rate is computed by (i) dividing the total amount of dividends per share paid by the Trust during a recent 30-day period by (ii) the current net asset value of the Trust and by (iii) annualizing the result. Figures for yield, total return and other measures of performance for Net Asset Value Investments may also be quoted. These will be derived as described above with the substitution of net asset value for public offering price. If distribution rates are quoted in advertising, they will be accompanied by calculations of current yield in accordance with the formula of the Securities and Exchange Commission. Regardless of the method used, past performance is not necessarily indicative of future results, but is an indication of the return to shareholders only for the limited historical period used. 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 that Act, the vote of the holders of a "majority" of the Trust's outstanding shares means the vote of the holders of the lesser of (a) 67% or more of the Trust's shares present at a meeting or represented by proxy if the holders of more than 50% of its shares are so present or represented; or (b) more than 50% of the Trust's outstanding shares. Those fundamental policies not set forth in the Prospectus are set forth below: 1. The Trust invests only in certain limited securities. The Trust cannot buy any securities other than Oregon Obligations (discussed under "Investment of the Trust's Assets" in the Prospectus), Municipal Bond Index Futures, U.S. Government Securities Futures and options on Futures; therefore the Trust cannot buy any voting securities, any commodities or commodity contracts other than Municipal Bond Index Futures and U.S. Government Securities Futures, any mineral related programs or leases, any shares of other investment companies or any warrants, puts, calls or combinations thereof other than on Futures. The Trust cannot purchase or hold the securities of any issuer if, to its knowledge, Trustees, Directors or officers of the Trust or its Adviser individually owning beneficially more than 0.5 of 1% of the securities of that issuer together own in the aggregate more than 5% of such securities. The Trust cannot buy real estate or any non-liquid interests in real estate investment trusts; however, it can buy any securities which it can otherwise buy even though the issuer invests in real estate or has interests in real estate. 2. The Trust does not buy for control. The Trust cannot invest for the purpose of exercising control or management of other companies. 3. The Trust does not sell securities it does not own or borrow from brokers to buy securities. Thus, it cannot sell short or buy on margin; however, the Trust can make margin deposits in connection with the purchase or sale of Municipal Bond Index Futures, U.S. Government Securities Futures and options on them, and can pay premiums on these options. 4. The Trust is not an underwriter. The Trust cannot engage in the underwriting of securities, that is, the selling of securities for others. Also, it cannot invest in restricted securities. Restricted securities are securities which cannot freely be sold for legal reasons. DISTRIBUTION PLAN The Trust's Distribution Plan has three parts, relating respectively to distribution payments with respect to Class A Shares (Part I), to distribution payments relating to Class C Shares (Part II) and to certain defensive provisions (Part III). Provisions Relating to Class A Shares (Part I) At the date of the Additional Statement, most of the outstanding shares of the Trust would be considered Qualified Holdings of various broker-dealers unaffiliated with the Adviser or the Distributor. The Distributor will consider shares which are not Qualified Holdings of such unrelated broker-dealers to be Qualified Holdings of the Distributor and will authorize Permitted Payments to the Distributor with respect to such shares whenever Permitted Payments are being made under the Plan. Part I of the Plan applies only to the Front Payment Shares class ("Class A") of 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 Shares or servicing of shareholder accounts with respect to such shares. "Qualified Holdings" shall mean, as to any Qualified Recipient, all Front Payment 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 Board of Trustees of the Trust, 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 Shares class of shares. Such payments shall be made only out of the Trust assets allocable to the Front Payment Shares. The Distributor shall have sole authority (i) as to the selection of any Qualified Recipient or Recipients; (ii) not to select any Qualified Recipient; and (iii) the amount of Class A Permitted Payments, if any, to each Qualified Recipient provided that the total Class A Permitted Payments to all Qualified Recipients do not exceed the amount set forth above. The Distributor is authorized, but not directed, to take into account, in addition to any other factors deemed relevant by it, the following: (a) the amount of the Qualified Holdings of the Qualified Recipient; (b) the extent to which the Qualified Recipient has, at its expense, taken steps in the shareholder servicing area with respect to holders of Front Payment Shares, including without limitation, any or all of the following activities: answering customer inquiries regarding account status and history, and the manner in which purchases and redemptions of shares of the Trust may be effected; assisting shareholders in designating and changing dividend options, account designations and addresses; providing necessary personnel and facilities to establish and maintain shareholder accounts and records; assisting in processing purchase and redemption transactions; arranging for the wiring of funds; transmitting and receiving funds in connection with customer orders to purchase or redeem shares; verifying and guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder designated accounts; furnishing (either alone or together with other reports sent to a shareholder by such person) monthly and year end statements and confirmations of purchases and redemptions; transmitting, on behalf of the Trust, proxy statements, annual reports, updating prospectuses and other communications from the Trust to its shareholders; receiving tabulating and transmitting to the Trust proxies executed by shareholders with respect to meetings of shareholders of the Trust; and providing such other related services as the Distributor or a shareholder may request from time to time; and (c) the possibility that the Qualified Holdings of the Qualified Recipient would be redeemed in the absence of its selection or continuance as a Qualified Recipient. Notwithstanding the foregoing two sentences, a majority of the Independent Trustees (as defined below) may remove any person as a Qualified Recipient. Amounts within the above limits accrued to a Qualified Recipient but not paid during a fiscal year may be paid thereafter; if less than the full amount is accrued to all Qualified Recipients, the difference will not be carried over to subsequent years. While Part I is in effect, the Trust's Distributor shall report at least quarterly to the Trust's Trustees in writing for their review on the following matters: (i) all Class A Permitted Payments made under Section 9 of the Plan, the identity of the Qualified Recipient of each payment, and the purposes for which the amounts were expended; and (ii) all fees of the Trust to the Distributor, sub-adviser or Administrator paid or accrued during such quarter. In addition, if any such Qualified Recipient is an affiliated person, as that term is defined in the Act, of the Trust, the Adviser, the Administrator or the Distributor, such person shall agree to furnish to the Distributor for transmission to the Board of Trustees of the Trust an accounting, in form and detail satisfactory to the Board of Trustees, to enable the Board of Trustees to make the determinations of the fairness of the compensation paid to such affiliated person, not less often than annually. Part I originally went into effect when it was approved (i) by a vote of the Trustees, including the Independent Trustees, with votes cast in person at a meeting called for the purpose of voting on Part I of the Plan; and (ii) by a vote of holders of at least a "majority" (as so defined) of the outstanding voting securities of the Front Payment Shares class (or of any predecessor class or category of shares, whether or not designated as a class) and a vote of holders of at least a "majority" (as so defined) of the outstanding voting securities of the Level Payment Class and/or of any other class whose shares are convertible into Front Payment Shares. Part I has continued, and will, unless terminated as hereinafter provided, continue in effect, until the June 30 next succeeding such effectiveness, and from year to year thereafter only so long as such continuance is specifically approved at least annually by the Trust's Trustees and its Independent Trustees with votes cast in person at a meeting called for the purpose of voting on such continuance. Part I may be terminated at any time by the vote of a majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the 1940 Act) of the outstanding voting securities of the Trust to which Part I applies. Part I may not be amended to increase materially the amount of payments to be made without shareholder approval of the class or classes of shares affected by Part I as set forth in (ii) above, and all amendments must be approved in the manner set forth in (i) above. In the case of a Qualified Recipient which is a principal underwriter of the Trust, the Class A Plan Agreement shall be the agreement contemplated by Section 15(b) of the 1940 Act since each such agreement must be approved in accordance with, and contain the provisions required by, the Rule. In the case of Qualified Recipients which are not principal underwriters of the Trust, the Class A Plan Agreements with them shall be (i) their agreements with the Distributor with respect to payments under the Trust's Distribution Plan in effect prior to April 1, 1996 or (ii) Class A Plan Agreements entered into thereafter. Provisions relating to Class C Shares (Part II) Part II of the Plan applies only to the Level Payment Shares Class ("Class C Shares") of the Trust (regardless of whether such class is so designated or is redesignated by some other name). As used in Part II of the Plan, "Qualified Recipients" shall mean broker-dealers or others selected by Aquila Distributors, Inc. (the "Distributor"), including but not limited to any principal underwriter of the Trust, with which the Trust or the Distributor has entered into written agreements in connection with Part II ("Class C Plan Agreements") and which have rendered assistance (whether direct, administrative, or both) in the distribution and/or retention of the Trust's Level Payment Shares or servicing of shareholder accounts with respect to such shares. "Qualified Holdings" shall mean, as to any Qualified Recipient, all Level Payment 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 Board of Trustees of the Trust, 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 Shares class of shares. Such payments shall be made only out of the Trust assets allocable to the Level Payment Shares. The Distributor shall have sole authority (i) as to the selection of any Qualified Recipient or Recipients; (ii) not to select any Qualified Recipient; and (iii) the amount of Class C Permitted Payments, if any, to each Qualified Recipient provided that the total Class C Permitted Payments to all Qualified Recipients do not exceed the amount set forth above. The Distributor is authorized, but not directed, to take into account, in addition to any other factors deemed relevant by it, the following: (a) the amount of the Qualified Holdings of the Qualified Recipient; (b) the extent to which the Qualified Recipient has, at its expense, taken steps in the shareholder servicing area with respect to holders of Level Payment Shares, including without limitation, any or all of the following activities: answering customer inquiries regarding account status and history, and the manner in which purchases and redemptions of shares of the Trust may be effected; assisting shareholders in designating and changing dividend options, account designations and addresses; providing necessary personnel and facilities to establish and maintain shareholder accounts and records; assisting in processing purchase and redemption transactions; arranging for the wiring of funds; transmitting and receiving funds in connection with customer orders to purchase or redeem shares; verifying and guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder designated accounts; furnishing (either alone or together with other reports sent to a shareholder by such person) monthly and year end statements and confirmations of purchases and redemptions; transmitting, on behalf of the Trust, proxy statements, annual reports, updating prospectuses and other communications from the Trust to its shareholders; receiving tabulating and transmitting to the Trust proxies executed by shareholders with respect to meetings of shareholders of the Trust; and providing such other related services as the Distributor or a shareholder may request from time to time; and (c) the possibility that the Qualified Holdings of the Qualified Recipient would be redeemed in the absence of its selection or continuance as a Qualified Recipient. Notwithstanding the foregoing two sentences, a majority of the Independent Trustees (as defined below) may remove any person as a Qualified Recipient. Amounts within the above limits accrued to a Qualified Recipient but not paid during a fiscal year may be paid thereafter; if less than the full amount is accrued to all Qualified Recipients, the difference will not be carried over to subsequent years. While Part II is in effect, the Trust's Distributor shall report at least quarterly to the Trust's Trustees in writing for their review on the following matters: (i) all Class C Permitted Payments made under Section 15 of the Plan, the identity of the Qualified Recipient of each payment, and the purposes for which the amounts were expended; and (ii) all fees of the Trust to the Distributor, sub-adviser or Administrator paid or accrued during such quarter. In addition, if any such Qualified Recipient is an affiliated person, as that term is defined in the Act, of the Trust, the Adviser, the Administrator or the Distributor, such person shall agree to furnish to the Distributor for transmission to the Board of Trustees of the Trust an accounting, in form and detail satisfactory to the Board of Trustees, to enable the Board of Trustees to make the determinations of the fairness of the compensation paid to such affiliated person, not less often than annually. Part II originally went into effect when it was approved (i) by a vote of the Trustees, including the Independent Trustees, with votes cast in person at a meeting called for the purpose of voting on Part II of the Plan; and (ii) by a vote of holders of at least a "majority" (as so defined) of the outstanding voting securities of the Level Payment Shares class. Part II has continued, and will, unless terminated as hereinafter provided, continue in effect, until the April 30 next succeeding such effectiveness, and from year to year thereafter only so long as such continuance is specifically approved at least annually by the Trust's Trustees and its Independent Trustees with votes cast in person at a meeting called for the purpose of voting on such continuance. Part II may be terminated at any time by the vote of a majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the 1940 Act) of the outstanding voting securities of the Trust to which Part II applies. Part II may not be amended to increase materially the amount of payments to be made without shareholder approval of the class or classes of shares affected by Part II as set forth in (ii) above, and all amendments must be approved in the manner set forth in (i) above. In the case of a Qualified Recipient which is a principal underwriter of the Trust, the Class C Plan Agreement shall be the agreement contemplated by Section 15(b) of the 1940 Act since each such agreement must be approved in accordance with, and contain the provisions required by, the Rule. In the case of Qualified Recipients which are not principal underwriters of the Trust, the Class C Plan Agreements with them shall be their agreements with the Distributor with respect to payments under Part II. Defensive Provisions (Part III) Another part of the Plan (Part III) states that if and to the extent that any of the payments listed below are considered to be "primarily intended to result in the sale of" shares issued by the Trust within the meaning of Rule 12b-1, such payments are authorized under the Plan: (i) the costs of the preparation of all reports and notices to shareholders and the costs of printing and mailing such reports and notices to existing shareholders, irrespective of whether such reports or notices contain or are accompanied by material intended to result in the sale of shares of the Trust or other funds or other investments; (ii) the costs of the preparation and setting in type of all prospectuses and statements of additional information and the costs of printing and mailing all prospectuses and statements of additional information to existing shareholders; (iii) the costs of preparation, printing and mailing of any proxy statements and proxies, irrespective of whether any such proxy statement includes any item relating to, or directed toward, the sale of the Trust's shares; (iv) all legal and accounting fees relating to the preparation of any such reports, prospectuses, statements of additional information, proxies and proxy statements; (v) all fees and expenses relating to the registration or qualification of the Trust and/or its shares under the securities or "Blue-Sky" laws of any jurisdiction; (vi) all fees under the Securities Act of 1933 and the 1940 Act, including fees in connection with any application for exemption relating to or directed toward the sale of the Trust's shares; (vii) all fees and assessments of the Investment Company Institute or any successor organization, irrespective of whether some of its activities are designed to provide sales assistance; (viii) all costs of the preparation and mailing of confirmations of shares sold or redeemed or share certificates, and reports of share balances; and (ix) all costs of responding to telephone or mail inquiries of investors or prospective investors. The Plan states that while it is in effect, the selection and nomination of those Trustees of the Trust who are not "interested persons" of the Trust shall be committed to the discretion of such disinterested Trustees but that nothing in the Plan shall prevent the involvement of others in such selection and nomination if the final decision on any such selection and nomination is approved by a majority of such disinterested Trustees. The Plan states that while it is in effect, the Trust's Administrator and Distributor shall report at least quarterly to the Trust's Board of Trustees in writing for their review on the following matters: (i) all Permitted Payments made under this Plan, the identity of the Qualified Recipient of each Payment, and the purposes for which the amounts were expended; (ii) all costs of each item of cost specified in the Plan (making estimates of such costs where necessary or desirable) during the preceding calendar or fiscal quarter; and (iii) all fees of the Fund to the distributor, sub-adviser or administrator paid or accrued during such quarter. In addition if any such Qualified Recipient is an affiliate, as that term is defined in the Act, of the Trust, the Adviser, the Administrator or the Distributor, such person shall agree to furnish to the Distributor for transmission to the Board of Trustees of the Trust an accounting, in form and detail satisfactory to the Board of Trustees, to enable the Board of Trustees to make the determinations of the fairness of the compensation paid to such affiliated person, not less often than annually. The Plan defines as the Trust's Independent Trustees those Trustees who are not "interested persons" of the Trust as defined in the 1940 Act and who have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan. The Plan, unless terminated as hereinafter provided, continues in effect from year to year only so long as such continuance is specifically approved at least annually by the Trust's Board of Trustees and its Independent Trustees with votes cast in person at a meeting called for the purpose of voting on such continuance. In voting on the implementation or continuance of the Plan, those Trustees who vote to approve such implementation or continuance must conclude that there is a reasonable likelihood that the Plan will benefit the Trust and its shareholders. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the 1940 Act) of the outstanding voting securities of the Trust. The Plan may not be amended to increase materially the amount of payments to be made without shareholder approval and all amendments must be approved in the manner set forth above as to continuance of the Plan. The Plan and each Part of it shall also be subject to all applicable terms and conditions of Rule 18f-3 under the 1940 Act as now in force or hereafter amended. Specifically, but without limitation, the provisions of Part III shall be deemed to be severable, within the meaning of and to the extent required by Rule 18f-3, with respect to each outstanding class of shares of the Trust. SHAREHOLDER SERVICES PLAN The Trust has adopted a Shareholder Services Plan (the "Services Plan") to provide for the payment with respect to Class C Shares of the Trust of "Service Fees" within the meaning of Article III, Section 26(b)(9) of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. The Services Plan applies only to the Class C Shares of shares of the Trust (regardless of whether such class is so designated or is redesignated by some other name). As used in 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 Level- Payment shareholders and/or maintenance of Level-Payment shareholder accounts. "Qualified Holdings" shall mean, as to any Qualified Recipient, all Level-Payment Shares beneficially owned by such Qualified Recipient's customers, clients or other contacts. "Administrator" shall mean Aquila Management Corporation or any successor serving as sub-adviser or administrator of the Trust. Subject to the direction and control of the Board of Trustees of the Trust, 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 of shares. Such payments shall be made only out of the Trust assets allocable to the Level-Payment 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 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. 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 Investment Company Act of 1940, as amended (the "1940 Act"), of the Trust, the Adviser, the Administrator or the Distributor, such person shall agree to furnish to the Distributor for transmission to the Board of Trustees of the Trust an accounting, in form and detail satisfactory to the Board of Trustees, to enable the Board of Trustees to make the determinations of the fairness of the compensation paid to such affiliated person, not less often than annually. The Services Plan has been approved by a vote of the Trustees, including those Trustees who, at the time of such vote, were not "interested persons" (as defined in the 1940 Act) of the Trust and had no direct or indirect financial interest in the operation of the Service Plan or in any agreements related to the Service Plan (the "Independent Trustees"), with votes cast in person at a meeting called for the purpose of voting on the Service Plan. It is effective as of the date first above written and will continue in effect for a period of more than one year from such 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 Act as now in force or hereafter amended. While the Service Plan is in effect, the selection and nomination of those Trustees of the Trust who are not "interested persons" of the Trust, as that term is defined in the 1940 Act, shall be committed to the discretion of such disinterested Trustees. Nothing herein shall prevent the involvement of others in such selection and nomination if the final decision on any such selection and nomination is approved by a majority of such disinterested Trustees. LIMITATION OF REDEMPTIONS IN KIND The Trust has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Trust is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1 percent of the net asset value of the Trust during any 90-day period for any one shareholder. Should redemptions by any shareholder exceed such limitation, the Trust will have the option of redeeming the excess in cash or in kind. If shares are redeemed in kind, the redeeming shareholder might incur brokerage costs in converting the assets into cash. The method of valuing securities used to make redemptions in kind will be the same as the method of valuing portfolio securities described under "Net Asset Value Per Share" in the Prospectus, and such valuation will be made as of the same time the redemption price is determined. TRUSTEES AND OFFICERS The Trustees and officers of the Trust, their affiliations, if any, with the Administrator or the Distributor, and their principal occupations during at least the past five years are set forth below. None of the Trustees or officers of the Trust is affiliated with the Adviser, except as indicated. As of March 31 1996, all of the Trustees and officers as a group owned less than 1% of its outstanding shares. Mr. Herrmann is an "interested person" of the Trust as that term is defined in the Investment Company Act of 1940 (the "1940 Act") as an officer of the Trust and a Director, officer and shareholder of the Distributor. Ms. Herrmann is an interested person as a member of his immediate family. Mr. Lung is an interested person as a security holder of the Adviser's parent. Interested persons are so designated by an asterisk. Lacy B. Herrmann*, President and Chairman of the Board of Trustees, 380 Madison Avenue, New York, New York 10017 Founder, President and Chairman of the Board of Aquila Management Corporation since 1984, the sponsoring organization and Administrator and/or Sub-Adviser to the following open-end investment companies, and Founder, Chairman of the Board of Trustees, and President of each: Prime Cash Fund, 1982-1996; Pacific Capital Cash Assets Trust since 1984; Short Term Asset Reserves since 1984; Churchill Cash Reserves Trust since 1985; Pacific Capital U.S. Treasuries Cash Assets Trust since 1988; Pacific Capital Tax-Free Cash Assets Trust since 1988; each of which is a money market fund, and together with Capital Cash Management Trust ("CCMT") are called the Aquila Money-Market Funds; and Hawaiian Tax-Free Trust since 1984; Tax-Free Trust of Arizona since 1986; Tax-Free Fund of Colorado since 1987; Churchill Tax-Free Fund of Kentucky since 1987; Tax-Free Fund For Utah since 1992; and Narragansett Insured Tax-Free Income Fund since 1992; each of which is a tax-free municipal bond fund, and an equity fund, Aquila Rocky Mountain Equity Fund since 1993, together with this Trust are called the Aquila Bond and Equity Funds; Vice President, Director, Secretary and formerly Treasurer of Aquila Distributors, Inc. since 1981, distributor of the above funds; President and Chairman of the Board of Trustees of CCMT, a money market fund since 1981, and an Officer and Trustee/Director of its predecessors since 1974; President and a Director of STCM Management Company, Inc., sponsor and sub-adviser to CCMT; Chairman, President, and a Director since 1984, of InCap Management Corporation, formerly sub-adviser and administrator of Prime Cash Fund and Short Term Asset Reserves, and Founder and Chairman of several other money market funds; Director or Trustee of OCC Cash Reserves, Inc., Oppenheimer Quest Global Value Fund, Inc., Oppenheimer Quest Value Fund, Inc., and Trustee of Quest For Value Accumulation Trust, The Saratoga Advantage Trust, and of the Rochester Group of Funds, each of which is an open-end investment company; Trustee of Brown University since 1990; actively involved for many years in leadership roles with university, school and charitable organizations. Vernon R. Alden, Trustee, 420 Boylston Street, Suite 403, Boston, Massachusetts 02116 Director of Augat Inc., a manufacturing corporation, since 1979, Colgate Palmolive Company since 1974, Digital Equipment Corporation, a computer manufacturing corporation, since 1959, Intermet Corporation, an independent foundry, since 1986, and Sonesta International Hotels Corporation since 1978; Chairman of the Board and Executive Committee of The Boston Company, Inc., a financial services company, 1969-1978; Trustee of Hawaiian Tax- Free Trust, Pacific Capital Cash Assets Trust, Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital U.S. Treasuries Cash Assets Trust since 1989, of Cascades Cash Fund, 1989-1994 and of Narragansett Insured Tax-Free Income Fund since 1992; Associate Dean and member of the faculty of Harvard University Graduate School of Business Administration, 1951-1962; member of the faculty and Program Director of Harvard Business School - University of Hawaii Advanced Management Program, summer of 1959 and 1960; President of Ohio University, 1962-1969; Chairman of The Japan Society of Boston, Inc., and member of several Japan- related advisory councils; Chairman of the Massachusetts Business Development Council and the Massachusetts Foreign Business Council, 1978-1983; Trustee of the Boston Symphony Orchestra since 1975; Chairman of the Massachusetts Council on the Arts and Humanities, 1972-1984; Member of the Board of Fellows of Brown University, 1969-1986; Trustee and member of the Executive Committee, Plymouth Plantation; trustee of various other cultural and educational organizations; Honorary Consul General of the Royal Kingdom of Thailand. Warren C. Coloney, Trustee, 7304 Millwood Road, Bethesda, Maryland 20817 Consultant to top management and governing boards on issues of corporate governance, strategy, organization and human resource management; Director of the Washington, D.C. office of Management Practice, Inc., since 1992; President of Coloney & Company, Inc., since 1984; Managing Director-Europe of Towers, Perrin, Forster & Crosby, Inc., 1974-1984; President of Coloney, Cannon, Main & Pursell, Inc., 1968-1974; Registered Professional Engineer; Founding Member of the Institute of Management Consultants; Trustee of Cascades Cash Fund, 1989-1994; active in a number of professional, social, church, and community service organizations in England and the United States. James A. Gardner, Trustee, Vandervert Ranch, Vandervert Road, Bend, Oregon 97707 President of Gardner Associates, an investment and real estate firm, since 1970; President Emeritus of Lewis and Clark College and Law School since 1989 and President, 1981-1989; affiliated with the Ford Foundation, 1969-1981; Lecturer and Assistant Director of Admissions of Harvard College, 1968-1969; Member of the Oregon Young Presidents Organization since 1983; Director of Stanley Investment & Management Inc., an international business brokerage, since 1987; Member of the Council on Foreign Relations since 1988; Trustee of Cascades Cash Fund, 1989-1994; Director of the Oregon High Desert Museum since 1989; active in civic, business, educational and church organizations in Oregon. Diana P. Herrmann*, Trustee, 380 Madison Avenue, New York, New York 10017 Senior Vice President and Secretary and formerly Vice President of the Administrator since 1986 and Director since 1984; Trustee of Tax-Free Trust of Arizona since 1994 and of Churchill Tax-Free Fund of Kentucky and Churchill Cash Reserves Trust since 1995; Vice President of InCap Management Corporation since 1986 and Director since 1983; Vice President and formerly Assistant Vice President of the Money Funds since 1986; Assistant Vice President of Oxford Cash Management Fund, 1986-1988; Assistant Vice President and formerly Loan Officer of European American Bank, 1981-1986; daughter of the Trust's President; Trustee of the Leopold Schepp Foundation (academic scholarships) since 1995; actively involved in mutual fund and trade associations and in college and other volunteer organizations. Ann R. Leven, Trustee, 785 Park Avenue, Apartment 20A, New York, NY 10021 Treasurer of the National Gallery of Art, Washington, D.C., since 1994, Deputy Treasurer, 1990-1994; Treasurer of the Smithsonian Institution, Washington, D.C., 1984-1990; President of ARL Associates, strategic consultants, since 1983; Vice President/Senior Corporate Planning Officer of The Chase Manhattan Bank, N.A., 1979-1983; Treasurer of The Metropolitan Museum of Art, 1972-1979; Trustee of Short Term Asset Reserves, 1984-1993, of Churchill Tax-Free Fund of Kentucky since 1987, of Cascades Cash Fund, 1989-1994, and of Churchill Cash Reserves Trust since 1995; Trustee of Oxford Cash Management Fund, 1987- 1988; Director of the Delaware Group of mutual funds since 1989; Adjunct Professor at Columbia University Graduate School of Business Administration since 1975; Trustee of the American Red Cross Endowment Fund, 1985-1990; Member of the Visiting Committee of Harvard Business School, 1979-1985; Member of the Board of Overseers of The Amos Tuck School, Dartmouth College, 1978-1984; Staff Director of the Presidential Task Force on the Arts and Humanities, 1981; Director of Alliance Capital Reserves Fund, a money market fund, 1978-1979. Raymond H. Lung*, Trustee, 2828 Southwest Hamilton Street, Portland, Oregon 97201 Retired; Trustee of Qualivest Group of Funds since 1994; Executive Vice President and Executive Trust Officer of U.S. National Bank of Oregon, 1989-1991; Senior Vice President and Executive Trust Officer, 1980-1989; various other management positions, 1954-1980; Member of Executive Committee, Trust Division, American Bankers Association, 1986-1988; Director of Pacific Securities Depository Trust Company and Pacific Clearing Corporation (subsidiaries of the Pacific Stock Exchange), 1980- 1987; Director of Collins Pine Company and Ostrander Companies (lumber and oil), 1980-1990; Trustee of Cascades Cash Fund, 1992- 1994. Richard C. Ross, Trustee, 510 SW Country Club Road, Lake Oswego, Oregon 97034 President of Richard Ross Communications, a consulting firm, since 1986; Senior communications consultant to Pihas, Schmidt, Westerdahl, advertising and public relations, 1986-1988; Executive News Director of KATU Television, 1975-1986; News Director of KGW-TV, 1956-1975; Trustee of Cascades Cash Fund, 1989-1994; Director of the Portland Rose Festival since 1972; Director of the Greater Portland Convention & Visitors Association, 1982-1985; Director of the Portland Chamber of Commerce, 1971-1980; President of the Oregon chapter of the National Multiple Sclerosis Society, 1984-1986; Director of the Meridian Park Hospital Foundation, 1984-1987; Chairman of the Broadcasters Group of the Bar-Press-Broadcasters professional relations committee, 1964-1984; Former President of the Rotary Club of East Portland and currently a Director of Goodwill Industries, Metropolitan Youth Symphony and the Lake Oswego Community Theatre. W. Dennis Cheroutes, Senior Vice President, 410 17th Street, Suite 1715, Denver, Colorado 80202 Investment Executive, Dain Bosworth, Inc., 1986-1995; and branch office mutual fund co-ordinator, 1990-1995; owner of special order clothing business, 1976-1986. Sally Wilson Church, Vice President, 4800 MaCadam Avenue, Suite 300, Portland, Oregon 97201 Vice President of Cascades Cash Fund, 1989-1994; Corporate Vice President of Shearson Lehman Hutton and Senior Marketing Coordinator of its Northwest Region, 1985-1989 and an employee in various capacities at that firm, 1978-1985. Nancy L. Kayani, Vice President, 4800 MaCadam Avenue, Suite 300, Portland, Oregon 97201 Assistant Vice President of Cascades Cash Fund, 1992-1994; Customer Service Representative of U.S. National Bank of Oregon, 1990-1991; Securities Trader of Bidwell & Co., 1988-1989; Securities Trader and Mutual Fund Regional Representative of Fidelity Investments Southwest, 1985-1987; Stockbroker of Dean Witter Reynolds, 1983-1984; Mutual Regional Representative of Columbia Management Company, 1980-1983; William C. Wallace, Vice President, 380 Madison Avenue, New York, New York 10017 Vice President of Capital Cash Management Trust and Pacific Capital Cash Assets Trust since 1984; Senior Vice President of Hawaiian Tax-Free Trust since 1985 and Vice President, 1984-1985; Senior Vice President of Tax-Free Trust of Arizona since 1989 and Vice President, 1986-1988; Vice President of Churchill Tax-Free Fund of Kentucky and Tax-Free Fund of Colorado since 1987, of Pacific Capital Tax-Free Cash Assets Trust and Pacific Capital U.S. Treasuries Cash Assets Trust since 1988 and of Narragansett Insured Tax-Free Income Fund since 1992; Secretary and Director of STCM Management Company, Inc. since 1974; President of the Distributor since 1995 and formerly Vice President of the Distributor, 1986-1992; Member of the Panel of Arbitrators, American Arbitration Association, since 1978; Assistant Vice President, American Stock Exchange, Market Development Division, and Director of Marketing, American Gold Coin Exchange, a subsidiary of the American Stock Exchange, 1976-1984. Rose F. Marotta, Chief Financial Officer, 380 Madison Avenue, New York, New York 10017 Chief Financial Officer of the Aquila Money-Market Funds and the Aquila Bond and Equity Funds since 1991 and Treasurer, 1981- 1991; formerly Treasurer of the predecessor of CCMT; Treasurer and Director of STCM Management Company, Inc., since 1974; Treasurer of Trinity Liquid Assets Trust, 1982-1986 and of Oxford Cash Management Fund, 1982-1988; Treasurer of InCap Management Corporation since 1982, of the Administrator since 1984 and of the Distributor since 1985. Richard F. West, Treasurer, 380 Madison Avenue, New York, New York 10017 Treasurer of the Aquila Money-Market Funds and the Aquila Bond and Equity Funds and of Aquila Distributors, Inc. since 1992; Associate Director of Furman Selz Incorporated, 1991-1992; Vice President of Scudder, Stevens & Clark, Inc. and Treasurer of Scudder Institutional Funds, 1989-1991; Vice President of Lazard Freres Institutional Funds Group, Treasurer of Lazard Freres Group of Investment Companies and HT Insight Funds, Inc., 1986- 1988; Vice President of Lehman Management Co., Inc. and Assistant Treasurer of Lehman Money Market Funds, 1981-1985; Controller of Seligman Group of Investment Companies, 1960-1980. Edward M. W. Hines, Secretary, 551 Fifth Avenue, New York, New York 10176 Partner of Hollyer Brady Smith Troxell Barrett Rockett Hines & Mone LLP, attorneys, since 1989 and counsel, 1987-1989; Secretary of the Aquila Money-Market Funds and the Aquila Bond and Equity Funds since 1982; Secretary of Trinity Liquid Assets Trust, 1982- 1985 and Trustee of that Trust, 1985-1986; Secretary of Oxford Cash Management Fund, 1982-1988. John M. Herndon, Vice President, 380 Madison Avenue, New York, New York 10017 Assistant Secretary of the Aquila Money-Market Funds and the Aquila Bond and Equity Funds since 1995 and Vice President of the Aquila Money-Market Funds since 1990; Vice President of the Administrator since 1990; Investment Services Consultant and Bank Services Executive of Wright Investors' Service, a registered investment adviser, 1983-1989; Member of the American Finance Association, the Western Finance Association and the Society of Quantitative Analysts. Patricia A. Craven, Assistant Secretary & Compliance Officer, 380 Madison Avenue, New York, New York 10017 Assistant Secretary of the Aquila Money-Market Funds and the Aquila Bond and Equity Funds since 1995; Counsel to the Administrator and the Distributor since 1995; formerly a Legal Associate for Oppenheimer Management Corporation, 1993-1995. Compensation of Trustees The Trust does not pay fees to Trustees affiliated with the Administrator or Adviser or to any of the Trust's officers. During the fiscal year ended September 30, 1995, the Trust paid $69,415 in fees and reimbursement of expenses to its other Trustees. The Trust is one of the 13 funds in the Aquilasm Group of Funds, which consist of tax-free municipal bond funds, money market funds and an equity fund. The following table lists the compensation of all Trustees who received compensation from the Trust and the compensation each received during the Trust's fiscal year from all funds in the Aquilasm Group of Funds and the number of such funds. None of such Trustees has any pension or retirement benefits from the Trust or any of the other funds in the Aquila group. Compensation Number of from all boards on Compensation funds in the which the from the Aquilasm Trustee Name Trust Group serves Vernon R. Alden $8,427 $30,638 6 Warren C. Coloney $8,654 $8,654 1 James A. Gardner $6,675 $6,675 1 Ann R. Leven $6,350 $14,300 3 Raymond H. Lung $7,886 $7,886 1 Richard C. Ross $7,885 $7,885 1 ADDITIONAL INFORMATION AS TO MANAGEMENT ARRANGEMENTS Additional Information as to the Advisory Agreement The Investment Advisory Agreement (the "Advisory Agreement") between the Trust and Qualivest Capital Management, Inc. (the "Adviser") contains the provisions described below, in addition to those described in the Prospectus. The Advisory Agreement may be terminated by the Adviser at any time without penalty upon giving the Trust sixty days' written notice, and may be terminated by the Trust at any time without penalty upon giving the Adviser sixty days' written notice, provided that such termination by the Trust shall be directed or approved by the vote of a majority of all its Trustees in office at the time or by the vote of the holders of a majority (as defined in the 1940 Act) of its voting securities at the time outstanding and entitled to vote; it automatically terminates in the event of its assignment (as so defined). The Advisory Agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations thereunder, the Adviser is not liable for any loss sustained by the adoption of any investment policy or the purchase, sale or retention of any security and permits the Adviser to act as investment adviser for any other person, firm or corporation. The Trust agrees to indemnify the Adviser to the full extent permitted under the Trust's Declaration of Trust. The expense limitation referred to in the Prospectus, if in effect, is implemented monthly so that at no time is there any unpaid liability under the limitation, subject to readjustment during the year. The Advisory Agreement states that it is agreed that the Adviser shall have no responsibility or liability for the accuracy or completeness of the Trust's Registration Statement under the Securities Act of 1933 and the 1940 Act, except for the information supplied by the Adviser for inclusion therein. The Advisory Agreement contains the following provisions as to the Trust's portfolio transactions. In connection with its duties to arrange for the purchase and sale of the Trust's portfolio securities, the Adviser shall select such broker-dealers ("dealers") as shall, in the 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 Adviser shall cause the Trust to deal directly with the selling or purchasing principal or market maker without incurring brokerage commissions unless the 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 price. In allocating transactions to dealers, the 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 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 Adviser's overall responsibilities as to the accounts as to which it exercises investment discretion. If, on the foregoing basis, the transaction in question could be allocated to two or more dealers, the Adviser is authorized, in making such allocation, to consider (i) whether a dealer has provided research services, as further discussed below; and (ii) whether a dealer has sold shares of the Trust or any other investment company or companies having the Adviser as its investment adviser or having the same sub-adviser, Administrator or principal underwriter as the Trust. Such research may be in written form or through direct contact with individuals and may include quotations on portfolio securities and information on particular issuers and industries, as well as on market, economic or institutional activities. The Trust recognizes that no dollar value can be placed on such research services or on execution services, that such research services may or may not be useful to the Trust and/or other accounts of the Adviser and that research received by such other accounts may or may not be useful to the Trust. During the fiscal year ended September 30, 1995, all of the Trust's transactions were principal transactions and no brokerage commissions were paid. For the three fiscal years ended September 30, 1995, 1994 and 1993, respectively, fees of $729,908, $819,214 and $714,343 were paid or accrued to the Adviser. Additional Information as to the Administration Agreement In addition to the provisions of the Administration Agreement (the "Administration Agreement") between the Administrator and the Trust described in the Prospectus, the Administration Agreement contains the provisions described below. Subject to the control of the Trust's Board of Trustees, the Administrator provides all administrative services to the Trust other than those relating to its investment portfolio and the maintenance of its accounting books and records (see below for discussion); as part of such duties, the Administrator (i) provides office space, personnel, facilities, and equipment for the performance of the following functions and for the maintenance of the Trust's headquarters; (ii) oversees all relationships between the Trust and its transfer agent, custodian, legal counsel, auditors and principal underwriter, including the negotiation, subject to the approval of the Trust's Board of Trustees, 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 effective operation and for the sale, servicing, or redemption of the Trust's shares; (iii) provides to the Adviser and to the Trust statistical and other factual information and advice regarding economic factors and trends, but does not generally furnish advice or make recommendations regarding the purchase or sale of securities; (iv) maintains the Trust's books and records (other than accounting books and records), and prepares (or assists counsel and auditors in the preparation of) all required proxy statements, reports to shareholders and Trustees, reports to and other filings with the Securities and Exchange Commission and any other governmental agencies, and tax returns, and oversees the Trust's insurance relationships; (v) prepares, on the Trust's behalf and at its expense, such applications and reports as may be necessary to register or maintain the Trust's registration or that of its shares under the securities or "Blue-Sky" laws of all such jurisdictions as may be required from time to time; (vi) responds to any inquiries or other communications from shareholders 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, oversees such shareholder servicing and transfer agent's or distributor's response thereto. Since the Trust pays its own legal and audit expenses, to the extent that the Trust's counsel and accountants prepare or assist in the preparation of prospectuses, proxy statements and reports to shareholders, the costs of such preparation or assistance are paid by the Trust. The expense limitation referred to in the Prospectus, if in effect, is implemented monthly so that at no time is there any unpaid liability under the limitation, subject to readjustment during the year. The Administration Agreement may be terminated at any time without penalty by the Administrator upon sixty days' written notice to the Trust and the Adviser; it may be terminated by the Trust at any time without penalty upon giving the Administrator sixty days' written notice, provided that such termination by the Trust shall be directed or approved by a vote of a majority of the Trustees in office at the time, including a majority of the Trustees who are not interested persons of the Trust. In either case the notice provision may be waived. The Administration Agreement provides that the Administrator shall not be liable for any error in judgement or for any loss suffered by the Trust in connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence of the Administrator in the performance of its duties, or from reckless disregard by it of its obligations and duties under the Administration Agreement. The Trust agrees to indemnify the Administrator to the full extent permitted by the Declaration of Trust. For the three fiscal years ended September 30, 1995, 1994 and 1993, respectively, fees of $729,908, $819,214 and $714,343 were paid or accrued to the Administrator. Glass-Steagall Act Federal banking laws and regulations presently prohibit a national bank or any affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and generally from underwriting, selling or distributing securities, such as shares of the Trust. The Adviser is a subsidiary of a national bank and is an affiliate of a bank holding company. Therefore, it is subject to applicable federal banking laws and regulations. The Adviser has been advised by its counsel, Miller, Nash, Wiener, Hager & Carlsen, that the Adviser may perform the advisory services for the Trust required by the Advisory Agreement, without violating federal banking laws and regulations. Moreover, such counsel have advised that changes in federal banking laws and regulations related to the permissible activities of national banks, subsidiaries of national banks, and national banks and their subsidiaries that are affiliates of a bank holding company, as well as further judicial or administrative decisions or interpretations of present and future statutes and regulations, could prevent the Adviser from continuing to serve as investment adviser to the Trust or could restrict the services which the Adviser is permitted to perform for the Trust. In the event that the Adviser is prohibited from acting as the Trust's investment adviser, it is probable that the Board of Trustees of the Business Trust would either recommend to the shareholders the selection of another qualified adviser or, if that course of action appeared impractical, that the Trust be liquidated. COMPUTATION OF NET ASSET VALUE The net asset value of the Trust's shares 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 by the total number of its shares then outstanding. However, Futures and options on them are valued at the last sales price on the principal commodities exchange on which the Future or option is traded or, if there are no sales, at the mean between the bid and asked prices as of the close of that exchange; such close may be later than 4:00 p.m., New York time. Securities having a remaining maturity of less than sixty days when purchased and securities originally purchased with maturities in excess of sixty days but which currently have maturities of sixty days or less are valued at cost adjusted for amortization of premiums and accretion of discounts. All other portfolio securities are valued at the mean between bid and asked quotations which, for Oregon Obligations, may be obtained from a reputable pricing service or from one or more broker-dealers dealing in Oregon Obligations, either of which may, in turn, obtain quotations from broker-dealers or banks which deal in specific issues. However, since Oregon Obligations are ordinarily purchased and sold on a "yield" basis by banks or dealers which act for their own account and do not ordinarily make continuous offerings, quotations obtained from such sources may be subject to greater fluctuations than is warranted by prevailing market conditions. Accordingly, some or all of the Oregon Obligations in the Trust's portfolio may be priced, with the approval of the Trust's Board of Trustees, by differential comparisons to the market in other municipal bonds under methods which include consideration of the current market value of tax-free debt instruments having varying characteristics of quality, yield and maturity. Any securities or assets for which market quotations are not readily available are valued at their fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the Trust's Board of Trustees. In the case of Oregon Obligations, such procedures may include "matrix" comparisons to the prices for other tax-free debt instruments on the basis of the comparability of their quality, yield, maturity and other special factors, if any, involved. With the approval of the Trust's Board of Trustees, the Adviser may at its own expense and without reimbursement from the Trust employ a pricing service, bank or broker-dealer experienced in such matters to perform any of the above described functions. As indicated above, the net asset value per share of the Trust's shares will be determined on each day that the New York Stock Exchange is open. That Exchange annually announces the days on which it will not be open. The most recent announcement indicates that it will not be open on the following days: New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, that Exchange may close on days not included in that announcement. Reasons for Differences in Public Offering Price As described herein and in the Prospectus, there are a number of instances in which the Trust's 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 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 at no sales charge are permitted to attempt to protect against mistaken or incompletely informed redemption decisions. Shares may be issued at no sales charge in plans of reorganization due to reduced or eliminated sales expenses and since, in some cases, such issuance is exempted in the 1940 Act from the otherwise applicable restrictions as to what sales charge must be imposed. In no case in which there is a reduced or eliminated sales charge are the interests of existing shareholders adversely affected since, in each case, the Trust receives the net asset value per share of all shares sold or issued. AUTOMATIC WITHDRAWAL PLAN Any shareholder who owns or purchases shares of the Trust having a net asset value of at least $5,000 may establish an Automatic Withdrawal Plan under which he or she will receive a monthly or quarterly check in a stated amount, not less than $50. Stock certificates will not be issued for shares held under an Automatic Withdrawal Plan. All dividends and distributions must be reinvested. Shares will be redeemed on the last business day of the month or quarter as may be necessary to meet withdrawal payments. Redemption of shares for withdrawal purposes may reduce or even liquidate the account. Monthly or quarterly payments paid to shareholders may not be considered as a yield or income on investment. ADDITIONAL TAX INFORMATION Any investor who incurs a sales commission on purchase of shares of one mutual fund (the original fund) and who then sells such shares or exchanges them for shares of a different mutual fund without having held them at least 91 days must reduce the tax basis for the shares sold or exchanged to the extent that the standard sales commission charged for acquiring shares in the exchange or later acquiring shares of the original fund or another fund is reduced because of the shareholder's having owned the original fund shares. The effect of the rule is to increase the investor's gain or reduce his or her loss on the original fund shares. The amount of the basis reduction on the original fund shares, however, is added on the investor's basis for the fund shares acquired in the exchange or later acquired. The provision applies to commissions charged after October 3, 1989. CONVERSION OF CLASS C SHARES Level Payment Class ("Class C Shares") of the Trust, which you hold will automatically convert to Front Payment ("Class A Shares") of the Trust based on the relative net asset values per share of the two classes as of the close of business on the first business day of the month in which the sixth anniversary of the your initial purchase of such Class C Shares occurs. For these purposes, the date of your initial purchase shall mean (1) the first business day of the month in which such Class C Shares were issued to you, or (2) for Class C Shares of the Trust you have obtained through an exchange or series of exchanges under the Exchange Privilege (see "Exchange Privilege" in the Prospectus.), the first business day of the month in which you made the original purchase of Class C Shares so exchanged. For conversion purposes, Class C Shares purchased through reinvestment of dividends or other distributions paid in respect of Class C Shares will be held in a separate sub- account. Each time any Class C Shares in your regular account (other than those in the sub-account) covert to Class A Shares, a pro-rata portion of the Class C Shares in the sub-account will also convert to Class A Shares. The portion will be determined by the ratio that your Class B Shares then converting to Class A Shares bears to the total of your Class C Shares not acquired through reinvestment of dividends and distributions. The availability of the conversion feature is subject to the continuing applicability of a ruling of the Internal Revenue Service ("IRS"), or an opinion of counsel, that: (1) the dividends and other distributions paid on Class A and Class C Shares will not result in "preferential dividends" under the Code; and (2) the conversion of shares does not constitute a taxable event. If the conversion feature ceased to be available, the Class C Shares of the Trust would not be converted and would continue to be subject to the higher ongoing expenses of the Class C Shares beyond six years from the date of purchase. The Trust has no reason to believe that these conditions for the availability of the conversion feature will not continue to be met. If the Trust implements any amendments to its Distribution Plan that would increase materially the costs that may be borne under such Distribution Plan by Class A shareholders, Class C Shares will stop converting into Class A Shares unless a majority of Class C shareholders, voting separately as a class, approve the proposal. GENERAL INFORMATION Additional Series Shares of each Series of the Business Trust created by the Board of Trustees are entitled to vote as a Series only to the extent permitted by the 1940 Act (see below) or as permitted by the Board of Trustees. Income and operating expenses are allocated among Series in a manner acceptable to the Board of Trustees. Under Rule 18f-2 under the 1940 Act, as to any investment company which has two or more Series outstanding, on any matter required to be submitted to shareholder vote, such matter is not deemed to have been effectively acted upon unless approved by the holders of a "majority" (as defined in that Rule) of the voting securities of each Series affected by the matter. Such separate voting requirements do not apply to the election of trustees or the ratification of the selection of accountants. Rule 18f-2 contains special provisions for cases in which an advisory contract is approved by one or more, but not all, Series. A change in investment policy may go into effect as to one or more Series whose holders so approve the change, even though the required vote is not obtained as to the holders of other affected Series. Indemnification of Shareholders and Trustees Under Massachusetts law, shareholders of a trust such as the Business Trust may, under certain circumstances, be held personally liable as partners for the obligations of the trust. For shareholder protection, however, an express disclaimer of shareholder liability for acts or obligations of the Business Trust is contained in the Declaration of Trust which requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Business Trust or the Trustees. The Declaration of Trust provides for indemnification out of the Business Trust's property of any shareholder held personally liable for the obligations of the Business Trust. The Declaration of Trust also provides that the Business Trust shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Business Trust and satisfy any judgment thereon. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to the relatively remote circumstances in which the Business Trust itself would be unable to meet its obligations. If any Series of the Business Trust were to be unable to meet the obligations attributable to it (which, as is the case with the Trust, is relatively remote), the other Series would be subject to such obligations, with a corresponding increase in the risk of the shareholder liability mentioned in the prior sentence. The Declaration of Trust further indemnifies the Trustees of the Business Trust out of the property of the Trust and provides that they will not be liable for errors of judgment or mistakes of fact or law; but nothing in the Declaration of Trust protects a Trustee against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of the office of Trustee. Custodian and Auditors The Trust's Custodian, Bank One Trust Company, N.A., is responsible for holding the Trust's assets. The Trust's auditors, KPMG Peat Marwick LLP, perform an annual audit of the Trust's financial statements. The financial statements of the Trust for the fiscal year ended September 30, 1995, which are contained in the Annual Report for that fiscal year, are hereby incorporated by reference into the Additional Statement. Those financial statements have been audited by KPMG Peat Marwick LLP, independent auditors, whose report thereon is incorporated herein by reference. Underwriting Commissions During the Trust's fiscal year ended September 30, 1995, the aggregate dollar amount of sales charges on the sales of the Trust's shares was $652,963 and the amount retained by the Distributor was $85,550. APPENDIX A DESCRIPTION OF MUNICIPAL BOND RATINGS Municipal Bond Ratings Standard & Poor's. A Standard & Poor's municipal obligation rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment may take into consideration obligors such as guarantors, insurers or lessees. The debt rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished by the issuer or obtained by Standard & Poor's from other sources it considers reliable. Standard & Poor's does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or for other circumstances. The ratings are based, in varying degrees, on the following considerations: I. Likelihood of default - capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation; II. Nature of and provisions of the obligation; III. Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors rights. AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Plus (+) or Minus (:): The ratings from "AA" to "B" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. Provisional Ratings: The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk. Moody's Investors Service. A brief description of the applicable Moody's Investors Service rating symbols and their meanings follows: Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa1, A1, Baa1, Ba1 and B1. Moody's Short Term Loan Ratings - There are four rating categories for short-term obligations, all of which define an investment grade situation. These are designated Moody's Investment Grade as MIG 1 through MIG 4. In the case of variable rate demand obligations (VRDOs), two ratings are assigned; one representing an evaluation of the degree of risk associated with scheduled principal and interest payments, and the other representing an evaluation of the degree of risk associated with the demand feature. The short-term rating assigned to the demand feature of VRDOs is designated as VMIG. When no rating is applied to the long or short-term aspect of a VRDO, it will be designated NR. Issues or the features associated with MIG or VMIG ratings are identified by date of issue, date of maturity or maturities or rating expiration date and description to distinguish each rating from other ratings. Each rating designation is unique with no implication as to any other similar issue of the same obligor. MIG ratings terminate at the retirement of the obligation while VMIG rating expiration will be a function of each issuer's specific structural or credit features. MIG1/VMIG1 This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG2/VMIG2 This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. MIG3/VMIG3 This designation denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. MIG4/VMIG4 This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk. INVESTMENT ADVISER Qualivest Capital Mangement, Inc. A subsidiary of U.S. Bancorp and its subsidiary United States National Bank of Oregon 111 S.W. Fifth Avenue U.S. Bancorp Tower Portland, Oregon 97204 ADMINISTRATOR Aquila Mangement Corporation 380 Madison Avenue, Suite 2300 New York, New York 10017 BOARD OF TRUSTEES Lacy B. Herrmann, Chairman Vernon R. Alden Warren C. Coloney James A. Gardner Diana P. Herrmann Ann R. Leven Raymond H. Lung Richard C. Ross OFFICERS Lacy B. Herrmann, President W. Dennis Cheroutes, Senior Vice President Sally Wilson Church, Vice President Nancy Kayani, Vice President Rose F. Marotta, Chief Financial Officer Richard F. West, Treasurer Edward M.W. Hines, Secretary DISTRIBUTOR Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300 New York, New York 10017 TRANSFER AND SHAREHOLDER SERVICING AGENT Administrative Data Management Corp. 581 Main Street Woodbridge, New Jersey 07095-1198 CUSTODIAN Bank One Trust Company, N.A. 100 East Broad Street Coloumbus, Ohio 43271 INDEPENDENT AUDITORS KPMG Peat Marwick LLP 345 Park Avenue New York, New York 10154 COUNSEL Hollyer Brady Smith Troxell Barrett Rockett Hines & Mone LLP 551 Fifth Avenue New York, NY 10176 TAX-FREE TRUST OF OREGON [LOGO] A tax-free income investment STATEMENT OF ADDITIONAL INFORMATION [EAGLE LOGO] One of The Aquilasm Group of Funds THE CASCADES TRUST PART C: OTHER INFORMATION ITEM 24. Financial Statements and Exhibits (a) Financial Statements: Tax-Free Trust of Oregon Portfolio: Included in Part A: Financial Highlights Incorporated by reference into Part B: Report of Independent Auditors Statement of Assets and Liabilities as of September 30, 1995 Statement of Operations for the year ended September 30, 1995 Statement of Changes in Net Assets for the years ended September 30, 1995 and 1994 Statement of Investments as of September 30, 1995 Notes to Financial Statements Included in Part C: Consent of Independent Auditors (b) Exhibits: (1) Supplemental Declaration of Trust Amending and Restating the Declaration of Trust (xi) (2) By-laws (xi) (3) Not applicable (4) (a) Specimen share certificate for Cascades Cash Fund Portfolio (iv) (b) Specimen share certificate for Tax-Free Trust of Oregon Portfolio (ii) (5) (a) Investment Advisory Agreement for Cascades Cash Fund Portfolio (vii) (b) Investment Advisory Agreement for Tax-Free Trust of Oregon Portfolio (x) (6) (a) Distribution Agreement for Cascades Cash Fund Portfolio (iv) (b) Assistance Agreement for Cascades Cash Fund Portfolio, with related contemporaneous correspondence (v) (c) Distribution Assistance Agreement for Cas- cades Cash Fund Portfolio, with related contemporaneous correspondence (v) (d) Distribution Agreement for Tax-Free Trust of Oregon Portfolio (i) (e) Sales Agreement for Brokerage Firms for Tax-Free Trust of Oregon Portfolio (vi) (f) Sales Agreement for Financial Institutions for Tax-Free Trust of Oregon Portfolio (vi) (g) Sales Agreement for Investment Advisers for Tax-Free Trust of Oregon Portfolio (ix) (h) Services Agreement (xi) (7) Not applicable (8) (a) Custody Agreement for Cascades Cash Fund Portfolio (iv) (b) Custody Agreement for Tax-Free Trust of Oregon Portfolio (x) (9) (a) Transfer Agency Agreement for Cascades Cash Fund Portfolio (iv) (b) Administration Agreement for Cascades Cash Fund Portfolio (x) (c) Transfer Agency Agreement for Tax-Free Trust of Oregon Portfolio (iii) (d) Administration Agreement for Tax-Free Trust of Oregon Portfolio (ix) (10) (a) Opinion and consent of counsel to the Trust for Cascades Cash Fund Portfolio (iv) (10) (b) Opinion and consent of Trust counsel for Tax-Free Trust of Oregon Portfolio (xi) (11) (a) Opinion and consent of counsel to the Adviser for Cascades Cash Fund Portfolio (v) (b) Opinion and consent of counsel to the Adviser for Tax-Free Trust of Oregon Portfolio (ii) (12) Not applicable (13) Agreement with initial shareholder (ii) (14) Not applicable (15) (a) Distribution Plan for Cascades Cash Fund Portfolio (viii) (15) Distribution Plan for Tax-Free Trust of Oregon (xi) (15) (a) Services Plan (xi) (16) Schedule for computation of performance quotations (x) (17) Financial Data Schedule (xi) (18) Plan Pursuant to Rule 18f-3 (xi) (i) Filed as an exhibit to Registrant's Initial Registration Statement dated March 27, 1986 and incorporated herein by reference. (ii) Filed as an exhibit to Registrant's Pre-Effective Amendment No. 1 dated June 6, 1986 and incorporated herein by reference. (iii) Filed as an exhibit to Registrant's Post-Effective Amendment No. 6 dated May 30, 1989 and incorpo- rated herein by reference. (iv) Filed as an exhibit to Registrant's Post-Effective Amendment No. 7 dated August 7, 1989 and incorporated herein by reference. (v) Filed as an exhibit to Registrant's Post-Effective Amendment No. 8 dated Dec. 26, 1989 and incorporated herein by reference. (vi) Filed as an exhibit to Registrant's Post-Effective Amendment No. 10 dated Nov. 30, 1990 and incorporated herein by reference. (vii) Filed as an exhibit to Registrant's Post-Effective Amendment No. 14 dated Nov. 30, 1992 and incorporated herein by reference. (viii) Filed as an exhibit to Registrant's Post-Effective Amendment No. 15 dated Dec. 2, 1993 and incorporated herein by reference. (ix) Filed as an exhibit to Registrant's Post-Effective Amendment No. 16 dated November 30, 1994 and incorporated herein by reference. (x) Filed as an exhibit to Registrant's Post-Effective Amendment No. 17 dated Janaury 31, 1996 and incorporated herein by reference. (xi) Filed herewith. ITEM 25. Persons Controlled By Or Under Common Control With Registrant None ITEM 26. Number of Holders of Securities As of January 30, 1996, Registrant had 0 holders of record of its shares in its Cascades Cash Fund portfolio which ceased operations on September 30, 1994 and 5,726 holders of record of its shares in its Tax-Free Trust of Oregon portfolio. ITEM 27. 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. 10 dated November 30, 1990, 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, unenforce- able. In the event that a claim for indemnifica- tion against such liabilities (other than the pay- ment by Registrant of expenses incurred or paid by a Trustee, officer, or controlling person of Regis- trant 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 pub- lic policy as expressed in the Act and will be go- verned by the final adjudication of such issue. ITEM 28. Business and Other Connections of Investment Adviser Qualivest Capital Management, Inc., Registrant's investment adviser, performs investment advisory services for mutual fund and non-mutual fund cli- ents. For information as to the business, profes- sion, vocation, or employment of a substantial na- ture of its Directors and officers, reference is made to the Form ADV filed by it under the Invest- ment Advisers Act of 1940. ITEM 29. Principal Underwriters (a) Aquila Distributors, Inc. serves as principal un- derwriter to Aquila Rocky Mountain Equity Fund, Ca- pital Cash Management Trust, Churchill Cash Re- serves Trust, 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. Treasuries Cash Assets Trust, Prime Cash Fund, Short Term Asset Reserves, Tax- Free Fund for Utah, Tax-Free Fund of Colorado, and Tax-Free Trust of Arizona, in addition to serving as the Registrant's principal underwriter. (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 30. Location of Accounts and Records All such accounts, books, and other documents are maintained by the adviser, the administrator, the custodian, and the transfer agent, whose addresses appear on the back cover pages of the Prospectus and the Statement of Additional Information. ITEM 31. Management Services Not applicable. ITEM 32. Undertakings (a) Not applicable. (b) Not applicable. (c) If the information called for by Item 5A is contained in the Registrant's latest annual report to shareholders, the Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest Annual Report to Shareholders, upon request and without charge. KPMG Peat Marwick LLP 345 Park Avenue New York, NY 10154 Independent Auditors' Consent To the Trustees and Shareholders of Tax-Free Trust of Oregon: We consent to the use of our report dated October 25, 1995 incorporated herein by reference and to the reference to our firm under the heading "Financial Highlights" in the Prospectus. New York, New York KPMG Peat Marwick LLP April 3, 1996 /s/KPMG Peat Marwick LLP SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all the requirements for effectiveness of this Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933, and has caused this Amendment to its Registration Statement 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 4th day of April, 1996. THE CASCADES TRUST (Registrant) /s/Lacy B. Herrmann By____________________________ Lacy B. Herrmann, President and Chairman of the Board 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/Lacy B. Herrmann 4/4/96 ______________________ President, Chairman of ___________ Lacy B. Herrmann the Board and Trustee (Principal Executive Officer) /s/Vernon R. Alden 4/4/96 ______________________ Trustee ___________ Vernon R. Alden /s/Warren C. Coloney 4/4/96 ______________________ Trustee ___________ Warren C. Coloney /s/James A. Gardner 4/4/96 ______________________ Trustee ___________ James A. Gardner /s/Diana P. Herrmann 4/4/96 ______________________ Trustee ___________ Diana P. Herrmann /s/Ann R. Leven 4/4/96 ______________________ Trustee ___________ Ann R. Leven /s/Raymond H. Lung 4/4/96 ______________________ Trustee ___________ Raymond H. Lung /s/Richard C. Ross 4/4/96 ______________________ Trustee ___________ Richard C. Ross /s/Rose F. Marotta 4/4/96 ______________________ Chief Financial Officer ___________ Rose F. Marotta (Principal Financial and Accounting Officer) THE CASCADES TRUST EXHIBIT INDEX Exhibit Exhibit Page Number Name Number 1 Supplemental Declaration of Trust Amending and Restating the Declaration of Trust 2 Bylaws 6 Services Agreement 10 Opinion and Consent of Trust Counsel 15 Distribution Plan 15(a) Services Plan 18 Plan pursuant to Rule 18f-3 Correspondence EX-3 2 THE CASCADES TRUST SUPPLEMENTAL DECLARATION OF TRUST AMENDING AND RESTATING THE DECLARATION OF TRUST SUPPLEMENTAL DECLARATION OF TRUST made March 6, 1996 to the DECLARATION OF TRUST (the "Present Declaration of Trust") of THE CASCADES TRUST, formerly named Tax-Free Trust of Oregon (the "Trust"). WHEREAS, paragraph 12 of Article EIGHTH of the Present Declaration of Trust permits the Trustees of the Trust to amend or otherwise supplement the Present Declaration of Trust by making a Supplemental Declaration of Trust, if authorized by vote of the Trustees and the Shareholders; and WHEREAS, the making of this Supplemental Declaration of Trust was duly authorized by the Trustees on June 9, 1995, and by the shareholders on November 27, 1995 such approval having been by the vote of the holders of a majority of the shares issued, outstanding and entitled to vote; and in addition by the vote of a majority as defined in the investment Company Act of 1940 of the holders of the shares of each outstanding series of the Trust; and WHEREAS, the officer of the Trust executing this Supplemental Declaration of Trust has been authorized and directed to do so by the Trustees of the Trust and the shareholders of the Trust on behalf of the Trustees and the Trust; NOW, THEREFORE, the Present Declaration of Trust is amended and restated so that the Declaration of Trust of the Trust (hereinafter referred to as the "Declaration of Trust") shall read in its entirety as follows: WHEREAS, the Trustees desire to establish a trust fund under the laws of the Commonwealth of Massachusetts, for the investment and reinvestment of funds contributed thereto; NOW THEREFORE, the Trustees declare that all money and property contributed to the trust fund hereunder shall be held and managed under this Declaration of Trust IN TRUST as herein set forth below. FIRST: This Trust shall be known as The Cascades Trust. SECOND: Whenever used herein, unless otherwise required by the context or specifically provided: 1. All terms used in this Declaration of Trust which are defined in the 1940 Act shall have the meanings given to them in the 1940 Act. 2. The "Trust" refers to The Cascades Trust. 3. "Shareholder" means a record owner of Shares of the Trust. 4. The "Trustees" refer to the individual trustees in their capacity as trustees hereunder of the Trust and their successor or successors for the time being in office as such trustees. 5. "Shares" means the equal proportionate units of interest into which the beneficial interest in the Trust shall be divided from time to time and includes fractions of Shares as well as whole Shares. 6. The "1940 Act" refers to the Investment Company Act of 1940, as amended from time to time. 7. "Commission" means the Securities and Exchange Commission. 8. "Board" or "Board of Trustees" means the Board of Trustees of the Trust. THIRD: The purpose or purposes for which the Trust is formed and the business or objects to be transacted, carried on and promoted by it are as follows: 1. To hold, invest and reinvest its funds, and in connection therewith to hold part or all of its funds in cash, and to purchase or otherwise acquire, hold for investment or otherwise, sell, sell short, assign, negotiate, transfer, exchange or otherwise dispose of or turn to account or realize upon, securities (which term "securities" shall for the purposes of this Declaration of Trust, without limitation of the generality thereof, be deemed to include any stocks, shares, bonds, debentures, notes, mortgages or other obligations, and any certificates, receipts, warrants or other instruments representing rights to receive, purchase or subscribe for the same, or evidencing or representing any other rights or interests therein, or in any property or assets) created or issued by any issuer (which term "issuer" shall for the purposes of this Declaration of Trust, without limitation of the generality thereof be deemed to include any persons, firms, associations, corporations, syndicates, combinations, organizations, governments, or subdivisions thereof); and to exercise, as owner or holder of any securities, all rights, powers and privileges in respect thereof; and to do any and all acts and things for the preservation, protection, improvement and enhancement in value of any or all such securities. 2. To borrow money and pledge assets in connection with any of the objects or purposes of the Trust, and to issue notes or other obligations evidencing such borrowings, to the extent permitted by the 1940 Act and by the Trust's fundamental investment policies under the 1940 Act. 3. To issue and sell its Shares in such amounts and on such terms and conditions, for such purposes and for such amount or kind of consideration (including without limitation thereto, securities) now or hereafter permitted by the laws of the Commonwealth of Massachusetts and by this Declaration of Trust, as the Trustees may determine. 4. To purchase or otherwise acquire, hold, dispose of, resell, transfer, reissue or cancel (all without the vote or consent of the Shareholders of the Trust) its Shares, in any manner and to the extent now or hereafter permitted by the laws of the Commonwealth of Massachusetts and by this Declaration of Trust. 5. To conduct its business in all its branches at one or more offices in the Commonwealth of Massachusetts and elsewhere in any part of the world, without restriction or limit as to extent. 6. To carry out all or any of the foregoing objects and purposes as principal or agent, and alone or with associates or, to the extent now or hereafter permitted by the laws of the Commonwealth of Massachusetts, as a member of, or as the owner or holder of any stock of, or share of interest in, any issuer, and in connection therewith to make or enter into such deeds or contracts with any issuers and to do such acts and things and to exercise such powers, as a natural person could lawfully make, enter into, do or exercise. 7. To do any and all such further acts and things and to exercise any and all such further powers as may be necessary, incidental, relative, conducive, appropriate or desirable for the accomplishment, carrying out or attainment of all or any of the foregoing purposes or objects. The foregoing objects and purposes shall, except as otherwise expressly provided, be in no way limited or restricted by reference to, or inference from, the terms of any other clause of this or any other Articles of this Declaration of Trust, and shall each be regarded as independent and construed as powers as well as objects and purposes, and the enumeration of specific purposes, objects and powers shall not be construed to limit or restrict in any manner the meaning of general terms or the general powers of the Trust now or hereafter conferred by the laws of the Commonwealth of Massachusetts, nor shall the expression of one thing be deemed to exclude another, though it be of like nature, not expressed; provided, however, that the Trust shall not carry on any business, or exercise any powers, in any state, territory, district or country except to the extent that the same may lawfully be carried on or exercised under the laws thereof. FOURTH: The beneficial interest in the Trust shall at all times be divided into an unlimited number of transferable Shares, each such Share having a par value of one cent per Share, each of which shall represent an equal proportionate interest in the Trust with each other Share outstanding, none having priority or preference over another, subject to the further provisions of this Article FOURTH. The Trustees may from time to time divide or combine the Shares into a greater or lesser number without thereby changing the proportionate beneficial interests in the Trust. Contributions to the Trust may be accepted for, and Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a Share or multiple thereof. Subject to the further provisions of Article FOURTH, the Board of Trustees may, without obtaining any authorization or vote of the Shareholders of any series or class of Shares, classify unissued Shares into one or more additional series and classes which shall, together with the issued Shares of beneficial interest of the Trust, have such designations as the Board may determine (but which shall in the case of a series include the word "Series" and in the case of a class include the word "Class"). Subject to the distinctions permitted among classes of the same series established by the Board of Trustees consistent with the requirements of the 1940 Act and any rule, regulation or order of the Commission, each Share of a series of the Trust shall represent an equal interest in the net assets of the series, and each holder of Shares of a series shall be entitled to receive such holder's pro-rata share of distributions of income and capital gains, if any, made with respect to such series. Upon redemption of the Shares of any series, the applicable Shareholder shall be paid solely out of funds and property of such series of the Trust. All references to Shares in this Declaration of Trust shall be deemed to be to Shares of any or all series or classes thereof, as the context may require. Series and classes shall, subject to any applicable rule, regulation or order of the Commission or other applicable law or regulation, have the characteristics set forth in (a) through and including (h) below. (a) All consideration received by the Trust for the issue or sale of Shares of each such series, together with all income, earnings, profits and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation thereof, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the series of Shares with respect to which such assets, payments, or funds were received by the Trust for all purposes, subject only to the rights of creditors, and shall be so handled upon the books of account of the Trust. Such assets, income, earnings, profits and proceeds thereof, and any asset derived from any reinvestment of such proceeds, in whatever form the same may be, are herein referred to as "assets belonging to" such series. (b) Dividends or distributions on Shares of any such series, whether payable in Shares or cash, shall be paid only out of earnings, surplus or other assets belonging to such series. (c) In the event of the liquidation or dissolution of the Trust, Shareholders of each such series shall be entitled to receive, as a series, out of the assets of the Trust available for distribution to Shareholders, but other than general assets not belonging to any particular series, the assets belonging to such series; and the assets so distributable to the Shareholders of any such series shall be distributed among such Shareholders in proportion to the number of Shares of such series held by them and recorded on the books of the Trust. In the event that there are any general assets not belonging to any particular series of Shares and available for distribution, such distribution shall be made to the holders of Shares of all series in proportion to the asset value of the Shares. (d) The assets belonging to any such series of Shares shall be charged with the liabilities in respect to such series and shall be charged with their share of the general liabilities of the Trust, in proportion to the asset value of the respective series. The determination of the Board of Trustees shall be conclusive as to the amount of liabilities, including accrued expenses and reserves, and as to the allocation of the same as to a given series, and as to whether the same, or general assets of the Trust, are allocable to one or more series. The liabilities so allocated to a series are herein referred to as "liabilities belonging to" such series. (e) The Board of Trustees may without the requirement of Shareholder approval, classify Shares of any series or divide the Shares of any series into classes, each class having such different dividend, liquidation, voting and other rights as the Trustees may determine, and may establish and designate the specific classes of Shares of each series. The fact that a series shall have initially been established and designated without any specific establishment or designation of classes (i.e., that all Shares of such series are initially of a single class), or that a series shall have more than one established and designated class, shall not limit the authority of the Trustees to establish and designate separate classes, or one or more further classes, of said series without approval of the holders of the initial class thereof, or previously established and designated class or classes thereof, provided that the establishment and designation of such further separate classes would not adversely affect the rights of the holders of the initial or previously established and designated class or classes. (f) At all meetings of Shareholders, each Shareholder of each Share of each such series or class of the Trust shall be entitled to one vote for each dollar of net asset value represented by such Share, determined as provided in the then current Prospectus of such series or class, as of the record date for such meeting, irrespective of series or class, standing in his name on the books of the Trust, except that where a vote of the holders of the Shares of any series or class, or of more than one series or class, voting by series or class, is required by the 1940 Act, any rule, regulation or order of the Commission or other applicable law or regulation as to any proposal, only the holders of such series or series, or class or classes, voting by series or class, shall be entitled to vote upon such proposal and the holders of any other series or class or classes shall not be entitled to vote thereon. Any fractional Share, if any such fractional Shares are outstanding, shall carry proportionately all the rights of a whole Share, including the right to vote and the right to receive dividends. There shall be no cumulative voting rights with respect to any Shares or series or class of Shares of the Trust. (g) The provisions of Article FIFTH relating to voting shall apply when the Trust has only one series or class of Shares outstanding or when the Trust has more than one series or class of Shares outstanding but which differ only as to their dividend rights. Otherwise, the provisions of Article FIFTH shall be subject to the provisions of this Article FOURTH. (h) When the Trust has more than one series or class of Shares outstanding: (i) the redemption rights provided to the holders of the Trust's Shares shall be deemed to apply only to the assets belonging to the series or class of Shares in question; and (ii) the net asset value per Share computation as provided for in Article SEVENTH shall be applied as if each such series or class of Shares were the Trust as referred to in such computation, but with its assets limited to the assets belonging to such series or class and its liabilities limited to the liabilities belonging to such series or class. (i) The ownership of Shares shall be recorded in the books of the Trust or a transfer agent. The Trustees may make such rules as they consider appropriate for the transfer of Shares and similar matters. The record books of the Trust or any transfer agent, as the case may be, shall be conclusive as to who are the holders of Shares and as to the number of Shares held from time to time by each. (j) The Trustees shall accept investments in the Trust from such persons and on such terms as they may from time to time authorize. (k) Shareholders shall have no pre-emptive or other right to subscribe to any additional Shares or other securities issued by the Trust or the Trustees. (l) The dividends payable to Shareholders shall, subject to any applicable rule, regulation or order of the Commission or other applicable law or regulation, be determined by the Board and need not be individually declared but may be declared and paid in accordance with a formula adopted by the Board. FIFTH: The following provisions are hereby adopted with respect to voting Shares of the Trust and certain other rights: 1. The Shareholders shall have power to vote (i) for the election of Trustees, (ii) with respect to the amendment of this Declaration of Trust, (iii) to the same extent as the shareholders of a Massachusetts business corporation, as to whether or not a court action, proceeding or claim should be brought or maintained derivatively or as a class action on behalf of the Trust or the Shareholders, and (iv) with respect to such additional matters relating to the Trust as may be required by the 1940 Act or authorized by law, by this Declaration of Trust, or the By-Laws of the Trust or any registration statement of the Trust with the Commission or any State, or as the Trustees may consider desirable. 2. At all meetings of Shareholders each Shareholder shall be entitled to one vote for each dollar of net asset value for each Share (determined in the manner described in the current Prospectus or Prospectuses, if more than one class or series is outstanding) standing in his name on the books of the Trust on the date, fixed in accordance with the By-Laws, for determination of Shareholders entitled to vote at such meeting except (if so determined by the Board of Trustees) for Shares redeemed prior to the meeting. Any fractional Share shall carry proportionately all the rights of a whole Share, including the right to vote and the right to receive dividends. The presence in person or by proxy of the holders of Shares outstanding and entitled to vote thereat representing one-third of the net asset value of the Trust as so determined shall constitute a quorum at any meeting of the Shareholders. If at any meeting of the Shareholders there shall be less than a quorum present, the Shareholders present at such meeting may, without further notice, adjourn the same from time to time until a quorum shall attend, but no business shall be transacted at any such adjourned meeting except such as might have been lawfully transacted had the meeting not been adjourned. 3. Each Shareholder, upon request to the Trust in proper form determined by the Trust, shall be entitled to require the Trust to redeem all or any part of the Shares standing in the name of such Shareholder. The method of computing such net asset value, the time at which such net asset value shall be computed and the time within which the Trust shall make payment therefor, shall be determined as hereinafter provided in Article SEVENTH of this Declaration of Trust. Notwithstanding the foregoing, the Trustees, when permitted or required to do so by the 1940 Act, may suspend the right of the Shareholders to require the Trust to redeem Shares. 4. No Shareholder shall, as such holder, have any right to purchase or subscribe for any security of the Trust which it may issue or sell, other than such right, if any, as the Trustees, in their discretion, may determine. 5. All persons who shall acquire Shares shall acquire the same subject to the provisions of this Declaration of Trust. SIXTH: Each Trustee shall hold office until the annual meeting of Shareholders next succeeding his election or until his successor is duly elected and qualifies. The persons who shall act as Trustees until the first annual meeting or until their successors are duly chosen and qualify were the initial Trustees who executed the Declaration of Trust or any counterpart thereof. However, the By-Laws of the Trust may fix the number of Trustees at a number greater than that of the number of initial Trustees and may authorize the Trustees, by the vote of a majority of the entire number of Trustees, to increase or decrease the number of Trustees fixed by this Declaration of Trust or by the By-Laws within limits specified in the By-Laws, provided that in no case shall the number of Trustees be less than three, and to fill the vacancies created by any such increase in the number of Trustees. Unless otherwise provided by the By-Laws of the Trust, the Trustees need not be Shareholders. SEVENTH: The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Trust and of the Trustees and Shareholders. 1. As soon as any Trustee is duly elected by the Shareholders or the Trustees and shall have accepted this trust, the Trust estate shall vest in the new Trustee or Trustees, together with the continuing Trustees, without any further act or conveyance, and he shall be deemed a Trustee hereunder. 2. The death, declination, resignation, retirement, removal, or incapacity of the Trustees, or any one of them shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. 3. The assets of the Trust shall be held separate and apart from any assets now or hereafter held in any capacity other than as Trustee hereunder by the Trustees or any successor Trustees. All of the assets of the Trust shall at all times be considered as vested in the Trustees. Except as provided in this Declaration of Trust, no Shareholder shall have, as such holder of beneficial interest in the Trust, any authority, power or right whatsoever to transact business for or on behalf of the Trust, or on behalf of the Trustees, in connection with the property or assets of the Trust, or in any part thereof, except the rights to receive the income and distributable amounts arising therefrom as set forth herein. 4. The Trustees in all instances shall act as principals, and are and shall be free from the control of the Shareholders. The Trustees shall have full power and authority to do any and all acts and to make and execute any and all contracts and instruments that they may consider necessary or appropriate in connection with the management of the Trust. The Trustees shall not in any way be bound or limited by present or future laws or customs in regard to Trust investments, but shall have full authority and power to make any and all investments which they, in their uncontrolled discretion, shall deem proper to accomplish the purposes of this Trust. Subject to any applicable limitation in this Declaration of Trust or in the By-Laws of the Trust, the Trustees shall have power and authority: (a) to adopt By-laws not inconsistent with this Declaration of Trust providing for the conduct of the business of the Trust and to amend and repeal them to the extent that they do not reserve that right to the Shareholders; (b) to elect and remove such officers and appoint and terminate such officers as they consider appropriate with or without cause; (c) to employ a bank or trust company as custodian of any assets of the Trust subject to any conditions set forth in this Declaration of Trust or in the By-Laws; (d) to retain a transfer agent and Shareholder servicing agent, or both; (e) to provide for the distribution of Shares either through a principal underwriter or the Trust itself or both; (f) to set record dates in the manner provided for in the By-Laws of the Trust; (g) to delegate such authority as they consider desirable to any officers of the Trust and to any agent, custodian or underwriter; (h) to vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property held in trust hereunder; and to execute and deliver powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Trustees shall deem proper; (i) to exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities held in trust hereunder; (j) to hold any security or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form; or either in its own name or in the name of a custodian or a nominee or nominees, subject in either case to proper safeguards according to the usual practice of Massachusetts business trusts or investment companies; (k) to consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or concern, any security of which is held in the Trust; to consent to any contract, lease, mortgage, purchase, or sale of property by such corporation or concern, and to pay calls or subscriptions with respect to any security held in the Trust; (l) to compromise, arbitrate, or otherwise adjust claims in favor of or against the Trust or any matter in controversy including, but not limited to, claims for taxes; (m) to make, in the manner provided in the By-Laws, distributions of income and of capital gains to Shareholders; (n) to borrow money to the extent and in the manner permitted by the 1940 Act and the Trust's fundamental policy thereunder as to borrowing; and (o) to enter into investment advisory or management contracts, subject to the 1940 Act, with any one or more corporations, partnerships, trusts, associations or other persons; if the other party or parties to any such contract are authorized to enter into securities transactions on behalf of the Trust, such transactions shall be deemed to have been authorized by all of the Trustees. 5. No one dealing with the Trustees shall be under any obligation to make any inquiry concerning the authority of the Trustees, or to see to the application of any payments made or property transferred by the Trustees or upon their order. 6. (a) The Trustees shall have no power to bind any Shareholder personally or to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay by way of subscription to any Shares or otherwise. Every note, bond, contract or other undertaking issued by or on behalf of the Trust or the Trustees relating to the Trust shall include a recitation limiting the obligation represented thereby to the Trust and its assets (but the omission of such a recitation shall not operate to bind any Shareholder). (b) Except as otherwise provided in this Declaration of Trust or the By-Laws, whenever this Declaration of Trust calls for or permits any action to be taken by the Trustees hereunder, such action shall mean that taken by the Board of Trustees by vote of the majority of a quorum of Trustees as set forth from time to time in the By-Laws of the Trust or as required pursuant to the provisions of the 1940 Act and the rules and regulations promulgated thereunder. (c) The Trustees shall possess and exercise any and all such additional powers as are reasonably implied from the powers herein contained such as may be necessary or convenient in the conduct of any business or enterprise of the Trust, to do and perform anything necessary, suitable, or proper for the accomplishment of any of the purposes, or the attainment of any one or more of the objects, herein enumerated, or which shall at any time appear conducive to or expedient for the protection or benefit of the Trust, and to do and perform all other acts or things necessary or incidental to the purposes herein before set forth, or that may be deemed necessary by the Trustees. (d) The Trustees shall have the power to determine conclusively whether any moneys, securities, or other properties of the Trust property are, for the purposes of this Trust, to be considered as capital or income and in what manner any expenses or disbursements are to be borne as between capital and income whether or not in the absence of this provision such moneys, securities, or other properties would be regarded as capital or income and whether or not in the absence of this provision such expenses or disbursements would ordinarily be charged to capital or to income. 7. The By-Laws of the Trust may divide the Trustees into classes and prescribe the tenure of office of the several classes, but no class shall be elected for a period shorter than that from the time of the election following the division into classes until the next annual meeting and thereafter for a period shorter than the interval between annual meetings or for a period longer than five years, and the term of office of at least one class shall expire each year. 8. The Shareholders shall have the right to inspect the records, documents, accounts and books of the Trust, subject to reasonable regulations of the Trustees, not contrary to Massachusetts law, as to whether and to what extent, and at what times and places, and under what conditions and regulations, such right shall be exercised. 9. Any Trustee, or any officer elected or appointed by the Trustees or by any committee of the Trustees or by the Shareholders or otherwise, may be removed at any time, with or without cause, in such lawful manner as may be provided in the By-Laws of the Trust. 10. If the By-Laws so provide, the Trustees shall have power to hold their meetings, to have an office or offices and, subject to the provisions of the laws of the Commonwealth of Massachusetts, to keep the books of the Trust outside of said Commonwealth at such places as may from time to time be designated by them. 11. Securities held by the Trust shall be voted in person or by proxy by the President or a Vice-President, or such officer or officers of the Trust as the Trustees shall designate for the purpose, or by a proxy or proxies thereunto duly authorized by the Trustees, except as otherwise ordered by vote of the holders of a majority of the Shares outstanding and entitled to vote in respect thereto. 12. (a) Subject to the provisions of the 1940 Act, any Trustee, officer or employee, individually, or any partnership of which any Trustee, officer or employee may be a member, or any corporation or association of which any Trustee, officer or employee may be an officer, director, trustee, employee or stockholder, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the Trust, and in the absence of fraud no contract or other transaction shall be thereby affected or invalidated; provided that in case a Trustee, or a partnership, corporation or association of which a Trustee is a member, officer, director, trustee, employee or stockholder is so interested, such fact shall be disclosed or shall have been known to the Trustees or a majority thereof; and any Trustee who is so interested, or who is also a director, officer, trustee, employee or stockholder of such other corporation or association or a member of such partnership which is so interested, may be counted in determining the existence of a quorum at any meeting of the Trustees which shall authorize any such contract or transaction, and may vote thereat to authorize any such contract or transaction, with like force and effect as if he were not such director, officer, trustee, employee or stockholder of such other trust or corporation or association or a member of a partnership so interested. (b) Specifically, but without limitation of the foregoing, the Trust may enter into a management, investment advisory, sub-advisory, administration or underwriting contract and other contracts with, and may otherwise do business with any manager, investment adviser, sub-adviser, or administrator for the Trust, or principal underwriter of the Shares of the Trust, or any subsidiary or affiliate of any such manager, investment adviser, sub-adviser or administrator and/or principal underwriter and may permit any such firm or corporation to enter into any contracts or other arrangements with any other firm or corporation relating to the Trust notwithstanding that the Board of Trustees of the Trust may be composed in part of partners, directors, officers or employees of any such firm or corporation, and officers of the Trust may have been or may be or become partners, directors, officers or employees of any such firm or corporation, and in the absence of fraud the Trust and any such firm or corporation may deal freely with each other, and no such contract or transaction between the Trust and any such firm or corporation shall be invalidated or in any wise affected thereby, nor shall any Trustee or officer of the Trust be liable to the Trust or to any Shareholder or creditor thereof or to any other person for any loss incurred by it or him solely because of the existence of any such contract or transaction; provided that nothing herein shall protect any Trustee or officer of the Trust against any liability to the Trust or to its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. (c) (1) As used in this paragraph the following terms shall have the meanings set forth below: (i) the term "indemnitee" shall mean any present or former Trustee, officer or employee of the Trust, any present or former Trustee or officer of another trust or corporation whose securities are or were owned by the Trust or of which the Trust is or was a creditor and who served or serves in such capacity at the request of the Trust, any present or former investment adviser, sub-adviser, administrator or principal underwriter of the Trust and the heirs, executors, administrators, successors and assigns of any of the foregoing; however, whenever conduct by an indemnitee is referred to, the conduct shall be that of the original indemnitee rather than that of the heir, executor, administrator, successor or assignee; (ii) the term "covered proceeding" shall mean any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which an indemnitee is or was a party or is threatened to be made a party by reason of the fact or facts under which he or it is an indemnitee as defined above; (iii) the term "disabling conduct" shall mean willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office in question; (iv) the term "covered expenses" shall mean expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by an indemnitee in connection with a covered proceeding; and (v) the term "adjudication of liability" shall mean, as to any covered proceeding and as to any indemnitee, an adverse determination as to the indemnitee whether by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent. (d) The Trust shall not indemnify any indemnitee for any covered expenses in any covered proceeding if there has been an adjudication of liability against such indemnitee expressly based on a finding of disabling conduct. (e) Except as set forth in (d) above, the Trust shall indemnify any indemnitee for covered expenses in any covered proceeding, whether or not there is an adjudication of liability as to such indemnitee, if a determination has been made that the indemnitee was not liable by reason of disabling conduct by (i) a final decision of the court or other body before which the covered proceeding was brought; or (ii) in the absence of such decision, a reasonable determination, based on a review of the facts, by either (a) the vote of a majority of a quorum of Trustees who are neither "interested persons," as defined in the 1940 Act nor parties to the covered proceeding or (b) an independent legal counsel in a written opinion; provided that such Trustees or counsel, in reaching such determination, may but need not presume the absence of disabling conduct on the part of the indemnitee by reason of the manner in which the covered proceeding was terminated. (f) Covered expenses incurred by an indemnitee in connection with a covered proceeding shall be advanced by the Trust to an indemnitee prior to the final disposition of a covered proceeding upon the request of the indemnitee for such advance and the undertaking by or on behalf of the indemnitee to repay the advance unless it is ultimately determined that the indemnitee is entitled to indemnification thereunder, but only if one or more of the following is the case: (i) the indemnitee shall provide a security for such undertaking; (ii) the Trust shall be insured against losses arising out of any lawful advances; or (iii) there shall have been a determination, based on a review of the readily available facts (as opposed to a full trial-type inquiry) that there is a reason to believe that the indemnitee ultimately will be found entitled to indemnification by either independent legal counsel in a written opinion or by the vote of a majority of a quorum of trustees who are neither "interested persons" as defined in the 1940 Act nor parties to the covered proceeding. (g) Nothing herein shall be deemed to affect the right of the Trust and/or any indemnitee to acquire and pay for any insurance covering any or all indemnitees to the extent permitted by the 1940 Act or to affect any other indemnification rights to which any indemnitee may be entitled to the extent permitted by the 1940 Act. 13. For purposes of the computation of net asset value, as in this Declaration of Trust referred to, the following rules shall apply: (a) The net asset value of each Share of the Trust tendered to the Trust for redemption shall be determined as of the close of business on the New York Stock Exchange next succeeding the tender of such Share; (b) The net asset value of each Share of the Trust for the purpose of the issue of such Shares shall be determined as of the close of business on the New York Stock Exchange next succeeding the receipt of an order to purchase such Shares; (c) The net asset value of each Share of the Trust, as of time of valuation on any day, shall be the quotient obtained by dividing the value, as at such time, of the net assets of the Trust (i.e., the value of the assets of the Trust less its liabilities exclusive of its surplus) by the total number of Shares outstanding at such time. The assets and liabilities of the Trust shall be determined in accordance with generally accepted accounting principles; provided, however, that in determining the liabilities of the Trust there shall be included such reserves for taxes or contingent liabilities as may be authorized or approved by the Trustees, and provided further that in determining the value of the assets of the Trust for the purpose of obtaining the net asset value, each security listed on the New York Stock Exchange shall be valued on the basis of the closing sale at the time of valuation on the business day as of which such value is being determined; if there be no sale on such day, then the security shall be valued on the basis of the mean between closing bid and asked prices on such day; if no bid and asked prices are quoted for such day, then the security shall be valued by such method as the Trustees shall deem in good faith to reflect its fair market value; securities not listed on the New York Stock Exchange shall be valued in like manner on the basis of quotations on any other stock exchange which the Trustees may from time to time approve for that purpose; readily marketable securities traded in the over-the-counter market shall be valued at the mean between their bid and asked prices, or, if the Trustees shall so determine, at their bid prices; and all other assets of the Trust and all securities as to which the Trust might be considered an "underwriter" (as that term is used in the Securities Act of 1933), whether or not such securities are listed or traded in the over-the-counter market, shall be valued by such method as they shall deem in good faith to reflect their fair market value. In connection with the accrual of any fee or refund payable to or by an investment adviser of the Trust, the amount of which accrual is not definitely determinable as of any time at which the net asset value of each Share of the Trust is being determined due to the contingent nature of such fee or refund, the Trustees are authorized to establish from time to time formulae for such accrual, on the basis of the contingencies in question to the date of such determination, or on such other basis as the Trustees may establish. (1) Shares to be issued shall be deemed to be outstanding as of the time of the determination of the net asset value per share applicable to such issuance and the net price thereof shall be deemed to be an asset of the Trust; (2) Shares to be redeemed by the Trust shall be deemed to be outstanding until the time of the determination of the net asset value applicable to such redemption and thereupon and until paid the redemption price thereof shall be deemed to be a liability of the Trust; and (3) Shares voluntarily purchased or contracted to be purchased by the Trust pursuant to the provisions of paragraph 13(d) of this Article SEVENTH shall be deemed to be outstanding until whichever is the later of (i) the time of the making of such purchase or contract of purchase, and (ii) the time as of which the purchase price is determined, and thereupon and until paid, the purchase price thereof shall be deemed to be a liability of the Trust. (d) The net asset value of each Share of the Trust, as of any time other than the close of business on the New York Stock Exchange of any day, may be determined by applying to the net asset value as of the close of business on that Exchange on the preceding business day, computed as provided in this Article SEVENTH, such adjustments as are authorized by or pursuant to the direction of the Trustees and designed reasonably to reflect any material changes in the market value of securities and other assets held and any other material changes in the assets or liabilities of the Trust and in the number of its outstanding Shares which shall have taken place since the close of business on such preceding business day. (e) In addition to the foregoing, the Trustees are empowered, in their absolute discretion, to establish other bases or times, or both, for determining the net asset value of each Share of the Trust in accordance with the 1940 Act and to authorize the voluntary purchase by the Trust, either directly or through an agent, of Shares of the Trust upon such terms and conditions and for such consideration as the Trustees shall deem advisable in accordance with any such provision, rule or regulation. (f) Payment of the net asset value of Shares of the Trust properly surrendered to it for redemption shall be made by the Trust within seven days after tender of such Shares to the Trust for such purpose plus any period of time during which the right of the holders of the Shares of the Trust to require the Trust to redeem such Shares has been suspended. Any such payment may be made in portfolio securities of the Trust and/or in cash, as the Trustees shall deem advisable, and no Shareholder shall have a right, other than as determined by the Trustees, to have his Shares redeemed in kind. EIGHTH: 1. In case any Shareholder or former Shareholder shall be held to be personally liable solely by reason of his being or having been a Shareholder and not because of his acts or omissions or for some other reason, the Shareholder or former Shareholder (or his heirs, executors, administrators or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled out of the Trust estate to be held harmless from and indemnified against all loss and expense arising from such liability. This Trust shall, upon request by the Shareholder, assume the defense of any claim made against any Shareholder for any act or obligation of the Trust and satisfy any judgment thereon. 2. It is hereby expressly declared that a trust and not a partnership is created hereby. No Trustee hereunder shall have any power to bind personally either the Trust's officers or any Shareholder. All persons extending credit to, contracting with or having any claim against the Trust or the Trustees shall look only to the assets of the Trust for payment under such credit, contract or claim; and neither the Shareholders nor the Trustees, nor any of their agents, whether past, present or future, shall be personally liable therefor. Nothing in this Declaration of Trust shall protect a Trustee against any liability to which such Trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee hereunder. 3. The exercise by the Trustees of their powers and discretion hereunder in good faith and with reasonable care under the circumstances then prevailing, shall be binding upon everyone interested. Subject to the provisions of paragraph 2 of this Article EIGHTH, the Trustees shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operations of this Declaration of Trust, and subject to the provisions of paragraph 2 of this Article EIGHTH, shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required. 4. This Trust shall continue without limitation of time but subject to the provisions of sub-sections (a), (b) and (c) of this paragraph 4. (a) The Trustees, with the favorable vote of the holders of more than 50% of the outstanding Shares entitled to vote and if the Trust has outstanding Shares of more than one series or class, such vote shall be in accordance with the provisions of Article FIFTH section (2), may sell and convey the assets of the Trust (which sale may be subject to the retention of assets for the payment of liabilities and expenses) to another issuer for a consideration which may be or include securities of such issuer. Upon making provision for the payment of liabilities, by assumption by such issuer or otherwise, the Trustees shall distribute the remaining proceeds ratably among the holders of the Shares of the Trust then outstanding. (b) The Trustees, with the favorable vote of the holders of more than 50% of the outstanding Shares entitled to vote, and if the Trust has outstanding Shares of more than one series or class, such vote shall be in accordance with the provisions of Article FIFTH section (2), may at any time sell and convert into money all the assets of the Trust. Upon making provision for the payment of all outstanding obligations, taxes and other liabilities, accrued or contingent, of the Trust, the Trustees shall distribute the remaining assets of the Trust ratably among the holders of the outstanding Shares. (c) Upon completion of the distribution of the remaining proceeds or the remaining assets as provided in sub-sections (a) and (b), the Trust shall terminate and the Trustees shall be discharged of any and all further liabilities and duties hereunder and the right, title and interest of all parties shall be cancelled and discharged. 5. The original or a copy of this instrument and of each declaration of trust supplemental hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. A copy of this instrument and of each supplemental declaration of trust shall be filed with the Massachusetts Secretary of State, as well as any other governmental office where such filing may from time to time be required. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such supplemental declarations of trust have been made and as to any matters in connection with the Trust hereunder, and with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such supplemental declaration of trust. In this instrument or in any such supplemental declaration of trust, references to this instrument, and all expressions like "herein," "hereof" and "hereunder" shall be deemed to refer to this instrument as amended or affected by any such supplemental declaration of trust. This instrument may be executed in any number of counterparts, each of which shall be deemed an original. 6. The trust set forth in this instrument is created under and is to be governed by and construed and administered according to the laws of the Commonwealth of Massachusetts. The Trust shall be of the type commonly called a Massachusetts business trust, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a trust. 7. The Board of Trustees is empowered to cause the redemption of the Shares held in any account if the aggregate net asset value of such Shares (taken at cost or value, as determined by the Board) has been reduced by a Shareholder to $500 or less upon such notice to the Shareholders in question, with such permission to increase the investment in question and upon such other terms and conditions as may be fixed by the Board of Trustees in accordance with the 1940 Act. 8. In the event that any person advances the organizational expenses of the Trust, such advances shall become an obligation of the Trust subject to such terms and conditions as may be fixed by, and on a date fixed by, or determined in accordance with criteria fixed by the Board of Trustees, to be amortized over a period or periods to be fixed by the Board. 9. Whenever any action is taken under this Declaration of Trust under any authorization to take action which is permitted by the 1940 Act, such action shall be deemed to have been properly taken if such action is in accordance with the construction of the 1940 Act then in effect as expressed in "no action" letters of the staff of the Commission or any release, rule, regulation or order under the 1940 Act or any decision of a court of competent jurisdiction, notwithstanding that any of the foregoing shall later be found to be invalid or otherwise reversed or modified by any of the foregoing. 10. Any action which may be taken by the Board of Trustees under this Declaration of Trust or its By-Laws may be taken by the description thereof in the then effective prospectus relating to the Shares under the Securities Act of 1933 or in any proxy statement of the Trust rather than by formal resolution of the Board. 11. Whenever under this Declaration of Trust, the Board of Trustees is permitted or required to place a value on assets of the Trust, such action may be delegated by the Board, and/or determined in accordance with a formula determined by the Board, to the extent permitted by the 1940 Act. 12. If authorized by vote of the Trustees and the favorable vote of the holders of more than 50% of the outstanding Shares entitled to vote, and if the Trust has outstanding shares of more than one class, such vote shall be in accordance with the provisions of Article FIFTH section (2), or by any larger vote which may be required by applicable law in any particular case, the Trustees shall amend or otherwise supplement this instrument, by making a declaration of trust supplemental hereto, which thereafter shall form a part hereof; however, any such supplemental declaration of trust may be authorized by the vote of a majority of the Trustees then in office without any shareholder vote if the sole purpose of such supplemental declaration of trust is to change the name of the Trust; any supplemental declaration of trust may be executed by and on behalf of the Trust and the Trustees by any officer or officers of the Trust. [balance of page intentionally left blank] 13. The address of the Trust is 380 Madison Avenue, Suite 2300, New York, NY 10017. The agent of the Trust in the Commonwealth of Massachusetts is United Corporate Services, Inc., 9 Crestway Road, East Boston, Massachusetts 02128. IN WITNESS WHEREOF, the undersigned have executed this Supplemental Declaration of Trust on behalf of the Trust and the Trustees as of the date first above written. THE CASCADES TRUST ______________________________ Lacy B. Herrmann President, Chairman of the Board of Trustees and Trustee Attest: ______________________________ Patricia A. Craven Assistant Secretary THE UNDERSIGNED, President, Chairman of the Board of Trustees and Trustee of The Cascades Trust who executed on behalf of said Trust and its Trustees the foregoing Supplemental Declaration of Trust, hereby acknowledges, in the name and on behalf of said Trust and its Trustees, the foregoing Supplemental Declaration of Trust to be the act of said Trust and its Trustees and further certifies that to the best of his information, knowledge and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under penalties of perjury. ________________________________ Lacy B. Herrmann EX-3 3 Dated: April __, 1996 THE CASCADES TRUST BY-LAWS ARTICLE I SHAREHOLDERS Section 1. Place of Meeting. All meetings of the Shareholders (which term as used herein shall, together with all other terms defined in the Declaration of Trust, have the same meaning as in the Declaration of Trust) shall be held at the principal office of the Trust or at such other place as may from time to time be designated by the Board of Trustees and stated in the notice of meeting. Section 1A. Shareholder Voting. At any meeting of Shareholders, Shareholders are entitled to one (1) vote for each dollar of net asset value (determined as of the record date for the meeting) per Share held (and fractional votes for fractional dollar amounts.) Section 2. Annual Meeting. In any year in which the Trustees determine that a meeting of the Shareholders of the Trust shall be held for the purpose of electing Trustees, that meeting shall be held on such date and at such time as may be determined by the Board of Trustees and as shall be designated in the notice of meeting for the purpose of electing Trustees until the next meeting for such purpose and for the transaction of such other business as may properly be brought before the meeting. Section 3. Special or Extraordinary Meetings. Special or extraordinary meetings of Shareholders for any purpose or purposes may be called by the Chairman of the Board of Trustees, if any, or by the President or by the Board of Trustees and shall be called by the Secretary upon receipt of the request in writing signed by holders of Shares representing not less than ten percent (10%) of the votes eligible to be cast thereat. Such request shall state the purpose or purposes of the proposed meeting. Section 4. Notice of Meetings of Shareholders. Not less than ten days' and not more than ninety days' written or printed notice of every meeting of Shareholders, stating the time and place thereof (and the general nature of the business proposed to be transacted at any special or extraordinary meeting), shall be given to each Shareholder entitled to vote thereat by leaving the same with him or at his residence or usual place of business or by mailing it, postage prepaid and addressed to him at his address as it appears upon the books of the Trust. No notice of the time, place or purpose of any meeting of Shareholders need be given to any Shareholder who attends in person or by proxy or to any Shareholder who, in writing executed and filed with the records of the meeting, either before or after the holding thereof, waives such notice. Section 5. Record Dates. The Board of Trustees may fix, in advance, a date, not exceeding ninety days and not less than ten days preceding the date of any meeting of Shareholders, and not exceeding ninety days preceding any dividend payment date or any date for the allotment of rights, as a record date for the determination of the Shareholders entitled to receive such dividends or rights, as the case may be; and only Shareholders of record on such date shall be entitled to notice of and to vote at such meeting or to receive such dividends or rights, as the case may be. Section 6. Quorum, Adjournment of Meetings. The presence in person or by proxy of the holders of record of outstanding Shares of the Trust representing at least one-third of the votes eligible to be cast thereat shall constitute a quorum at all meetings of Shareholders. If at any meeting of the Shareholders there shall be less than a quorum present, the Shareholders present at such meeting may, without further notice, adjourn the same from time to time until a quorum shall attend, but no business shall be transacted at any such adjourned meeting except such as might have been lawfully transacted had the meeting not been adjourned. Section 7. Voting and Inspectors. At all meetings of Shareholders every Shareholder of record entitled to vote thereat shall be entitled to vote at such meeting either in person or by proxy appointed by instrument in writing subscribed by such Shareholder or his duly authorized attorney-in-fact. All elections of Trustees shall be had by a plurality of the votes cast and all questions shall be decided by a majority of the votes cast, in each case at a duly constituted meeting, except as otherwise provided in the Declaration of Trust or in these By-Laws or by specific statutory provision superseding the restrictions and limitations contained in the Declaration of Trust or in these By-Laws. At any election of Trustees, the Board of Trustees prior thereto may, or, if they have not so acted, the Chairman of the meeting may, and upon the request of the holders of the outstanding Shares of the Trust representing 10% of its net asset value entitled to vote at such election shall, appoint two inspectors of election who shall first subscribe an oath or affirmation to execute faithfully the duties of inspectors at such election with strict impartiality and according to the best of their ability, and shall after the election make a certificate of the result of the vote taken. No candidate for the office of Trustee shall be appointed such Inspector. The Chairman of the meeting may cause a vote by ballot to be taken upon any election or matter, and such vote shall be taken upon the request of the holders of the outstanding Shares of the Trust representing 10% of its net asset value entitled to vote on such election or matter. Section 8. Conduct of Shareholders' Meetings. The meetings of the Shareholders shall be presided over by the Chairman of the Board of Trustees, if any, or if he shall not be present, by the President, or if he shall not be present, by a Vice- President, or if neither the Chairman of the Board of Trustees, the President nor any Vice-President is present, by a chairman to be elected at the meeting. The Secretary of the Trust, if present, shall act as Secretary of such meetings, or if he is not present, an Assistant Secretary shall so act; if neither the Secretary nor an Assistant Secretary is present, then the meeting shall elect its secretary. Section 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting of the Shareholders, all proxies shall be received and taken in charge of and all ballots shall be received and canvassed by the secretary of the meeting, who shall decide all questions touching the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless inspectors of election shall have been appointed as provided in Section 7, in which event such inspectors of election shall decide all such questions. ARTICLE II BOARD OF TRUSTEES Section 1. Number and Tenure of Office. The business and property of the Trust shall be conducted and managed by a Board of Trustees consisting of the number of initial Trustees, which number may be increased or decreased as provided in Section 2 of this Article. Each Trustee shall, except as otherwise provided herein, hold office until the annual meeting of Shareholders of the Trust next succeeding his election or until his successor is duly elected and qualifies. Trustees need not be Shareholders. Section 2. Increase or Decrease in Number of Trustees; Removal. The Board of Trustees, by the vote of a majority of the entire Board, may increase the number of Trustees to a number not exceeding fifteen, and may elect Trustees to fill the vacancies created by any such increase in the number of Trustees until the next annual meeting or until their successors are duly elected and qualify; the Board of Trustees, by the vote of a majority of the entire Board, may likewise decrease the number of Trustees to a number not less than two but the tenure of office of any Trustee shall not be affected by any such decrease. Vacancies occurring other than by reason of any such increase shall be filled as provided for a Massachusetts business corporation. In the event that after proxy material has been printed for a meeting of Shareholders at which Trustees are to be elected any one or more management nominees dies or becomes incapacitated, the authorized number of Trustees shall be automatically reduced by the number of such nominees, unless the Board of Trustees prior to the meeting shall otherwise determine. Any Trustee at any time may be removed either with or without cause by resolution duly adopted by the affirmative votes of the holders of the majority of the Shares of the Trust present in person or by proxy at any meeting of Shareholders at which such vote may be taken, provided that a quorum is present, or by such larger vote as may be required by Massachusetts law. Any Trustee at any time may be removed for cause by resolution duly adopted at any meeting of the Board of Trustees provided that notice thereof is contained in the notice of such meeting and that such resolution is adopted by the vote of at least two thirds of the Trustees whose removal is not proposed. As used herein, "for cause" shall mean any cause which under Massachusetts law would permit the removal of a Trustee of a business trust. Section 3. Place of Meeting. The Trustees may hold their meetings, have one or more offices, and keep the books of the Trust outside Massachusetts, at any office or offices of the Trust or at any other place as they may from time to time by resolution determine, or, in the case of meetings, as they may from time to time by resolution determine or as shall be specified or fixed in the respective notices or waivers of notice thereof. Section 4. Regular Meetings. Regular meetings of the Board of Trustees shall be held at such time and on such notice, if any, as the Trustees may from time to time determine. The annual meeting of the Board of Trustees shall be held as soon as practicable after the annual meeting of the Shareholders for the election of Trustees. Section 5. Special Meetings. Special meetings of the Board of Trustees may be held from time to time upon call of the Chairman of the Board of Trustees, if any, the President or two or more of the Trustees, by oral or telegraphic or written notice duly served on or sent or mailed to each Trustee not less than one day before such meeting. No notice need be given to any Trustee who attends in person or to any Trustee who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Such notice or waiver of notice need not state the purpose or purposes of such meeting. Section 6. Quorum. One-third of the Trustees then in office shall constitute a quorum for the transaction of business, provided that a quorum shall in no case be less than two Trustees. If at any meeting of the Board there shall be less than a quorum present (in person or by open telephone line, to the extent permitted by the 1940 Act), a majority of those present may adjourn the meeting from time to time until a quorum shall have been obtained. The act of the majority of the Trustees present at any meeting at which there is a quorum shall be the act of the Board, except as may be otherwise specifically provided by statute, by the Declaration of Trust or by these By- Laws. Section 7. Executive Committee. The Board of Trustees may, by the affirmative vote of a majority of the entire Board, elect from the Trustees an Executive Committee to consist of such number of Trustees as the Board may from time to time determine. The Board of Trustees by such affirmative vote shall have power at any time to change the members of such Committee and may fill vacancies in the Committee by election from the Trustees. When the Board of Trustees is not in session, the Executive Committee shall have and may exercise any or all of the powers of the Board of Trustees in the management of the business and affairs of the Trust (including the power to authorize the seal of the Trust to be affixed to all papers which may require it) except as provided by law and except the power to increase or decrease the size of, or fill vacancies on the Board. The Executive Committee may fix its own rules of procedure, and may meet, when and as provided by such rules or by resolution of the Board of Trustees, but in every case the presence of a majority shall be necessary to constitute a quorum. In the absence of any member of the Executive Committee the members thereof present at any meeting, whether or not they constitute a quorum, may appoint a member of the Board of Trustees to act in the place of such absent member. Section 8. Other Committees. The Board of Trustees, by the affirmative vote of a majority of the entire Board, may appoint other committees which shall in each case consist of such number of members (not less than two) and shall have and may exercise such powers as the Board may determine in the resolution appointing them. A majority of all members of any such committee may determine its action, and fix the time and place of its meetings, unless the Board of Trustees shall otherwise provide. The Board of Trustees shall have power at any time to change the members and powers of any such committee, to fill vacancies, and to discharge any such committee. Section 9. Informal Action by and Telephone Meetings of Trustees and Committees. Any action required or permitted to be taken at any meeting of the Board of Trustees or any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board, or of such committee, as the case may be. Trustees or members of a committee of the Board of Trustees may participate in a meeting by means of a conference telephone or similar communications equipment; such participation shall, except as otherwise required by the 1940 Act, have the same effect as presence in person. Section 10. Compensation of Trustees. Trustees shall be entitled to receive such compensation from the Trust for their services as may from time to time be voted by the Board of Trustees. Section 11. Dividends. Dividends or distributions payable on the Shares may, but need not be, declared by specific resolution of the Board as to each dividend or distribution; in lieu of such specific resolutions, the Board may, by general resolution, determine the method of computation thereof, the method of determining the Shareholders to which they are payable and the methods of determining whether and to which Shareholders they are to be paid in cash or in additional Shares. ARTICLE III OFFICERS Section 1. Executive Officers. The executive officers of the Trust shall be chosen by the Board of Trustees as soon as may be practicable after the annual meeting of the Shareholders. These may include a Chairman of the Board of Trustees, and shall include a President, one or more Vice-Presidents (the number thereof to be determined by the Board of Trustees), a Secretary and a Treasurer. The Chairman of the Board of Trustees, if any, and the President may, but need not be, selected from among the Trustees. The Board of Trustees may also in its discretion appoint Assistant Secretaries, Assistant Treasurers, and other officers, agents and employees, who shall have such authority and perform such duties as the Board or the Executive Committee may determine. The Board of Trustees may fill any vacancy which may occur in any office. Any two offices, except those of President and Vice-President, may be held by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity, if such instrument is required by law or these By-Laws to be executed, acknowledged or verified by two or more officers. Section 2. Term of Office. The term of office of all officers shall be one year and until their respective successors are chosen and qualify; however, any officer may be removed from office at any time with or without cause by the vote of a majority of the entire Board of Trustees. Section 3. Powers and Duties. The officers of the Trust shall have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as may from time to time be conferred by the Board of Trustees or the Executive Committee. ARTICLE IV SHARES Section 1. Certificates of Shares. Each Shareholder of the Trust may be issued a certificate or certificates for his Shares in such form as the Board of Trustees may from time to time prescribe, but only if and to the extent and on the conditions prescribed by the Board. Section 2. Transfer of Shares. Shares shall be transferable on the books of the Trust by the holder thereof in person or by his duly authorized attorney or legal representative, upon surrender and cancellation of certificates, if any, for the same number of Shares, duly endorsed or accompanied by proper instruments of assignment and transfer, with such proof of the authenticity of the signature as the Trust or its agent may reasonably require; in the case of Shares not represented by certificates, the same or similar requirements may be imposed by the Board of Trustees. Section 3. Stock Ledgers. The stock ledgers of the Trust, containing the name and address of the Shareholders and the number of Shares held by them respectively, shall be kept at the principal offices of the Trust or, if the Trust employs a transfer agent, at the offices of the transfer agent of the Trust. Section 4. Lost, Stolen or Destroyed Certificates. The Board of Trustees may determine the conditions upon which a new certificate may be issued in place of a certificate which is alleged to have been lost, stolen or destroyed; and may, in their discretion, require the owner of such certificate or his legal representative to give bond, with sufficient surety to the Trust and the transfer agent, if any, to indemnify it and such transfer agent against any and all loss or claims which may arise by reason of the issue of a new certificate in the place of the one so lost, stolen or destroyed. ARTICLE V SEAL The Board of Trustees shall provide a suitable seal of the Trust, in such form and bearing such inscriptions as it may determine. ARTICLE VI FISCAL YEAR The fiscal year of the Trust shall be fixed by the Board of Trustees. ARTICLE VII AMENDMENT OF BY-LAWS The By-Laws of the Trust may be altered, amended, added to or repealed by the Shareholders or by majority vote of the entire Board of Trustees, but any such alteration, amendment, addition or repeal of the By-Laws by action of the Board of Trustees may be altered or repealed by the Shareholders. EX-99 4 draft 3/22/96 SHAREHOLDER SERVICING AGREEMENT Aquila Distributors, Inc. (the "Distributor") 380 Madison Avenue Suite 2300 New York, NY 10017 Dear Sirs: Tax-Free Trust of Oregon (the "Fund") confirms its agreement with Aquila Distributors, Inc. (the "Distributor") with respect to the servicing of shareholder accounts representing shares of the Level-Payment Class of the Fund. This Agreement is entered into pursuant to the Fund's Shareholder Services Plan dated , 1996 (the "Plan"). Section 1. Compensation and Services to be Rendered (a) The Fund will pay the Distributor an annual fee (the "Service Fee") in compensation for its services in connection with the servicing of shareholder accounts. The Service Fee paid will be calculated daily and paid monthly by the Fund at the annual rate of .25% of the average annual net assets of the Fund represented by the Level-Payment ("Class C") Shares. (b) The Service Fee will be used by the Distributor to provide compensation for ongoing servicing and/or maintenance of shareholder accounts and to cover an allocable portion of overhead and other office expenses of the Distributor and/or selected dealers related to the servicing and/or maintenance of shareholder accounts. It is understood that compensation may be paid by the Distributor to persons, including employees of the Distributor, who respond to inquiries of Level-Payment Shareholders of the Fund regarding their ownership of shares or their accounts with the Fund or who provide other similar services not otherwise required to be provided by the Fund's investment manager, transfer agent or other agent of the Fund. Section 2. Reports While this Agreeement is in effect, the Distributor shall provide the reports called for in Section 4 of the Plan. Section 3. Approval of Trustees This agreement has been approved by a majority vote of both (a) the full Board of Trustees of the Fund and (b) those Trustees who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or this Agreement (the "Independent Trustees"), cast in person at a meeting called for the purpose of voting on this Agreement. Section 4. Continuance of Agreement This Agreement will continue in effect for a period of more than one year from the date of its effectiveness only so long as its continuance is specifically approved annually by vote of the Fund's Board of Trustees in the manner described in Section 3 above. Section 5. Termination (a) This agreement may be terminated at any time, without the payment of any penalty, by vote of a majority of the Independent Trustees or by a vote of a majority of the outstanding Level-Payment Shares on not more than 60 days' written notice to the Distributor. (b) This Agreement will terminate automatically in the event of its assignment. Section 6. Selection of Certain Trustees While this Agreement is in effect, the selection and nomination of the Fund's Trustees who are not interested persons of the Fund will be committed to the discretion of the Trustees then in office who are not interested persons of the Fund. Section 7. Amendments No material amendment to this Agreement may be made unless approved by the Fund's Board of Trustees in the manner described in Section 3 above. Section 8. Meaning of Certain Terms As used in this Agreement, the terms "assignment," "interested person" and "majority of this outstanding voting securities" will be deemed to have the same meaning that those terms have under the Investment Company Act of 1940, as amended (the "Act") and the rules and regulations under the Act, subject to any exemption that may be granted to the Fund under the Act by the Securities and Exchange Commission. Section 9. Dates This Agreement has been executed by the parties as of ________, 1996 and will become effective on _______, 1996. If the terms and conditions described above are in accordance with your understanding, kindly indicate your acceptance of this Agreement by signing and returning to us the enclosed copy of this Agreement. Very truly yours, TAX-FREE TRUST OF OREGON By:________________________ Richard F. West, Treasurer Accepted: AQUILA DISTRIBUTORS, INC. By:_____________________________ Lacy B. Herrmann Secretary EX-23 5 HOLLYER BRADY SMITH TROXELL BARRETT ROCKETT HINES & MONE LLP 551 Fifth Avenue New York, NY 10176 Tel: (212) 818-1110 FAX: (212) 818-0494 e-mail: wldbst@ix.netcom.com April 3, 1996 The Cascades Trust 380 Madison Avenue, Suite 2300 New York, New York 10017 Ladies and Gentlemen: You have requested that we render an opinion to The Cascades Trust (the "Business Trust") with respect post-effective amendment No. 18 (the "Amendment") to the Registration Statement of the Trust under the Securities Act of 1933 (the "1933 Act") and No. 18 under the Investment Company Act of 1940 (the "1940 Act") which you propose to file with the Securities and Exchange Commission (the "Commission"). The purpose of the Amendment is to redesignate existing shares of the Trust's only active series, Tax-Free Trust of Oregon (the "Trust") as Front-Payment Class Shares ("Class A Shares") and to designate two new classes of shares to be offered by the Trust as Level-Payment Class Shares ("Class C Shares") and Institutional Class Shares ("Class Y Shares"). We have examined originals or copies, identified to our satisfaction as being true copies, of those corporate records of the Business Trust, certificates of public officials, and other documents and matters as we have deemed necessary for the purpose of this opinion. We have assumed without independent verification the authenticity of the documents submitted to us as originals and the conformity to the original documents of all documents submitted to us as copies. Upon the basis of the foregoing and in reliance upon such other matters as we deem relevant under the circumstances, it is our opinion that the Class A Shares, Class C Shares and Class Y Shares of the Trust as described in the Amendment, when issued and paid for in accordance with the terms set forth in the prospectus and statement of additional information of the Trust forming a part of its then effective Registration Statement as heretofore, herewith and hereafter amended, will be duly issued, fully-paid and non-assessable to the extent set forth therein. This letter is furnished to you pursuant to your request and to the requirements imposed upon you under the 1933 Act and 1940 Act and is intended solely for your use for the purpose of completing the filing of the Amendment with the Commission. This letter may not be used for any other purpose or furnished to or relied upon by any other persons, or included in any filing made with any other regulatory authority, without our prior written consent. We hereby consent to the filing of this opinion with the Amendment. Very truly yours, HOLLYER BRADY SMITH TROXELL BARRETT ROCKETT HINES & MONE LLP /s/ W.L.D. Barrett By:_________________________________ W. L. D. Barrett EX-1 6 Dated: , 1996 Tax-Free Trust of Oregon DISTRIBUTION PLAN 1. The Plan. This amended and restated Plan (the "Plan") is the written plan, contemplated by Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "1940 Act"), of Tax-Free Trust of Oregon (the "Trust"), a portfolio of The Cascades Trust, a Massachusetts business trust (referred to herein as the "Business Trust"). Part I of the Plan applies solely to the Front-Payment Class ("Class A") of shares of the Trust, Part II solely to the Level-Payment Class ("Class C") and Part III to all classes. 2. Disinterested Trustees. While any Part of this Plan is in effect, the selection and nomination of those Trustees of the Business Trust who are not "interested persons" of the Business Trust shall be committed to the discretion of such disinterested Trustees. Nothing herein shall prevent the involvement of others in such selection and nomination if the final decision on any such selection and nomination is approved by a majority of such disinterested Trustees. Part I Payments Involving Trust Assets Allocated to Front-Payment Shares 3. Applicability. This Part I of the Plan applies only to the Front-Payment Class ("Class A") of shares of the Trust (regardless of whether such class is so designated or is redesignated by some other name). 4. Definitions for Part I. As used in this 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 this 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 Shares or servicing of shareholder accounts with respect to such shares. "Qualified Holdings" shall mean, as to any Qualified Recipient, all Front-Payment 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. "Administrator" shall mean Aquila Management Corporation or any successor serving as sub-adviser or administrator of the Fund. 5. Certain Payments Permitted. Subject to the direction and control of the Board of Trustees of the Business Trust, 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) 0.05 of 1% of the average annual net assets of the Trust represented by the Front-Payment Class of shares up to $250 million and 0.15 of 1% of such net assets above $250 million. Such payments shall be made only out of the Trust assets allocable to the Front-Payment Shares. The Distributor shall have sole authority (i) as to the selection of any Qualified Recipient or Recipients; (ii) not to select any Qualified Recipient; and (iii) the amount of Class A Permitted Payments, if any, to each Qualified Recipient provided that the total Class A Permitted Payments to all Qualified Recipients do not exceed the amount set forth above. The Distributor is authorized, but not directed, to take into account, in addition to any other factors deemed relevant by it, the following: (a) the amount of the Qualified Holdings of the Qualified Recipient; (b) the extent to which the Qualified Recipient has, at its expense, taken steps in the shareholder servicing area with respect to holders of Front-Payment 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. 6. Reports. While this Part I is in effect, the Trust's Distributor shall report at least quarterly to the Business Trust's Trustees in writing for their review on the following matters: (i) all Class A Permitted Payments made under Section 5 of the Plan, the identity of the Qualified Recipient of each payment, and the purposes for which the amounts were expended; and (ii) all fees of the Trust to the Distributor paid or accrued during such quarter. In addition, if any such Qualified Recipient is an affiliated person, as that term is defined in the Act, of the Trust, the Adviser, the Administrator or the Distributor, such person shall agree to furnish to the Distributor for transmission to the Board of Trustees of the Business 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. 7. Effectiveness, Continuation, Termination and Amendment. To the extent required by the 1940 Act, this Part I of the Plan has been approved (i) by a vote of the Trustees, including those Trustees (the "Independent Trustees") who, at the time of such vote, were not "interested persons" (as defined in the 1940 Act) of the Business Trust and had no direct or indirect financial interest in the operation of this Plan or in any agreements related to this Plan, 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 defined in the 1940 Act) of the outstanding voting securities of the Front- Payment Class (or of any predecessor class or category of shares, whether or not designated as a class) and a vote of holders of at least a "majority" (as so defined) of the outstanding voting securities of the Level-Payment Class and/or of any other class whose shares are convertible into Front-Payment Shares. This Part I is effective as of the date first above written and will, unless terminated as hereinafter provided, continue in effect until June 30 of each year only so long as such continuance is specifically approved at least annually by the Business Trust's Trustees and its Independent Trustees with votes cast in person at a meeting called for the purpose of voting on such continuance. This Part I may be terminated at any time by the vote of a majority of the Independent Trustees or by shareholder approval of the class or classes of shares affected by this Part I as set forth in (ii) above. This 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 this Part I as set forth in (ii) above, and all amendments must be approved in the manner set forth in (i) above. 8. Class A Plan Agreements. 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 their agreements with the Distributor with respect to payments under this Part I, provided, however, that "Related Agreements" entered into under the distribution plan of the Trust in effect prior to the effective date of this Part I and not terminated at or prior to such effective date are deemed to be "Class A Plan Agreements" for purposes of this Part I and that, as and to the extent necessary to give effect to this proviso, defined terms used in such agreements shall be deemed to have the meanings assigned to their appropriate counterparts in this Part I and the provisions of such agreements, which shall otherwise remain in full force and effect, are deemed to be appropriately modified. Part II Payments Involving Trust Assets Allocated to Level-Payment Shares 9. Applicability. This Part II of the Plan applies only to the Level-Payment Class ("Class C") of shares of the Trust (regardless of whether such class is so designated or is redesignated by some other name). 10. Definitions for Part II. As used in this Part II of the Plan, "Qualified Recipients" shall mean broker-dealers or others selected by Aquila Distributors, Inc. (the "Distributor"), including but not limited to any principal underwriter of the Trust, with which the Trust or the Distributor has entered into written agreements in connection with this 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 Shares or servicing of shareholder accounts with respect to such shares. "Qualified Holdings" shall mean, as to any Qualified Recipient, all Level-Payment 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. "Administrator" shall mean Aquila Management Corporation or any successor serving as sub-adviser or administrator of the Fund. 11. Certain Payments Permitted. Subject to the direction and control of the Board of Trustees of the Business Trust, 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 of shares. Such payments shall be made only out of the Trust assets allocable to the Level-Payment Shares. The Distributor shall have sole authority (i) as to the selection of any Qualified Recipient or Recipients; (ii) not to select any Qualified Recipient; and (iii) the amount of Class C Permitted Payments, if any, to each Qualified Recipient provided that the total Class C Permitted Payments to all Qualified Recipients do not exceed the amount set forth above. The Distributor is authorized, but not directed, to take into account, in addition to any other factors deemed relevant by it, the following: (a) the amount of the Qualified Holdings of the Qualified Recipient; (b) the extent to which the Qualified Recipient has, at its expense, taken steps in the shareholder servicing area with respect to holders of Level-Payment 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. 12. Reports. While this Part II is in effect, the Trust's Distributor shall report at least quarterly to the Business Trust's Trustees in writing for their review on the following matters: (i) all Class C Permitted Payments made under Section 11 of the Plan, the identity of the Qualified Recipient of each payment, and the purposes for which the amounts were expended; and (ii) all fees of the Trust to the Distributor paid or accrued during such quarter. In addition, if any such Qualified Recipient is an affiliated person, as that term is defined in the Act, of the Trust, the Adviser, the Administrator or the Distributor, such person shall agree to furnish to the Distributor for transmission to the Board of Trustees of the Business 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. 13. Effectiveness, Continuation, Termination and Amendment. This Part II has been 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 defined in the 1940 Act) of the outstanding voting securities of the Level-Payment Class. This Part II is effective as of the date first above written and will, unless terminated as hereinafter provided, continue in effect until April 30 of each year only so long as such continuance is specifically approved at least annually by the Business Trust's Trustees and its Independent Trustees with votes cast in person at a meeting called for the purpose of voting on such continuance. This Part II may be terminated at any time by the vote of a majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the 1940 Act) of the outstanding voting securities of the Level-Payment Class. This 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 this Part II as set forth in (ii) above, and all amendments must be approved in the manner set forth in (i) above. 14. Class C Plan Agreements. 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 their agreements with the Distributor with respect to payments under this Part II, provided, however, that "Related Agreements" entered into under the distribution plan of the Trust in effect prior to the effective date of this Part II and not terminated at or prior to such effective date are deemed to be "Class C Plan Agreements" for purposes of this Part II and that, as and to the extent necessary to give effect to this proviso, defined terms used in such agreements shall be deemed to have the meanings assigned to their appropriate counterparts in this Part II and the provisions of such agreements, which shall otherwise remain in full force and effect, are deemed to be appropriately modified. Part III Defensive Provisions 15. Certain Payments Permitted. Whenever the Administrator of the Trust (i) makes any payment directly or through the Trust's Distributor for additional compensation to dealers in connection with sales of shares of the Trust, which additional compensation may include payment or partial payment for advertising of the Trust's shares, payment of travel expenses, including lodging, incurred in connection with trips taken by qualifying registered representatives and members of their families to locations within or outside of the United States, other prizes or financial assistance to securities dealers in offering their own seminars or conferences, or other items described in the Trust's prospectus, in amounts that will not exceed the amount of the sales charges in respect of sales of shares of the Trust effected through such participating dealers whether retained by the Distributor or reallowed to participating dealers, or (ii) bears the costs, not borne by the Distributor, of printing and distributing all copies of the Trust's prospectuses, statements of additional information and reports to shareholders which are not sent to the Trust's shareholders, or the costs of supplemental sales literature and advertising, such payments are authorized. It is recognized that, in view of the bearing by the Administrator of certain distribution expenses, the profits, if any, of the Administrator are dependent primarily on the administration fees paid by the Trust to the Administrator and that its profits, if any, would be less, or losses, if any, would be increased due to the bearing by it of such expenses. If and to the extent that any such administration fees paid by the Trust might, in view of the foregoing, be considered as indirectly financing any activity which is primarily intended to result in the sale of shares issued by the Trust, the payment of such fees is authorized by the Plan. 16. Certain Trust Payments Authorized. 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 the Rule, such payments are authorized under this 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 of all prospectuses and statements of additional information to existing shareholders; (iii) the costs of the preparation, printing and mailing of all 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. 17. Reports. While Part III of this Plan is in effect, the Trust's sub-adviser, Administrator or Distributor shall report at least quarterly to the Business Trust's Trustees in writing for their review on the following matters: (i) all payments made under Section 15 of this Plan; (ii) all costs of each item specified in Section 16 of this Plan (making estimates of such costs where necessary or desirable) during the preceding calendar or fiscal quarter; and (iii) all fees of the Trust to the Distributor, sub-adviser or Administrator paid or accrued during such quarter. 18. Effectiveness, Continuation, Termination and Amendment. To the extent required by the 1940 Act, this Part III of the Plan has, with respect to each class of shares outstanding, been approved (i) by a vote of the Trustees of the Business Trust and of the Independent Trustees, with votes cast in person at a meeting called for the purpose of voting on this Plan; and (ii) by a vote of holders of at least a "majority" (as defined in the 1940 Act) of the outstanding voting securities of such class and a vote of holders of at least a "majority" (as so defined) of the outstanding voting securities of any class whose shares are convertible into shares of such class. This Part III is effective as of the date first above written and will, unless terminated as hereinafter provided, continue in effect with respect to each class of shares to which it applies until April 30 of each year only so long as such continuance is specifically approved with respect to that class at least annually by the Business Trust's Trustees and its Independent Trustees with votes cast in person at a meeting called for the purpose of voting on such continuance. This Part III of the Plan may be terminated at any time with respect to a given class by the vote of a majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the 1940 Act) of the outstanding voting securities of that class. This Part III may not be amended to increase materially the amount of payments to be made without shareholder approval as set forth in (ii) above, and all amendments must be approved in the manner set forth in (i) above. -------------------------- 19. Additional Terms and Conditions. This Plan and each Part of it shall also be subject to all applicable terms and conditions of Rule 18f-3 under the Act as now in force or hereafter amended. Specifically, but without limitation, the provisions of Part III shall be deemed to be severable, within the meaning of and to the extent required by Rule 18f-3, with respect to each outstanding class of shares of the Trust. EX-99 7 Dated: , 1996 TAX-FREE TRUST OF OREGON SHAREHOLDER SERVICES PLAN 1. The Plan. This Shareholder Services Plan (the "Plan") is the written plan of TAX-FREE TRUST OF OREGON (the "Trust") adopted to provide for the payment by the Level-Payment Class of shares of the Trust of ""service fees" within the meaning of Article III, Section 26(b)(9) of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. This Plan applies only to the Level-Payment Class ("Class C") of shares of the Trust (regardless of whether such class is so designated or is redesignated by some other name). 2. Definitions. As used in this 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 Level- Payment shareholders and/or maintenance of Level-Payment shareholder accounts. "Qualified Holdings" shall mean, as to any Qualified Recipient, all Level-Payment Shares beneficially owned by such Qualified Recipient's customers, clients or other contacts. "Administrator" shall mean Aquila Management Corporation or any successor serving as sub-adviser or administrator of the Trust. 3. Certain Payments Permitted. Subject to the direction and control of the Board of Trustees of the Trust, 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 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 of shares. Such payments shall be made only out of the Trust assets allocable to the Level-Payment 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 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. 4. Reports. While this 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 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 Investment Company Act of 1940, as amended (the "1940 Act"), of the Trust, the Adviser, the Administrator or the Distributor, such person shall agree to furnish to the Distributor for transmission to the Board of Trustees of the Trust an accounting, in form and detail satisfactory to the Board of Trustees, to enable the Board of Trustees to make the determinations of the fairness of the compensation paid to such affiliated person, not less often than annually. 5. Effectiveness, Continuation, Termination and Amendment. This 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 this Plan or in any agreements related to this Plan (the "Independent Trustees"), with votes cast in person at a meeting called for the purpose of voting on this Plan. It is effective as of the date first above written and will continue in effect for a period of more than one year from such 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. 6. Additional Terms and Conditions. (a) This Plan shall also be subject to all applicable terms and conditions of Rule 18f-3 under the Act as now in force or hereafter amended. (b) While this Plan is in effect, the selection and nomination of those Trustees of the Trust who are not "interested persons" of the Trust, as that term is defined in the 1940 Act, shall be committed to the discretion of such disinterested Trustees. Nothing herein shall prevent the involvement of others in such selection and nomination if the final decision on any such selection and nomination is approved by a majority of such disinterested Trustees. EX-99 8 TAX-FREE TRUST OF OREGON Rule 18f-3 Multiple Class Plan TAX-FREE TRUST OF OREGON (the "Trust") has elected to rely on Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), in offering multiple classes of shares with differing distribution arrangements, voting rights and expense allocations. Pursuant to Rule 18f-3, the Board of Trustees of the Trust has approved and adopted this written plan (the "Plan") specifying all of the differences among the classes of shares to be offered by the Trust. Prior to such offering, the Plan will be filed as an exhibit to the Trust's registration statement. The Plan sets forth the differences among the classes, including shareholder services, distribution arrangements, expense allocations, and conversion or exchange options. I. Attributes of Share Classes This section discusses the attributes of the various classes of shares. Each share of the Trust represents an equal pro rata interest in the Trust and has identical voting rights, powers, qualifications, terms and conditions, and in proportion to each share's net asset value, liquidation rights and preferences. Each class differs in that: (a) each class has a different class designation; (b) only the Front-Payment Shares are subject to a front-end sales charge ("FESC"); (c) only the Level-Payment Shares are subject to a contingent deferred sales charge ("CDSC"); (d) only the Front-Payment Shares and Level-Payment Shares (as described below) are subject to distribution fees under a plan adopted pursuant to Rule 12b-1 under the 1940 Act (a "Rule 12b-1 Plan"), the distribution fee for the Level-Payment Class being higher than that for the Front-Payment Class; (e) only the Level-Payment Shares are subject to a shareholder servicing fee under a non-Rule 12b-1 shareholder services plan (a "Shareholder Services Plan"); (f) to the extent that one class alone is affected by a matter submitted to a vote of the shareholders, then only that class has voting power on the matter, provided, however, that any class whose shares convert automatically to shares of another class also votes separately with respect to class-specific Rule 12b-1 matters applying to the latter class; (g) the expenses attributable to a specific class ("Class Expenses")* are borne only by shares of that class on a pro-rata basis; and (h) exchange privileges may vary among the classes. * Class Expenses are limited to (i) transfer agency fees; (ii) preparation and mailing expenses for shareholder communications required by law, sent to current shareholders of a class; (iii) state Blue Sky registration fees; (iv) Securities and Exchange Commission ("SEC") registration fees; (v) trustees' fees; (vi) expenses incurred for periodic meetings of trustees or shareholders; and (vii) legal and accounting fees, other than fees for income tax return preparation or income tax advice. A. Front-Payment Shares Front-Payment Shares are sold to (1) retail customers and (2) persons entitled to exchange into Front-Payment Shares under the exchange privileges of the Trust. Shares of the Trust outstanding on the date that the three classes of shares are first made available will be redesignated Front-Payment Shares. Front-Payment Shares will also be issued upon automatic conversion of Level-Payment Shares, as described below. 1. Sales Loads. Front-Payment Shares are sold subject to the current maximum FESC (with scheduled variations or eliminations of the sales charge, as permitted by the 1940 Act). 2. Distribution and Service Fees. Front-Payment Shares are subject to a distribution fee pursuant to Part I of the Trust's Rule 12b-1 Plan. They are not subject to charges applicable to a Shareholder Services Plan. 3. Class Expenses. Class Expenses that are attributable to the Front-Payment Class are allocated to that particular class. 4. Exchange Privileges and Conversion Features. Front-Payment Shares are exchangeable for Front-Payment Shares issued by other funds sponsored by Aquila Management Corporation and as may additionally be set forth in the then current prospectus of the Trust. Front-Payment Shares have no conversion features. B. Level-Payment Shares Level-Payment Shares are sold to (1) retail customers and (2) persons entitled to exchange into Level-Payment Shares under the exchange privileges of the Trust. 1. Sales Loads. Level-Payment Shares are sold without the imposition of any FESC, but are subject to a CDSC (with scheduled variations or eliminations of the sales charge, as permitted by the 1940 Act). 2. Distribution and Service Fees. Level-Payment Shares are subject to a distribution fee pursuant to Part II of the Trust's Rule 12b-1 Plan and to a shareholder servicing fee under a Shareholder Services Plan not to exceed .25% of the average daily net assets of the Level-Payment Class. 3. Class Expenses. Class Expenses that are attributable to the Level-Payment Class are allocated to that particular class. 4. Exchange Privileges and Conversion Features. Level-Payment Shares are exchangeable for Level-Payment Shares issued by other funds sponsored by Aquila Management Corporation and as may additionally be set forth in the then current prospectus of the Trust. After a period of no greater than six years, Level- Payment Shares automatically convert to Front-Payment Shares on the basis of the relative net asset values of the two classes without the imposition of any sales charge, fee, or other charge, provided, however, that the expenses, including distribution fees, for Front- Payment Shares are not higher than the expenses, including distribution fees, for Level-Payment Shares. If the amount of expenses, including distribution fees, for the Front-Payment Class is increased materially without approval of the shareholders of the Level- Payment Class, a new class will be established -- on the same terms as apply to the Front-Payment Class prior to such increase -- as the class into which Level-Payment Shares automatically convert. C. Institutional Shares Institutional Shares are not offered to retail customers but are sold only to (1) institutional investors investing funds held in a fiduciary, advisory, agency, custodial or other similar capacity and (2) persons entitled to exchange into Institutional Shares under the exchange privileges of the Trust. 1. Sales Loads. Institutional Shares are sold without the imposition of any FESC, CDSC or any other sales charge. 2. Distribution and Service Fees. Institutional Shares are not subject to any distribution fee or shareholder servicing fee. 3. Class Expenses. Class Expenses that are attributable to the Institutional Class are allocated to that particular class. 4. Exchange Privileges and Conversion Features. Institutional Shares are exchangeable for Institutional Shares issued by other funds sponsored by Aquila Management Corporation and as may additionally be set forth in the then current prospectus of the Trust. Institutional Shares have no conversion features. D. Additional Classes In the future, the Trust may offer additional classes of shares which differ from the classes discussed above. However, any additional classes of shares must be approved by the Board, and the Plan must be amended to describe those classes. II. Approval of Multiple Class Plan The Board of the Trust, including a majority of the independent Trustees, must approve the Plan initially. In addition, the Board must approve any material changes to the classes and the Plan prior to their implementation. The Board must find that the Plan is in the best interests of each class individually and the Trust as a whole. In making its findings, the Board should focus on, among other things, the relationships among the classes and examine potential conflicts of interest among classes regarding the allocation of fees, services, waivers and reimbursements of expenses, and voting rights. Most significantly, the Board should evaluate the level of services provided to each class and the cost of those services to ensure that the services are appropriate and that the allocation of expenses is reasonable. In accordance with the foregoing provisions of this Section II, the Board of the Trust has approved and adopted this Plan as of the date written below. III. Dividends and Distributions Because of the differences in fees paid under a Rule 12b-1 Plan and Shareholder Services Plan and the special allocation of Class Expenses among the classes of shares of the Trust, the dividends payable to shareholders of a class will differ from the dividends payable to shareholders of the other classes. Dividends paid to each class of shares in the Trust will, however, be declared and paid at the same time and, except for the differences in expenses listed above, will be determined in the same manner and paid in the same amounts per outstanding shares. IV. Expense Allocations The methodology and procedures for calculating the net asset value and dividends and distributions of the various classes of shares and the proper allocation of income and expenses among the various classes of shares are set forth in the Memorandum (together with exhibits) of Richard F. West, Treasurer, dated November 24, 1995 and entitled "Methodologies Used In Accounting For Multiple Class Shares." Dated: December 1, 1995 -----END PRIVACY-ENHANCED MESSAGE-----