-----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, M+STV5eqDQVv2zJ6Ji911wz2QgHnNzrvyxGXAdjEpgMcHwHRPkX6Y37VddvuU9wa PyI7znYzCNeDF9Ezi/wAeg== 0000791049-96-000015.txt : 19961209 0000791049-96-000015.hdr.sgml : 19961209 ACCESSION NUMBER: 0000791049-96-000015 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961206 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: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-04626 FILM NUMBER: 96677071 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 N-30B-2 1 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 AND FOUNDER 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 Further information is contained in the Prospectus, which must precede or accompany this report. ANNUAL REPORT SEPTEMBER 30, 1996 TAX-FREE TRUST OF OREGON A TAX-FREE INCOME INVESTMENT (Tax-Free Trust of Oregon LOGO--logo of tree, snow-capped mountain and sun) (Aquila Group of Funds LOGO--logo of Eagle Head) ONE OF THE AQUILAsm GROUP OF FUNDS (Tax-Free Trust of Oregon LOGO--logo of tree, snow-capped mountain and sun) TAX-FREE TRUST OF OREGON ANNUAL REPORT "FLUCTUATIONS, YET HIGH STABILITY" November 20, 1996
9/30/96 9/30/95 SHARE NET ASSET VALUE $10.49 $10.55 DISTRIBUTION YIELD 4.93%* 5.16%*
Dear Investor: We live in an ever changing world. As the above table illustrates, the price of the Trust's shares can and does move up and down over time. Also, the rate of DOUBLE TAX-FREE income return distributed to shareholders can and will change. Movements in these two key areas reflect the changes in market conditions that occurred over the time period of this past fiscal year. Yet, while changes have occurred, looking at these numbers in a broader perspective, there has tended to be a relatively high level of stability to the Trust's performance results. Indeed, these results compare favorably to what occurred in the municipal securities market itself during this same time period. MARKET FORCES As we have indicated in prior communications to you, changes in share price and income return are influenced considerably by market forces. Market forces are governed by several main factors in the area of fixed-income securities, which includes the tax-free municipal securities in which the Trust invests. Key among these factors is action taken by the Federal Reserve Board. This Federal government organization has the power to raise and lower interest rates in key areas which, in turn, can have an effect on all types of fixed-income securities. The Fed can also control the supply of money in our financial system - increasing or decreasing the amount of dollars in circulation. This, in turn, can affect the market. ______________ *INDICATES TRAILING 12 MONTH YIELD DISTRIBUTED TO SHAREHOLDERS AS MEASURED AGAINST SHARE MAXIMUM PUBLIC OFFERING PRICE. AT THESE SAME TIME PERIODS THE SEC YIELD (A STANDARDIZED YIELD FORMULATED BY THE SECURITIES AND EXCHANGE COMMISSION) WAS 4.25% AND 4.84% RESPECTIVELY. The other key factor influencing market action is the psychology of investors. By psychology of investors, we mean the level of confidence that investors as a whole have toward what is happening in our country's overall financial activities. We now live in a world that is not only ever changing, but also one that is very global in nature. Consequently, the psychology factor within market activity is influenced not only by the confidence level, or lack thereof, which investors in Oregon and the United States have, but also by the confidence level that investors all around the world have toward the handling of major financial affairs in our country. Altogether, then, what happens to the share price and distribution return of the Trust is very much driven by market forces. This is an important factor which shareholders in the Trust must appreciate and come to understand. And, this is the case whether investors own Oregon individual municipal securities directly, or whether they do so through a portfolio of such municipal securities as the Trust provides to shareholders. It is also the reason why we say that an investment in the Trust should be viewed as long-term in nature. THE VALUE THE TRUST PROVIDES While accepting the fact that market forces can and do have an effect upon the Trust's performance, it must also be recognized that Tax-Free Trust of Oregon does bring to bear very specific factors to dampen the extremes of such market forces. Most significant of these factors is the professional investment management team of the Trust's Investment Adviser, Qualivest Capital Management, Inc. Under the guidance of the Trust's management and the Trustees, the Investment Adviser oversees, on a continuing basis, the investments of the Trust. And, in doing so, the Investment Adviser does employ various investment management techniques that do moderate forces that can or might cause anxieties with investors. A very special element that the professional investment management team brings to bear is the implementation of the Trust's investment approach. QUALITY FACTOR A key moderation factor in containing damage from market forces is quality - quality of the municipal issues within the Trust's investment portfolio. Quality of issues tends to be a distinctly positive factor when it comes to capital preservation. That is why the Trust has chosen to invest in only those municipal securities within the TOP FOUR CREDIT RATINGS, or equivalent. It is noteworthy that at the September 30, 1996 fiscal year end, 97.7% of the Trust's holdings carried a credit rating of AAA, AA OR A - the top three ratings. Moreover, 92.5% of the Trust's investments were rated AAA OR AA. DIVERSIFICATION FACTOR Another very important factor in moderating market forces is diversification among portfolio holdings. At September 30, 1996, the Trust had 193 SEPARATE ISSUES within the investment portfolio, representing many different municipal projects within numerous communities throughout Oregon. MATURITY FACTOR Through creating a variety of different maturities among the securities in the Trust's portfolio, it is possible to avoid extremes in volatility that can come about with market fluctuations. As you are aware, short maturity securities possess little fluctuation in price, but pay low yields. On the other hand, long maturity securities give higher yields, but possess considerable price volatility due to the uncertainties involved over the time between the present and the specified maturity date. The Trust seeks an average intermediate maturity within the investment portfolio. Currently, at September 30, 1996, the average maturity was at the intermediate level of 15 YEARS, so as to provide an adequate income return, yet only moderate volatility in share price. __________ We believe that the combination of quality, diversification, and maturity works well in dampening the volatility of the Trust's share price. As you can see from the chart below, which illustrates the price of the Trust's shares at the end of each six-month period since the Trust commenced operations on June 16, 1986, the Trust's share price has been reasonably stable. Although you will note some price fluctuations over this period, the share price has generally centered around the $10.00 level, with movements above and below this level being relatively moderate. (Graphic of Bar Chart with the following information:)
SHARE NET ASSET VALUE Date Net Asset Value (In Dollars) 6/16/86 9.6 9/30/86 9.82 3/31/87 10.12 9/30/87 9.11 3/31/88 9.56 9/30/88 9.67 3/31/89 9.61 9/30/89 9.76 3/31/90 9.76 9/30/90 9.67 3/31/91 9.93 9/30/91 10.15 3/31/92 10.19 9/30/92 10.48 3/31/93 10.7 9/30/93 10.95 3/31/94 10.35 9/30/94 10.2 3/31/95 10.37 9/30/95 10.55 3/31/96 10.5 9/30/96 10.49
INCOME RETURN As the table on page one illustrates, the trailing 12-month yield distributed to shareholders, as measured against average maximum public offering price, was running at the rate of 4.93% at September 30, 1996. This was somewhat lower than it was a year earlier due to two factors. The average maturity of the Trust declined slightly during the year and more importantly a number of bonds were called or matured during the 12-month period. These were bonds issued in a much higher interest rate environment in the 1980s and the proceeds had to be reinvested at lower market yields. Despite the modest decline in yield to shareholders, it must be remembered that this income amount was the DOUBLE TAX-FREE return that shareholders received from the Trust. It is especially worth noting from the below chart that one would have had to earn a substantially higher income return from a TAXABLE investment in order to match the DOUBLE TAX-FREE amount distributed by the Trust. (Graphic of Bar Chart with the following information:)
TAX-FREE TRUST OF OREGON'S DOUBLE TAX-FREE DISTRIBUTION RATE* AS COMPARED TO THE TAXABLE EQUIVALENT RATE AN INVESTOR WOULD HAVE TO EARN AT VARIOUS TAX BRACKETS Tax Bracket Taxable Equivalent Rate Double Tax-Free Distribution Rate 28% 7.53% 4.93% 31% 7.86% 4.93% 36% 8.47% 4.93% 39.6% 8.98% 4.93% * For the period 10/1/95-9/30/96
As you will note, if one were in the 28% Federal income tax bracket, a TAXABLE return of 7.53% would have to be achieved to match the 4.93% DOUBLE TAX-FREE return of the Trust. In the highest Federal income tax bracket of 39.6%, the equivalent return would have had to have been 8.98%. In general, it would not have been possible for an investor to obtain such levels of taxable return unless additional risk was taken in the form of lesser quality or longer maturity securities, or both such elements. COMMITMENT TO CONSISTENCY Management is committed to providing shareholders with as consistent results from Tax-Free Trust of Oregon as are possible to achieve, considering prevailing market forces. You should be aware that we are not able to eliminate completely the market forces that swirl around us on a continuing basis. However, as indicated, a number of investment management techniques are used by the Trust to moderate market forces. YOUR CONFIDENCE APPRECIATED We again wish to emphasize that your confidence in Tax-Free Trust of Oregon is greatly appreciated. You can be assured that management will do everything in its power to merit your continued trust. Sincerely, /s/ Lacy B. Herrmann Lacy B. Herrmann President and Chairman of the Board of Trustees MANAGEMENT DISCUSSION OF TRUST PERFORMANCE The graph below illustrates the value of $10,000 invested in Class A shares of Tax-Free Trust of Oregon at inception of the Trust in June, 1986 and maintaining this investment through the Trust's latest fiscal year end, September 30, 1996, as compared with a hypothetical similar size investment in the Lehman Brothers Municipal Bond Index (the "Index") of municipal securities and the Consumer Price Index (a cost of living index) over that same period. The total return of the investment in the Trust is shown after deduction of the maximum sales charge of 4% at the time of initial investment. It also reflects deduction of the Trust's annual operating expenses and reinvestment of monthly dividends and capital gains distributions without sales charge. On the other hand, the Index does not reflect any sales charge nor operating expenses but does reflect reinvestment of interest. The performance of the Trust's other classes, first offered on April 5, 1996, may be greater or less than the Class A shares performance indicated on this graph, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in the other classes. It should also be specifically noted that the Index is nationally oriented and consisted, over the period covered by the graph, of an unmanaged mix of between 8,000 to 33,000 investment-grade long-term municipal securities of issuers throughout the United States. However, the Trust's investment portfolio consisted of a significantly lesser number of investment-grade tax-free municipal obligations, principally of Oregon issuers, over the same period. The maturities, market prices, and behavior of the individual securities in the Trust's investment portfolio can be affected by local and regional factors which might well result in variances from the market action of the securities in the Index. Consequently, much of the difference in performance of the Index versus the Trust can be attributed to the lack of application of annual operating expenses and initial sales charge to the Index. Additionally, a portion of the difference in performance can be attributed to the different characteristics in the single-state market of the securities in the Trust's portfolio as compared with the national orientation of the securities in the Index. Since its inception, the Trust has been managed to provide as stable a share value as possible consistent with producing a competitive income return to shareholders. It has not been managed for maximum total return, since one of the aims of management in structuring the portfolio of the Trust is to reduce fluctuations in the price of the Trust's shares resulting from changes in interest rates. As can be observed, however, the pattern of the Trust's results and that of the Index over the period since inception of the Trust track quite similarly, even though they are not entirely comparable in character. (Graphic of Line Chart with the following information:) PERFORMANCE COMPARISON Lehman Brothers Trust After Sales Cost of Municipal Bond Index Charge and Expenses Living Index 10,000 9,600 10,000 10,538 9,990 10,055 10,592 9,931 10,494 11,966 11,288 10,932 13,082 12,178 11,417 13,971 12,852 12,121 15,813 14,386 12,532 17,467 15,740 12,907 19,692 17,446 13,254 19,103 17,136 13,656 21,241 18,767 14,004 22,525 19,658 14,424
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS (Graphic of Table with the following information:)
Trust's average annual total return For the Period Ended Life of Trust September 30, 1996 1 Year 5 Years 10 Years Since 6/16/96 Including Sales Charge and Expenses 0.56% 5.57% 6.57% 6.78%
MANAGEMENT DISCUSSION OF TRUST PERFORMANCE (CONTINUED) September 30, 1996 represented the end of the Trust's tenth full fiscal year. During the twelve month period, interest rates tended to be somewhat volatile as judged by the yield on the 30-year treasury bond with the bias towards rising rates. At the beginning of October, 1995, the 30-year bond was yielding about 6.45 percent while at the end of the fiscal year it was yielding about 6.90 percent, but the range for the 12-month period was between about 6 percent on the low side to about 7.2 percent on the high side. In anticipation of the Federal Reserve raising short-term interest rates in September of this year, investors were selling all types of bonds during the late summer, and interest rates were rising. However, after there was no increase announced when the Fed met, immediately there was a reversal of psychology as investors again began to focus on the lack of major inflationary pressures in the economy as well as the moderate level of corporate business. Similar to what we discussed in this report one year ago, private investors have not been eager to add to their holdings of municipal bonds whether in the form of individual bonds or in the form of bond funds. (Casualty insurance companies for some time have been the major purchaser of municipal debt.) The primary reason for this lack of interest appears to be the continued rise in equity values based on steady corporate earnings in a slow growth environment. Yields on the major blue chip equity indexes are around 2 percent or less, but as yet, this has not caused investors to "rediscover" bonds. The emphasis in managing the Trust during the year was to try to enhance relative value within the portfolio. The longest end of the yield curve (25-30 years) was avoided due to the lack of sufficient yield pick-up between 15-20 year bonds and 25-30 year paper. Most new purchases were in the 15-20 year range with emphasis on bonds rated AA and AAA. In a climate of relative low interest rates and slow growth, municipal bonds should provide a good stable total return particularly when adjusted for taxable equivalent returns. KPMG Peat Marwick LLP Certified Public Accountants INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders of Tax-Free Trust of Oregon: We have audited the accompanying statement of assets and liabilities of Tax-Free Trust of Oregon, including the statement of investments, as of September 30, 1996, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 1996, by correspondence with the custodian. An audit also includes assessing the accounting principles used, and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Tax-Free Trust of Oregon as of September 30, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP New York, New York November 8, 1996
TAX-FREE TRUST OF OREGON STATEMENT OF INVESTMENTS SEPTEMBER 30, 1996 RATING FACE STATE OF OREGON GENERAL MOODY'S/ AMOUNT OBLIGATION BONDS (52.3%) S&P VALUE City of Albany (MBIA Corporation Insured) $ 150,000 6.400%, 11/01/1999 Aaa/AAA $ 150,320 460,000 6.500%, 11/01/2000 Aaa/AAA 460,961 2,195,000 6.625%, 11/01/2009 Aaa/AAA 2,197,722 Port of Astoria (MBIA Corporation Insured) 410,000 6.200%, 02/01/2004 Aaa/AAA 427,938 1,250,000 6.600%, 09/01/2011 Aaa/AAA 1,364,062 City of Beaverton 910,000 5.950%, 04/01/2003 Aa/AA- 958,912 520,000 6.600%, 06/01/2003 NR/A- 540,800 960,000 6.050%, 04/01/2004 Aa/AA- 1,014,000 560,000 6.600%, 06/01/2004 NR/AA- 582,400 1,020,000 6.150%, 04/01/2005 Aa/AA- 1,077,375 500,000 5.000%, 06/01/2005 Aa/AA- 493,750 1,080,000 6.250%, 04/01/2006 Aa/AA- 1,140,750 Clackamas County School District #115 (AMBAC Indemnity Corporation Insured) 600,000 5.600%, 06/01/2006 Aaa/AAA 623,250 615,000 5.700%, 06/01/2007 Aaa/AAA 638,831 1,000,000 6.150%, 06/01/2014 Aaa/AAA 1,050,000 Clackamas and Washington County School District #3J 2,000,000 5.850%, 08/01/2006 A1/AA- 2,095,000 5,000,000 5.875%, 08/01/2009 A1/AA- 5,162,500 1,150,000 5.875%, 10/01/2009 A1/AA- 1,197,438 Clackamas, Multnomah and Washington County School District #7J 1,000,000 7.100%, 06/15/2009 Aaa/NR 1,090,000 250,000 7.100%, 06/15/2010 Aaa/NR 272,500 1,500,000 5.700%, 06/15/2010 Aa/NR 1,530,000 Columbia Gorge Community College District (Financial Security Assurance Insured) 1,200,000 5.400%, 06/01/2013 Aaa/AAA 1,195,500 Deschutes and Jefferson County School District #2J (MBIA Corporation Insured) 3,700,000 5.600%, 06/01/2009 Aaa/AAA 3,746,250 Hood River County School District (AMBAC Indemnity Corporation Insured) 2,000,000 5.650%, 06/01/2008 Aaa/AAA 2,057,500 Jackson County School District #549C (Financial Security Assurance Insured) 1,150,000 5.300% 06/01/2008 Aaa/AAA 1,148,562 Jackson County School District #5 (Ashland) (Financial Security Assurance Insured) 1,400,000 5.100% 06/01/2005 Aaa/AAA 1,408,750 Jefferson County School District #509J (Financial Security Assurance Insured) 1,750,000 5.500%, 06/15/2013 Aaa/AAA 1,747,812 Josephine County School District #7 (Grants Pass) (Financial Guaranty Insurance Corporation Insured) 2,700,000 5.700% 06/01/2013 Aaa/AAA 2,720,250 Lane County School District #4J 2,000,000 5.375%, 07/01/2009 Aa/NR 2,005,000 Lane County School District #52J (Financial Guaranty insurance Corporation Insured) 750,000 6.400%, 12/01/2009 Aaa/AAA 812,812 Lincoln County School District (Financial Guaranty Insurance Corporation) 1,245,000 5.250%, 06/15/2009 Aaa/NR 1,212,318 Lincoln County (MBIA Corporation Insured) 1,000,000 5.375%, 02/01/2010 Aaa/AAA 987,500 Malheur County Jail Bonds (MBIA Corporation Insured) 1,345,000 6.300%, 12/01/2012 Aaa/AAA 1,435,788 Marion and Clackamas County School District #7J (Financial Security Assurance Insured) 1,340,000 6.000%, 06/01/2013 Aaa/AAA 1,405,325 Multnomah County 1,245,000 5.100%, 10/01/2007 Aa1/NR 1,237,219 1,000,000 5.200%, 10/01/2008 Aa1/NR 993,750 Multnomah County School District #1 3,225,000 6.500%, 12/15/2000 Aa/A+ 3,275,148 1,180,000 6.600%, 12/15/2001 Aa/A+ 1,198,491 3,725,000 6.800%, 12/15/2004 Aa/A+ 3,780,726 Multnomah County School District #4 1,330,000 5.900%, 01/01/2005 A1/A+ 1,393,175 Multnomah County School District #40 4,100,000 5.625%, 06/01/2012 NR/AA- 4,135,875 Metropolitan Service District Refunding (Oregon Convention Center) 4,320,000 6.250%, 01/01/2013 Aa/AA+ 4,487,400 Oak Lodge Water District (AMBAC Indemnity Corporation Insured) 215,000 7.300%, 12/01/2005 Aaa/AAA 250,206 215,000 7.300%, 12/01/2006 Aaa/AAA 248,594 215,000 7.400%, 12/01/2007 Aaa/AAA 248,325 State of Oregon 5,000,000 7.000%, 12/01/2011 Aa/AA 5,350,000 State of Oregon Alternate Energy Project Series A 1,530,000 4.900%, 01/01/2004 Aa/AA 1,528,088 1,000,000 6.400%, 01/01/2008 Aa/AA 1,040,000 State of Oregon Board of Higher Education 900,000 6.200%, 10/15/2007 Aa/AA 948,375 3,195,000 6.400%, 10/01/2011 Aa/AA 3,334,781 2,000,000 6.250%, 10/15/2012 Aa/AA 2,072,500 2,150,000 6.500%, 10/01/2017 Aa/AA 2,268,250 2,890,000 6.000%, 10/15/2018 Aa/AA 2,958,638 State of Oregon Elderly & Disabled Housing 725,000 6.250%, 08/01/2013 Aa/AA 759,437 State of Oregon Veterans' Welfare 900,000 11.250%, 04/01/1998 Aa/AA 991,125 505,000 9.000%, 04/01/2008 Aa/AA 612,312 700,000 9.200%, 10/01/2008 Aa/AA 943,250 565,000 8.000%, 11/01/2012 Aa/AA 598,142 7,150,000 6.875%, 12/01/2013 Aa/AA 7,632,625 500,000 6.875%, 12/01/2014 Aa/AA 534,375 1,000,000 7.000%, 12/01/2015 Aa/AA 1,072,500 Pacific Communities Hospital District (Financial Guaranty Insurance Corporation Insured) 200,000 6.500%, 12/01/2003 Aaa/AAA 200,968 380,000 6.500%, 12/01/2005 Aaa/AAA 381,839 Polk County School District #2 (Financial Security Assurance Insured) 1,000,000 5.400%, 06/01/2012 Aaa/AAA 978,750 Polk, Marion, and Benton County School District #13J (Financial Guaranty Insurance Corporation Insured) 1,000,000 5.500%, 12/01/2008 Aaa/AAA 1,020,000 City of Portland 1,625,000 4.500%, 11/01/2004 Aaa/NR 1,564,063 1,480,000 5.100%, 10/01/2009 Aaa/NR 1,455,950 2,000,000 7.125%, 10/01/2010 Aaa/NR 2,152,500 2,790,000 5.750%, 06/01/2013 Aaa/NR 2,859,750 2,500,000 5.250%, 06/01/2015 Aa/NR 2,471,875 2,000,000 5.600%, 06/01/2015 Aa/NR 2,012,500 Portland Community College District 3,500,000 6.000%, 07/01/2012 A1/AA 3,600,625 Port of Portland 1,000,000 4.500%, 03/01/2006 Aa/AA+ 938,750 City of Salem 1,000,000 5.875%, 01/01/2007 A1/A+ 1,027,500 Tri-County Metropolitan Transportation District 6,100,000 6.000%, 07/01/2012 Aa/AA+ 6,290,625 Tualatin Hills Park and Recreation District (MBIA Corporation Insured) 2,970,000 5.750%, 03/01/2012 Aaa/AAA 3,018,263 2,000,000 5.750%, 03/01/2015 Aaa/AAA 2,025,000 Umatilla County School District #8R (AMBAC Indemnity Corporation Insured) 700,000 6.100%, 12/01/2012 Aaa/AAA 728,875 Washington County 2,500,000 6.200%, 12/01/2007 Aa/AA 2,640,625 2,110,000 6.000%, 12/01/2013 Aa/AA 2,189,125 Washington County School District #88J (Financial Security Assurance Insured) 2,900,000 6.100%, 06/01/2012 Aaa/AAA 3,048,625 Washington and Clackamas County School District #23J 1,675,000 6.625%, 01/01/2005 NR/NR* 1,781,781 1,000,000 5.650%, 06/01/2015 A1/NR 1,003,750 720,000 6.625%, 01/01/2008 NR/NR* 765,900 2,000,000 5.400%, 01/01/2010 A1/NR 1,975,000 Washington & Multnomah County School District #48J 1,175,000 5.500%, 06/01/2006 Aa/AA- 1,205,844 1,440,000 4.500%, 09/01/2006 Aa/AA- 1,346,400 1,130,000 5.600%, 06/01/2007 Aa/AA- 1,162,488 1,000,000 6.150%, 06/01/2008 Aa/AA- 1,045,000 1,415,000 5.700%, 06/01/2008 Aa/AA- 1,455,681 525,000 6.300%, 09/01/2009 Aaa/AAA 565,031 1,440,000 6.000%, 06/01/2011 Aa/AA- 1,495,800 2,010,000 6.500%, 09/01/2011 Aaa/AAA 2,180,850 250,000 5.750%, 09/01/2012 Aaa/AAA 259,688 Washington & Yamhill County School District #58J (AMBAC Indemnity Corporation Insured) 70,000 6.600%, 11/01/2004 Aaa/AAA 70,094 80,000 6.600%, 11/01/2005 Aaa/AAA 80,097 90,000 6.600%, 11/01/2006 Aaa/AAA 90,106 Wolf Creek Highway Water Disrtict 505,000 6.900%, 12/01/2005 NR/AA 534,669 Yamhill County School District #29J (Financial Security Assurance Insured) 2,000,000 5.350%, 06/01/2006 Aaa/AAA 2,032,500 500,000 6.100%, 06/01/2011 Aaa/AAA 525,625 Total State of Oregon General Obligation Bonds 160,027,695 STATE OF OREGON REVENUE BONDS (45.6%) Airport Revenue Bonds (2.5%) Port of Portland Airport (Financial Guaranty Insurance Corporation Insured) 500,000 5.500%, 07/01/2006 Aaa/AAA 510,000 Port of Portland Airport (MBIA Corporation Insured) 600,000 6.400%, 07/01/2003 Aaa/AAA 642,750 3,530,000 6.750%, 07/01/2009 Aaa/AAA 3,812,400 2,425,000 6.750%, 07/01/2015 Aaa/AAA 2,631,125 Total Airport Revenue Bonds 7,596,275 Certificate of Participation Revenue Bonds (10.0%) Oregon State Department Of Administration Services (AMBAC Indemnity Corporation Insured) 5,805,000 5.500%, 11/01/2020 Aaa/AAA 5,667,131 Multnomah County Certificate of Participation Health Facilities Lease Purchase Program 1,000,000 5.200%, 07/01/2005 Aa/NR 1,015,000 Multnomah County Certificate of Participation Juvenile Justice Center 3,100,000 6.000%, 08/01/2012 Aa/A 3,162,000 Oregon State Department of General Services (AMBAC Indemnity Corporation Insured) 3,100,000 7.500%, 09/01/2015 Aaa/AAA 3,487,500 Oregon State Department of General Services (MBIA Corporation Insured) 2,150,000 7.050%, 01/15/2006 Aaa/AAA 2,327,375 1,250,000 5.700%, 01/15/2010 Aaa/AAA 1,259,375 2,750,000 6.200%, 11/01/2012 Aaa/AAA 2,866,875 1,150,000 7.200%, 01/15/2015 Aaa/AAA 1,265,000 1,000,000 5.500%, 01/15/2015 Aaa/AAA 985,000 550,000 5.500%, 01/15/2015 Aaa/AAA 541,750 500,000 5.800%, 03/01/2015 Aaa/AAA 503,125 600,000 7.200%, 03/01/2015 Aaa/AAA 657,000 1,000,000 5.800%, 03/01/2015 Aaa/AAA 1,006,250 2,000,000 6.250%, 11/01/2019 Aaa/AAA 2,100,000 Southwestern Oregon Community College District (AMBAC Indemnity Corporation Insured) 1,000,000 5.600%, 06/01/2016 Aaa/AAA 1,001,250 City of Portland Certificate of Participation 1,100,000 7.250%, 04/01/2008 NR/NR* 1,174,250 Washington County Educational Services, Certificates of Participation 645,000 5.625%, 06/01/2016 A1/NR 632,906 Washington County Educational Services, Certificates of Participation (MBIA Corporation Insured) 830,000 5.750%, 06/01/2025 Aaa/AAA 831,038 Total Certificate of Participation Revenue Bonds 30,482,825 Hospital Revenue Bonds (4.7%) Clackamas Hospital Facilities Authority (Adventist Health System/West) (MBIA Corporation Insured) 2,000,000 6.350%, 03/01/2009 Aaa/AAA 2,117,500 Clackamas Hospital Facilites Authority (Kaiser Permanente) 2,400,000 6.500%, 04/01/2011 Aa3/AA 2,520,000 Clackamas Hospital Facilites Authority (Sisters of Providence Hospital) 500,000 6.375%, 10/01/2004 A1/AA- 541,875 Douglas County Hospital Facilities Authority (Catholic Health) (MBIA Corporation Insured) 535,000 5.600%, 11/15/2005 Aaa/AAA 547,038 Medford Hosptial Facilities Authority (Rogue Valley Health Services) (MBIA Corporation Insured) 500,000 6.800%, 12/01/2011 Aaa/AAA 541,250 1,685,000 6.750%, 12/01/2020 Aaa/AAA 1,809,269 Western Lane County Hospital Facilities Authority (Sisters of St. Joseph Hospital) (MBIA Corporation Insured) 1,000,000 5.625%, 08/01/2007 Aaa/AAA 1,025,000 1,450,000 7.125%, 08/01/2017 Aaa/AAA 1,584,125 3,765,000 5.750%, 08/01/2019 Aaa/AAA 3,774,413 Total Hospital Revenue Bonds 14,460,470 Housing, Educational, and Cultural Revenue Bonds (8.1%) State of Oregon Housing Finance Agency, 1,000,000 6.800%, 07/01/2013 A1/A+ 1,043,750 State of Oregon Housing and Community Services, 490,000 5.100%, 07/01/2007 Aa/NR 480,812 1,670,000 5.200%, 07/01/2009 Aa/NR 1,628,250 870,000 6.750%, 07/01/2012 Aa/NR 915,675 705,000 5.900%, 07/01/2012 Aa/NR 707,644 500,000 6.700%, 07/01/2013 Aa/NR 518,125 490,000 6.350%, 07/01/2014 Aa/NR 503,475 1,045,000 6.800%, 07/01/2016 Aa/NR 1,095,944 1,915,000 6.750%, 07/01/2016 Aa/NR 1,970,056 3,500,000 6.875%, 07/01/2028 Aa/NR 3,666,250 State of Oregon Housing and Community Services (MBIA Corporation Insured), 1,500,000 5.450%, 07/01/2024 Aaa/AAA 1,410,000 State of Oregon Housing, Educational and Cultural Facilities Authority (Lewis & Clark College) (MBIA Corporation Insured) 1,130,000 7.125%, 07/01/2020 Aaa/AAA 1,252,887 State of Oregon Housing, Educational and Cultural Facilities Authority (Reed College), 2,145,000 6.750%, 07/01/2021 NR/A+ 2,372,906 Oregon Health Sciences University Revenue (AMBAC Indemnity Corporation Insured) 4,500,000 5.250%, 07/15/2015 Aaa/AAA 4,314,375 City of Salem Educational Facilities (Willamette University), 1,000,000 6.000%, 04/01/2010 A/NR 1,033,750 1,740,000 6.750%, 04/01/2011 NR/NR 1,898,775 Total Housing, Educational, and Cultural Revenue Bonds 24,812,674 Transportation Revenue Bonds (2.9%) Port of Morrow, 2,600,000 6.375%, 04/01/2008 Aaa/NR 2,814,500 State of Oregon Department of Transportation (Light Rail) (MBIA Corporation Insured), 2,000,000 6.000%, 06/01/2005 Aaa/AAA 2,122,500 Port of St. Helens, 95,000 7.750%, 02/01/2006 Baa1/NR 103,788 Tri-County Metropolitan Transportation District 3,680,000 5.700%, 08/01/2013 A1/AA 3,698,400 Total Transportation Revenue Bonds 8,739,188 Urban Renewal Revenue Bonds (.6%) Keiser Urban Renewal Agency, 950,000 5.400%, 07/01/2008 NR/A- 926,250 City of Portland Urban Renewal 300,000 9.000%, 12/01/2002 A/NR 306,675 City of Wilsonville Urban Renewal 500,000 5.850%, 06/01/2004 Baa1/NR 500,320 Total Urban Renewal Revenue Bonds 1,733,245 Utility Revenue Bonds (5.1%) Emerald Peoples Utility District (AMBAC Indemnity Corporation Insured), 700,000 6.700%, 11/01/2005 Aaa/AAA 763,875 145,000 7.200%, 11/01/2006 Aaa/AAA 145,309 35,000 7.200%, 11/01/2006 Aaa/AAA 35,100 3,860,000 7.350%, 11/01/2013 Aaa/AAA 3,868,492 Emerald Peoples Utility District Electic Systems (Financial Security Assurance Insured) 1,000,000 6.750%, 11/01/2016 Aaa/AAA 1,098,750 City of Eugene Electric Utility 610,000 6.650%, 08/01/2009 A1/AA 639,737 660,000 6.650%, 08/01/2010 A1/AA 690,525 1,000,000 6.000%, 08/01/2011 A1/AA 1,017,500 700,000 6.700%, 08/01/2011 A1/AA 730,625 500,000 5.000%, 08/01/2017 A1/AA 460,000 1,400,000 5.800%, 08/01/2019 A1/AA 1,414,000 City of Eugene Trojan Nuclear Project 3,865,000 5.900%, 09/01/2009 Aa1/AA- 3,865,000 Northern Wasco County Public Utility Developement (AMBAC Indemnity Corporation Insured), 1,000,000 5.625%, 12/01/2022 Aaa/AAA 991,250 Total Utility Revenue Bonds 15,720,163 Water and Sewer Revenue Bonds (9.3%) City of Canby Sewer (Financial Security Assurance Insured), 500,000 6.250%, 12/01/2017 Aaa/AAA 522,500 City of Eugene Water, 780,000 6.550%, 08/01/2004 A1/AA- 800,194 365,000 6.600%, 08/01/2005 A1/AA- 374,486 City of Klamath Falls Water (Financial Security Assurance Insured), 1,100,000 6.100%, 06/01/2014 Aaa/AAA 1,153,625 City of Oregon City Sewer, 750,000 6.875%, 10/01/2019 NR/NR* 769,688 City of Portland Sewer, 2,150,000 5.100%, 03/01/2007 A1/A+ 2,133,875 1,500,000 6.050%, 06/01/2009 A1/A+ 1,584,375 City of Portland Sewer (Financial Guaranty Insurance Corporation Insured), 2,725,000 6.000%, 10/01/2008 Aaa/AAA 2,857,844 500,000 6.000%, 10/01/2012 Aaa/AAA 518,125 2,855,000 6.250%, 06/01/2015 Aaa/AAA 3,015,594 Portland Water System Revenue 3,000,000 5.550%, 08/01/2014 Aa1/NR 3,003,750 1,440,000 5.550%, 08/01/2015 Aa1/NR 1,436,400 Washington County Unified Sewer Agency (AMBAC Indemnity Corporation Insured), 1,040,000 6.800%, 11/01/2004 Aaa/AAA 1,112,800 2,120,000 5.900%, 10/01/2006 Aaa/AAA 2,228,650 1,115,000 5.900%, 10/01/2006 Aaa/AAA 1,172,144 2,500,000 6.125%, 10/01/2012 Aaa/AAA 2,612,500 750,000 6.125%, 10/01/2012 Aaa/AAA 783,750 Washington County Unified Sewer Agency 2,195,000 7.000%, 11/01/2009 Aaa/AAA 2,359,625 Total Water and Sewer Revenue Bonds 28,439,925 Other Revenue Bonds (2.4%) Baker County Pollution Control (Ash Grove Cement West Project) (Small Business Administration Insured), 355,000 6.200%, 07/01/2004 Aaa/NR 366,339 380,000 6.300%, 07/01/2005 Aaa/NR 392,130 Multnomah County School District #1J 1,000,000 5.000%, 03/01/2007 Aa/A+ 981,250 State of Oregon Bond Bank 500,000 6.800%, 01/01/2011 Aaa/NR 536,250 1,000,000 6.700%, 01/01/2011 Aaa/NR 1,070,000 Oregon Economic Development Commission (Consolidated Freightways) 1,500,000 7.000%, 04/01/2004 Aa3/BBB- 1,506,885 City of Portland 2,465,000 4.650%, 04/01/2004 Aa/NR 2,421,863 Total Other Revenue Bonds 7,274,717 Total State of Oregon Revenue Bonds 139,259,482 Total State of Oregon 299,287,177 PUERTO RICO Puerto Rico Housing Finance Corporation (GNMA Collateralized) 25,000 7.800%, 10/15/2021 Aaa/AAA 26,031 Total Puerto Rico 26,031 Total Municipal Bonds - 97.9% (Cost - $289,372,613**) 299,313,208 Other assets in excess of liabilities - 2.1% 6,361,526 Net Assets - 100% $ 305,674,734 (*) Any security not rated must be determined by the Investment Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a rating service. (**) Cost for Federal tax purposes is $288,213,238. See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1996 ASSETS Investments at value (identified cost - $289,372,613) $ 299,313,208 Cash 590,995 Interest receivable 5,494,490 Receivable for Trust shares sold 872,312 Other assets 6,227 Total assets 306,277,232 LIABILITIES Payable for Trust shares redeemed 202,544 Dividends payable 160,706 Distribution fees payable 116,176 Adviser and Administrator fees payable 99,633 Accrued expenses 23,439 Total liabilities 602,498 NET ASSETS $ 305,674,734 Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $.01 per share $ 291,368 Additional paid-in capital 293,801,410 Undistributed net investment income 1,641,361 Net unrealized appreciation on investments 9,940,595 $ 305,674,734 CLASS A Net Assets $ 305,096,492 Capital shares outstanding 29,081,652 Net asset value and redemption price per share $ 10.49 Offering price per share (100/96 of $10.49 adjusted to nearest cent) $ 10.93 CLASS C Net Assets $ 336,314 Capital shares outstanding 32,075 Net asset value and offering price per share $ 10.49 Redemption price per share (*varies by length of time shares are held) $ * CLASS Y Net Assets $ 241,928 Capital shares outstanding 23,053 Net asset value, offering and redemption price per share $ 10.49
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1996 INVESTMENT INCOME: Interest income $18,016,548 Expenses: Investment Adviser fees (note B) $615,409 Administrator fees (note B) 615,409 Distribution fees (note B) 462,368 Transfer and shareholder servicing agent fees 188,506 Legal fees 87,898 Trustees' fees and expenses (note G) 83,145 Shareholders' reports and proxy statements 67,508 Audit and accounting fees 28,350 Custodian fees (note F) 26,118 Registration fees and dues 16,161 Insurance 5,167 Miscellaneous 41,362 2,237,401 Expenses paid indirectly (note F) (26,118) Net expenses 2,211,283 Net investment income 15,805,265 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from securities transactions 455,992 Change in unrealized appreciation on investments (2,192,001) Net realized and unrealized gain (loss) on investments (1,736,009) Net increase in net assets resulting from operations $ 14,069,256
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON STATEMENTS OF CHANGES IN NET ASSETS Year Ended September 30, 1996 1995 OPERATIONS: Net investment income $ 15,805,265 $ 16,542,189 Net realized gain from securities transactions 455,992 301,287 Change in unrealized appreciation on investments (2,192,001) 11,027,760 Change in net assets resulting from operations 14,069,256 27,871,236 DISTRIBUTIONS TO SHAREHOLDERS (NOTE E): Class A Shares: Net investment income (15,347,445) (16,257,162) Net realized gain on investments (677,856) (1,341,034) Class C Shares: Net investment income (3,382) - Net realized gain on investments (425) - Class Y Shares: Net investment income (4,572) - Net realized gain on investments (306) - Change in net assets from distributions (16,033,986) (17,598,196) CAPITAL SHARE TRANSACTIONS (NOTE H): Proceeds from shares sold 22,749,791 24,616,407 Reinvested dividends and distributions 9,312,627 10,024,851 Cost of shares redeemed (34,977,054) (50,676,823) Change in net assets from capital share transactions (2,914,636) (16,035,565) Change in net assets (4,879,366) (5,762,525) NET ASSETS: Beginning of period 310,554,100 316,316,625 End of period $ 305,674,734 $ 310,554,100
See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Tax-Free Trust of Oregon (the "Trust") is a separate portfolio of the Cascades Trust. The Cascades Trust (the "Business Trust") is an open-end investment company, which was organized on October 17, 1985, as a Massachusetts business trust and is authorized to issue an unlimited number of shares. The Trust is a non-diversified portfolio which commenced operations on June 16, 1986 and until April 5, 1996, offered only one class of shares. On that date, the Trust began offering two additional classes of shares, Class C and Class Y shares. All shares outstanding prior to that date were designated as Class A shares and, as was the case since its commencement of operations, are sold with a front-payment sales charge and bear a service fee. Class C shares are sold with no front-payment sales charge but are assessed a contingent deferred sales charge if redeemed within one year from the date of purchase and a level-payment charge for service and distribution fees from date of purchase through six years thereafter. Class Y shares are offered only to institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, are not offered directly to retail customers, and are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge and no service or distribution fees. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class. The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. (1) PORTFOLIO VALUATION: Municipal securities which have remaining maturities of more than 60 days are valued each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services; in the case of securities for which market quotations are readily available, securities are valued at the mean of bid and asked quotations and, in the case of other securities, at fair value determined under procedures established by and under the general supervision of the Board of Trustees. Securities which mature in 60 days or less are valued at amortized cost if their term to maturity at purchase was 60 days or less, or by amortizing their unrealized appreciation or depreciation on the 61st day prior to maturity, if their term to maturity at purchase exceeded 60 days. (2) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premiums and accretion of discounts of securities purchased at other than par with less than 60 days to maturity. (3) FEDERAL INCOME TAXES: It is the policy of the Trust to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Trust intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. (4) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are charged directly to such class. (5) USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. NOTE B - MANAGEMENT ARRANGEMENTS AND FEES AND OTHER TRANSACTIONS WITH AFFILIATES: Management affairs of the Trust are conducted through two separate management arrangements. Qualivest Capital Management, Inc. (the "Adviser"), became Investment Adviser to the Trust in June, 1986. In this role, under an Investment Advisory Agreement, the Adviser supervises the Trust's investments and provides various services to the Trust, including maintenance of the Trust's accounting books and records, for which it is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.20 of 1% of the net assets of the Trust. The Trust also has an Administration Agreement with Aquila Management Corporation (the "Administrator"), the Trust's founder and sponsor. Under this Agreement, the Administrator provides all administrative services, other than those relating to the management of the Trust's investments. These include providing the office of the Trust and all related services as well as overseeing the activities of all the various support organizations to the Trust such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor. For its services, the Administrator is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.20 of 1% of the net assets of the Trust. Specific details as to the nature and extent of the services provided by the Adviser and the Administrator are more fully defined in the Trust's Prospectus and Statement of Additional Information. The Adviser and the Administrator each agrees that the above fees 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 payment of the above fees at the end of any month will be reduced or postponed so that at no time will there be any accrued but unpaid liability under this expense limitation. No such reduction in fees was required during the year ended September 30, 1996. For the year ended September 30, 1996, the Trust incurred fees under the Advisory Agreement and Administration Agreement of $615,409 and $615,409, respectively. Under a Distribution Agreement, Aquila Distributors, Inc. (the "Distributor") serves as the exclusive distributor of the Trust's shares. Through agreements between the Distributor and various broker-dealer firms ("dealers"), the Trust's shares are sold primarily through the facilities of these dealers having offices within Oregon, with the bulk of sales commissions inuring to such dealers. For the year ended September 30, 1996, the Distributor received sales commissions in the amount of $69,664. The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Trust is authorized to make service fee payments to broker-dealers or others selected by the Distributor, including, but not limited to, any principal underwriter of the Trust, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Trust's shares or servicing of shareholder accounts ("Qualified Recipients"). The Trust makes payment of this service fee at the annual rate of 0.15% of the Trust's average net assets represented by Class A Shares. For the year ended September 30, 1996, service fees on Class A Shares amounted to $461,538, of which the Distributor received $9,987. Under another part of the Plan, the Trust is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Trust's Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Trust's net assets represented by Class C Shares and for the period April 5, 1996 through September 30, 1996, amounted to $623, of which the Distributor received $623. In addition, under a Shareholder Services Plan, the Trust is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Trust's net assets represented by Class C Shares and for the period April 5, 1996 through September 30, 1996, amounted to $207, of which the Distributor received $207. Specific details about the Plans are more fully defined in the Trust's Prospectus and Statement of Additional Information. NOTE C - PURCHASES AND SALES OF SECURITIES: During the year ended September 30, 1996, purchases of securities and proceeds from the sales of securities aggregated $30,246,084 and $30,243,326, respectively. At September 30, 1996, aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost amounted to $11,861,153 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $761,183 for a net unrealized appreciation of $11,099,970. NOTE D - PORTFOLIO ORIENTATION: Since the Trust invests principally and may invest entirely in double tax-free municipal obligations of issuers within Oregon, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Oregon and whatever effects these may have upon Oregon issuers' ability to meet their obligations. One such development, Measure 5, a 1990 amendment to the the Oregon Constitution, limits the taxing and spending authority of certain Oregon governmental entities. Although it may have an adverse effect on the general financial condition of these entities and may impair the ability of certain Oregon issuers' to pay interest and principal on their obligations, experience over the history of the amendment would indicate a low probability of this happening. NOTE E - DISTRIBUTIONS: The Trust declares dividends daily from net investment income and makes payments monthly in additional shares at the net asset value per share or in cash, at the shareholder's option. Net realized capital gains, if any, are distributed annually. The Trust intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Oregon income taxes. However, due to differences between financial reporting and Federal income tax reporting requirements, distributions made by the Trust may not be the same as the Trust's net investment income, and/or net realized securities gains. Further, a small portion of the dividends may, under some circumstances, be subject to ordinary income taxes. Also, annual capital gains distributions, if any, are taxable. NOTE F - CUSTODIAN FEES: The Trust has negotiated an expense offset arrangement with its custodian, wherein it receives credit toward the reduction of custodian fees whenever there are uninvested cash balances. During the year ended September 30, 1996, the Trust's custodian fees amounted to $26,118, all of which was offset by such credits. The Trust could have invested its cash balances in an income-producing asset if it had not agreed to a reduction in fees under the expense offset arrangement with the custodian. NOTE G - TRUSTEES' FEES AND EXPENSES: During the fiscal year from October 1, 1995 through September 30, 1996, there were eight Trustees. Trustees' fees paid during the year were at the annual rate of $6,000 for carrying out their responsibilities and attendance at regularly scheduled Board Meetings. If additional or special meetings are scheduled for the Trust, separate meeting fees are paid for each such meeting to those Trustees in attendance. The Trust also reimburses Trustees for expenses such as travel, accommodations, and meals incurred in connection with attendance at regularly scheduled or special Board Meetings and at the Annual Meeting and outreach meetings of Shareholders. For the fiscal year ended September 30, 1996 such reimbursements averaged approximately $5,400 per Trustee. Two of the Trustees, who are affiliated with the Administrator, are not paid any Trustee fees. NOTE H - CAPITAL SHARE TRANSACTIONS:
Transactions in Capital Shares of the Trust were as follows: Year Ended Year Ended September 30, 1996 September 30, 1995 Shares Amount Shares Amount CLASS A SHARES: Proceeds from shares sold 2,096,132 $ 22,163,379 2,396,282 $ 24,616,407 Reinvested dividends and distributions 882,366 9,306,631 978,995 10,024,851 Cost of shares redeemed (3,319,853) (34,956,474) (4,963,693) (50,676,823) Net change (341,355) $ (3,486,464) (1,588,416) $ (16,035,565) Period Ended September 30, 1996* Shares Amount CLASS C SHARES: Proceeds from shares sold 32,006 $ 331,098 Reinvested dividends and distributions 69 724 Cost of shares redeemed - - Net change 32,075 $ 331,822 Period Ended September 30, 1996* Shares Amount CLASS Y SHARES: Proceeds from shares sold 24,548 $ 255,314 Reinvested dividends and distributions 505 5,272 Cost of shares redeemed (2,000) (20,580) Net change 23,053 $ 240,006 Total transactions in Trust shares (286,227) $ (2,914,636)(1,588,416) $ (16,035,565) * From April 5, 1996 (date of inception) through September 30, 1996.
TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS For a share outstanding throughout each period Class C(2)Class Y(2) Class A(1) Period ended Year ended September 30, September 30, 1996 1996 1995 1994 1993 1992 Net Asset Value, Beginning of Period $10.34 $10.34 $10.55 $10.20 $10.95 $10.48 $10.15 Income from Investment Operations: Net investment income 0.22 0.27 0.54 0.55 0.56 0.58 0.65 Net gain (loss) on securities (both realized and unrealized) 0.15 0.15 (0.05) 0.39 (0.75) 0.50 0.29 Total from Investment Operations 0.37 0.42 0.49 0.94 (0.19) 1.08 0.94 Less Distributions: Dividends from net investment income (0.22) (0.27) (0.54) (0.55) (0.56) (0.58) (0.61) Distributions from capital gains - - (0.01) (0.04) - (0.03) - Total Distributions (0.22) (0.27) (0.55) (0.59) (0.56) (0.61) (0.61) Net Asset Value, End of Period $10.49 $10.49 $10.49 $10.55 $10.20 $10.95 $10.48 Total Return (not reflecting sales charge) (%) 3.61# 4.14# 4.76 9.52 (1.77) 10.64 9.51 Ratios/Supplemental Data Net Assets, End of Period ($ thousands) 336 242 305,096 310,554 316,317 331,018 249,953 Ratio of Expenses to Average Net Assets (%) 1.56* 0.57* 0.72 0.71 0.68 0.66 0.66 Ratio of Net Investment Income to Average Net Assets (%) 4.18* 5.36* 5.16 5.38 5.28 5.46 5.87 Portfolio Turnover Rate (%) 10 10 10 13 11 8 11 Net investment income per share and the ratios of income and expenses to average net assets without the Adviser's and Administrator's voluntary waiver of fees and the expense offset in custodian fees for uninvested cash balances would have been: Net Investment Income ($) 0.22 0.27 0.54 0.55 0.56 0.58 0.65 Ratio of Expenses to Average Net Assets (%) 1.56* 0.58* 0.73 0.73 0.70 0.68 0.66 Ratio of Net Investment Income to Average Net Assets (%) 4.17* 5.35* 5.15 5.37 5.26 5.44 5.87 (1) Designated as Class A Shares on April 5, 1996. (2) New Class of Shares established on April 5, 1996. # Not annualized. * Annualized.
See accompanying notes to financial statements. FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED) This information is presented in order to comply with a requirement of the Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF SHAREHOLDERS IS REQUIRED. For the fiscal year ended September 30, 1996, of the total amount of dividends paid by Tax-Free Trust of Oregon from net investment income, 99.50% was "exempt-interest dividends" and the balance was ordinary dividend income. The Fund hereby designates $15,278,307 as an exempt-interest dividend for its fiscal year ended September 30, 1996. The Fund also designates $678,587 as a capital gain dividend for Federal income tax purposes, for its fiscal year ended September 30, 1996 which is taxable as a long-term capital gain. Prior to January 31, 1997, shareholders will be mailed IRS Form 1099-DIV which will contain information on the status of distributions paid for the 1996 CALENDAR YEAR. REPORT ON THE ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS (UNAUDITED) SPECIAL MEETINGS. A Special Meeting of Shareholders of the Tax-Free Trust of Oregon (the "Trust") was held on November 27, 1995.1 At the meeting, the shareholders voted upon and approved an amendment to the Trust's Declaration of Trust to authorize the creation of additional classes of shares (votes for: 14,788,047 (88.3%); votes against: 933,138 (5.6%); abstentions: 1,029,891 (6.1%); broker non-votes: 0 (0.0%)). Special Meetings of the Trust's Class C and Class Y Shareholders were held on April 4, 1996.2 At the Special Meeting of Class C Shareholders of the Trust, the Class C Shareholders voted on and unanimously approved amendments to the Trust's Distribution Plan affecting the interests of the Class C Shareholders of the Trust. At the Special Meeting of Class Y Shareholders of the Trust, the Class Y Shareholders voted on and unanimously approved amendments to the Trust's Distribution Plan affecting the interests of the Class Y Shareholders of the Trust. ANNUAL MEETING. The Annual Meeting of Shareholders of the Trust was held on April 22, 1996. At the meeting, the following matters were submitted to a shareholder vote3 and approved: (i) the election of Lacy B. Herrmann, Vernon R. Alden, Warren C. Coloney, James A. Gardner, Diana P. Herrmann, Ann R. Leven, Raymond H. Lung, and Richard C. Ross as Trustees to hold office until the next annual meeting of the Trust's shareholders or until his or her successor is duly elected (each Trustee received at least 20,616,921 affirmative votes (96.06%); no more than 846,258 votes (3.94%) were withheld for any Trustee), and (ii) the ratification of the selection of KPMG Peat Marwick LLP as the Trust's independent auditors for the fiscal year ending September 30, 1996 (votes for: 20,587,167 (95.92%); votes against: 63,210 (0.29%); abstentions: 812,802 (3.79%); broker non-votes: 0 (0.00%)). ______________________ 1 On the record date for this meeting, 29,441,928 shares of the Trust were outstanding and entitled to vote and the holders of 16,751,076 shares (56.9%) entitled to vote were present in person or by proxy at the meeting. 2 On the record dates for the Special Meetings, the total net asset values of the Class C and Class Y Shares of the Trust outstanding and entitled to vote were $100 and $100, respectively. The holders of all Class C and Class Y Shares entitled to vote were present in person at the meetings. 3 On the record date for this meeting, 29,147,020 shares of the Trust were outstanding and entitled to vote. The holders of 21,463,179 shares (73.64%) entitled to vote were present in person or by proxy at the meeting. -----END PRIVACY-ENHANCED MESSAGE-----