-----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, GOVZfQClChCRe7QmdMrN4ng2sZTO+lpP32uB5+3H7sFGgCMtUMSAqdTR8xzVE9L5 yDYjEW8M6O0DZD+DUElUXQ== 0000791049-97-000001.txt : 19970128 0000791049-97-000001.hdr.sgml : 19970128 ACCESSION NUMBER: 0000791049-97-000001 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19970127 EFFECTIVENESS DATE: 19970127 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: 97510934 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04626 FILM NUMBER: 97510905 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. 20 [ X ] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ] Amendment No. 19 [ 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 January 31, 1997, 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) pursuant 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, 1996 was filed in November 1996. 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 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 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 Class A Shares Class C Shares January 31, 1997 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 January 31, 1997, 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 OF 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 SHAREHOLDER SERVICING 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. PICTURE PICTURE PICTURE The Trust invests in tax-free municipal securities, primarily the kinds of obligations issued by various communities and political subdivisions within Arizona. Most of these securities are used to finance long-term municipal projects; examples are pictured above. (See "Investment of the Trust's Assets.") The municipal obligations which financed these particular projects were included in the Trust's portfolio as of January 15, 1997, and together represented 26% of the Trust's portfolio. Since the portfolio is subject to change, the Trust may not necessarily own these specific securities at the time of the delivery of this Prospectus. 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 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 & 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 "Shareholder Services Plan for Class C Shares.") Six years after the date of purchase, Class C Shares are automatically converted to Class A Shares. If you redeem Class C Shares before you have held them for 12 months from the date of purchase you will pay a contingent deferred sales charge ("CDSC"); this charge is 1%, calculated on the net asset value of the Class C Shares at the time of purchase or at redemption, whichever is less. There is no CDSC after Class C Shares have been held beyond the applicable period. (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. Class A Shares and Class C Shares are only offered for sale in certain states. (See "How to Invest in the Trust.") If shares of the Trust are sold outside those states the Trust may be required to redeem them. If your state of residence is not Oregon, the dividends from the Trust may be subject to income taxes of the state in which you reside. Accordingly, you should consult your tax adviser before acquiring shares of the Trust. 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 190 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 ("U.S. Bank"), 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. U.S. Bank, 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, insurance agency and credit life insurance services, 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 "Purchase 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 two Aquila-sponsored equity funds. 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 "Risk Factors 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 at Time of Purchase 4.00% None (as a percentage of offering price) Maximum Sales Charge Imposed on Reinvested Dividends None None Maximum 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 0.38% 0.61% Administration Fee 0.20% 0.20% Service Fee None 0.25% Other Expenses (4) 0.18% 0.16% Total Trust Operating Expenses 0.73% 1.56% Example (4) 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 Class A Shares $47 $62 $79 $127 Class C Shares With complete redemption at end of period $26 $49 $85 $143 (5) With no redemption $16 $49 $85 $143 (5) (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 1% upon redemption during the first four years after purchase. See "Purchase of $1 Million or More". (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 Class A Shares during its most recent fiscal year and Class C Shares during the period from their introduction on April 5, 1996 to the end of the Trust's fiscal year. (4) 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. (5) 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.
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, 1996 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. Class A(1) Class C(2) Year ended September 30, Period Ended 1996 1995 1994 1993 9/30/96 Net Asset Value, Beginning of Period $10.55 $10.20 $10.95 $10.48 $10.34 Income from Investment Operations: Net investment income 0.54 0.55 0.56 0.58 0.22 Net gain (loss) on securities (both realized and unrealized) (0.05) 0.39 (0.75) 0.50 0.15 Total from Investment Operations 0.49 0.94 (0.19) 1.08 0.37 Less Distributions: Dividends from net investment income (0.54) (0.55) (0.56) (0.58) (0.22) Distributions from capital gains (0.01) (0.04) - (0.03) - Total Distributions (0.55) (0.59) (0.56) (0.61) (0.22) Net Asset Value, End of Period $10.49 $10.55 $10.20 $10.95 $10.49 Total Return (not reflecting sales charge) 4.76% 9.52% (1.77)% 10.64% 3.61%(+) Ratios/Supplemental Data Net Assets, End of Period (in thousands) $305,096 $310,554 $316,317 $331,018 $336 Ratio of Expenses to Average Net Assets 0.72% 0.71% 0.68% 0.66% 1.56%(*) Ratio of Net Investment Income to Average Net Assets 5.16% 5.38% 5.28% 5.46% 4.18%(*) Portfolio Turnover Rate 10% 13% 11% 8% 10% 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 $0.54 $0.55 $0.56 $0.58 $0.22 Ratio of Expenses to Average Net Assets 0.73% 0.73% 0.70% 0.68% 1.56%(*) Ratio of Net Investment Income to Average Net Assets (%) 5.15% 5.37% 5.26% 5.44% 4.17%(*) Class A(1) Year Ended September 30, 1992 1991 1990 1989 1988 1987 $10.15 $9.67 $9.76 $9.67 $9.11 $9.85 0.65 0.62 0.66 0.73 0.61 0.65 0.29 0.49 (0.11) 0.01 0.60 (0.71) 0.94 1.11 0.55 0.74 1.21 (0.06) (0.61) (0.63) (0.64) (0.65) (0.65) (0.68) - - - - - - (0.61) (0.63) (0.64) (0.65) (0.65) (0.68) $10.48 $10.15 $9.67 $9.76 $9.67 $9.11 9.51% 11.83% 5.76% 7.83% 13.66% (0.59)% $249,953 $189,734 $140,713 $122,096 $102,361 $92,990 0.66% 0.71% 0.71% 0.76% 0.80% 0.55% 5.87% 6.30% 6.55% 6.61% 6.77% 6.88% 11% 21% 25% 45% 24% 17% $0.65 $0.62 $0.66 $0.73 $0.61 $0.62 0.66% 0.73% 0.73% 0.78% 0.82% 0.83% 5.87% 6.28% 6.53% 6.59% 6.75% 6.60% (1) Designated as Class A Shares on April 5, 1996. (2) New Class of Shares established on April 5, 1996. (+) 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 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 and may be subject to other market factors as well. 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 the ability of obligors of the obligations held in the Trust's portfolio to make the required payments on these obligations, and consequently, the market value of such obligations. 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. At the date of the Prospectus, it is difficult to assess fully the impact of the tax limitation measures, in part, because they are relatively recent and are continuing to be phased in over time. Many provisions of these measures are ambiguous and implementation of certain key provisions is left to the Legislature. In addition, the recent health of the Oregon economy has mitigated the effects of these measures; however, these conditions may not continue and future effects of these measures will depend on whether alternative revenue sources are obtained and, if so, the type and amount of such revenues. The adoption of these tax limitation measure may have an adverse effect on the general financial condition of cities, counties, school districts and other local governmental entities, and may in some cases impair their ability to pay principal and interest on obligations. In addition, to the extent that the Legislature provides funds from its general fund to replace tax revenues lost by the public school system, this could have an adverse effect on the State's credit rating, particularly if alternative revenue sources are not obtained. Moreover, the tax limitation measures 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 for more information about these tax limitation measures. 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 1996, both the number of such petitions that qualified and the number of such petitions that were approved by the voters have increased and there is no reason to expect that this pattern will change in the future. There is a relatively inactive market for municipal bonds of Oregon issuers other than the general obligations of the State itself and certain other segments of the market. Consequently, the market price of such other bonds may have a higher degree of volatility and it may be more difficult to execute sales of blocks of such bonds. If the Trust were forced to sell a large volume of these bonds for any reason, such as redemptions of a large number of its shares, there is a risk that the large sale itself might adversely affect the value of the Trust's portfolio. 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 (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. If you choose to purchase Class A Shares you will pay the applicable sales charge at the time of your purchase. By purchasing Class C Shares, you will pay 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. When you purchase Class A Shares, the amount of your investment is reduced by the applicable sales charge. 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. Certain Class A Shares purchased in transactions of $1 million or more are subject to a contingent deferred sales charge. (See "Purchase of $1 Million or More.") 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 for Class C Shares.") 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, whichever 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 over $1 Million) 12 months; 0% after 12 months Distribution and 0.15 of 1% Distribution fee of Service Fees 0.75 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 waived or reduced in Class A Shares some cases after six years 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 charge 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 within a reasonably short time 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 Shares 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. If you purchase Class A Shares, 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. To do this you must open an account for automatic investments of at least $50 each month and make an initial investment of 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, a 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. At the date of the Prospectus, shares of the Trust are available only in the following states: Oregon, Arizona, California, Connecticut, District of Columbia, Florida, Hawaii, Idaho, Illinois, Minnesota, Missouri, New Jersey, New York, Pennsylvania, Texas and Washington. If you do not reside in one of these states you should not purchase shares of the Trust. If shares are sold outside of these states the Trust can redeem them. Such a redemption may result in a loss to you and may have tax consequences. In addition, if your state of residence is not Oregon, the dividends from the Trust may not be exempt from income tax of the state in which you reside. Accordingly, you should consult your tax adviser before acquiring shares of the Trust. How to Purchase Class A Shares (Front-Payment Class Shares) The following table shows the amount of the sales charge 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") for Class A Shares:
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 "Purchase 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. Purchase of $1 Million or More Class A Shares issued under the following circumstances are called "CDSC Class A Shares": (i) shares issued in a single purchase of $1 million or more by a single purchaser; (ii) all shares subsequently purchased by a single purchaser if the value of the CDSC Class A Shares and Class A Shares on which a sales charge has been paid, owned at the time of the subsequent purchase, is equal to or greater than $1 million; (iii) all shares issued in a single purchase to a single purchaser the value of which, when added to the value of the CDSC Class A Shares and Class A Shares on which a sales charge has been paid, already owned at the time of such purchase, equals or exceeds $1 million. CDSC Class A Shares also include certain Class A Shares issued under the program captioned "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 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 for Certain Purchases of Class A Shares." 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 (i) 1% of such proceeds or (ii) the same amounts described under "Purchase 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 "Purchase 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. 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"). The CDSC is charged at the rate of 1%, calculated on the net asset value of the redeemed 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. 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 one part of the Plan, the Trust is authorized to make payments with respect to Class A Shares ("Class A Permitted Payments") to Qualified Recipients, which 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), 0.15 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, 1996, $461,538 was paid under the Plan as then in effect to Qualified Recipients, of which $9,987 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. "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. For the period beginning April 5, 1996 and ending September 30, 1996, permitted payments with respect to Class C Shares of $623 were made, all of which were paid to the Distributor. 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. "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 "Purchase 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 have redemption proceeds sent to a Financial Institution Account, 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 charge 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 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. Purchases of additional Class A Shares concurrently with withdrawals are undesirable because of sales charges when purchases are made. Accordingly, you may not maintain an Automatic Withdrawal Plan while simultaneously making regular purchases. While an occasional lump sum investment may be made, such investment should normally be an amount at least equal to three times the annual withdrawal or $5,000, whichever is less. 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 at 0.40 of 1% of such net asset value; see below.) 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 ("U.S. Bank"). Bancorp is a superregional financial services holding company organized under the laws of Oregon in 1968. U.S. Bank, 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 its subsidiaries include mortgage banking, lease financing, consumer financing, commercial finance, international banking, investment advisory, insurance agency and credit life insurance services, brokerage and venture capital. As of December 31, 1996, the Adviser had under management nearly $10 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, underwrite 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 and its predecessors since 1977 and before that by the Adviser's parent company, U.S. National Bank. He has more than 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 two equity funds. As of September 30, 1996, 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, 1996, fees of $615,409 were paid or accrued to each of the Adviser and the Administrator. The Distributor currently handles the distribution of the shares of fourteen funds (seven tax-free municipal bond funds, five money market funds and two equity funds), 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 each class of its 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 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 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, 1996, 99.5% of the Trust's dividends were "exempt-interest dividends." For the calendar year 1995, 0.20% 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. 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. Your 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 equity funds (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, Aquila Cascadia 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 or into shares of the Money-Market Funds. 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 "Purchase 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 Shares 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 "Tax Effects of Redemptions" and 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 and Aquila Cascadia 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, at the maximum public offering price (offering price includes any applicable sales charge) for 1-, 5- and 10-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 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's 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 the Trust are entitled to share pro-rata in the net assets of the Trust available for distribution to shareholders (and in the assets of the Business Trust otherwise available to shareholders of the Trust), in accordance with the respective net asset values of the shares of each of the Trust's classes at that time. All shares are presently divided into 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 800-872-6734. 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. 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: AQUILASM 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 Minor's 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:________________________ Employer's 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 Aquilasm Group of Funds by telephone. The Agent is authorized to accept and act upon my/our or any other person's 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 attorney's 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 DEPOSITOR'S 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 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 Institutional Class Shares Class Y Shares January 31, 1997 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 the Trust and Its Shares." 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 January 31, 1997, 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 the Prospectus. The Additional Statement is incorporated by reference in its entirety in the 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 OF 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 SHAREHOLDER SERVICING 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 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 & 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.") 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 the Trust and Its Shares." At the date of the Prospectus, Class Y Shares are registered for sale only in Oregon. (See "How to Invest in the Trust.") If Class Y Shares of the Trust are sold outside of Oregon, except to certain institutional investors, the Trust may be required to redeem them. If your state of residence is not Oregon, dividends from the Trust may be subject to income taxes of the state in which you reside. Accordingly, you should consult your tax adviser before acquiring shares of the Trust. 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 190 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 ("U.S. Bank"), 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. U.S. Bank, 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, insurance agency and credit life insurance services, 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 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 two Aquila-sponsored equity funds. 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 "Risk Factors 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 at Time of Purchase None (as a percentage of offering price) Maximum Sales Charge Imposed on Reinvested Dividends None Maximum 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 0.38% Administration Fee 0.20% Other Expenses 0.18% Total Trust Operating Expenses 0.58% Example (2) 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 Class Y Shares during the period from their introduction on April 5, 1996 to the end of the Trust's fiscal year. (2) 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.
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, 1996 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. Class A(1) Class Y(2) Year ended September 30, Period Ended 1996 1995 1994 1993 9/30/96 Net Asset Value, Beginning of Period $10.55 $10.20 $10.95 $10.48 $10.34 Income from Investment Operations: Net investment income 0.54 0.55 0.56 0.58 0.27 Net gain (loss) on securities (both realized and unrealized) (0.05) 0.39 (0.75) 0.50 0.15 Total from Investment Operations 0.49 0.94 (0.19) 1.08 0.42 Less Distributions: Dividends from net investment income (0.54) (0.55) (0.56) (0.58) (0.27) Distributions from capital gains (0.01) (0.04) - (0.03) - Total Distributions (0.55) (0.59) (0.56) (0.61) (0.27) Net Asset Value, End of Period $10.49 $10.55 $10.20 $10.95 $10.49 Total Return (not reflecting sales charge) 4.76% 9.52% (1.77)% 10.64% 4.14%(+) Ratios/Supplemental Data Net Assets, End of Period (in thousands) $305,096 $310,554 $316,317 $331,018 $242 Ratio of Expenses to Average Net Assets 0.72% 0.71% 0.68% 0.66% 0.57%(*) Ratio of Net Investment Income to Average Net Assets 5.16% 5.38% 5.28% 5.46% 5.36%(*) Portfolio Turnover Rate 10% 13% 11% 8% 10% 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 $0.54 $0.55 $0.56 $0.58 $0.27 Ratio of Expenses to Average Net Assets 0.73% 0.73% 0.70% 0.68% 0.58%(*) Ratio of Net Investment Income to Average Net Assets (%) 5.15% 5.37% 5.26% 5.44% 5.35%(*) Class A(1) Year Ended September 30, 1992 1991 1990 1989 1988 1987 $10.15 $9.67 $9.76 $9.67 $9.11 $9.85 0.65 0.62 0.66 0.73 0.61 0.65 0.29 0.49 (0.11) 0.01 0.60 (0.71) 0.94 1.11 0.55 0.74 1.21 (0.06) (0.61) (0.63) (0.64) (0.65) (0.65) (0.68) - - - - - - (0.61) (0.63) (0.64) (0.65) (0.65) (0.68) $10.48 $10.15 $9.67 $9.76 $9.67 $9.11 9.51% 11.83% 5.76% 7.83% 13.66% (0.59)% $249,953 $189,734 $140,713 $122,096 $102,361 $92,990 0.66% 0.71% 0.71% 0.76% 0.80% 0.55% 5.87% 6.30% 6.55% 6.61% 6.77% 6.88% 11% 21% 25% 45% 24% 17% $0.65 $0.62 $0.66 $0.73 $0.61 $0.62 0.66% 0.73% 0.73% 0.78% 0.82% 0.83% 5.87% 6.28% 6.53% 6.59% 6.75% 6.60% (1) Designated as Class A Shares on April 5, 1996. (2) New Class of Shares established on April 5, 1996. (+) 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 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 and may be subject to other market factors as well. 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 the ability of obligors of the obligations held in the Trust's portfolio to make the required payments on these obligations, and consequently, the market value of such obligations. 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. At the date of the Prospectus, it is difficult to assess fully the impact of the tax limitation measures, in part, because they are relatively recent and are continuing to be phased in over time. Many provisions of these measures are ambiguous and implementation of certain key provisions is left to the Legislature. In addition, the recent health of the Oregon economy has mitigated the effects of these measures; however, these conditions may not continue and future effects of these measures will depend on whether alternative revenue sources are obtained and, if so, the type and amount of such revenues. The adoption of these tax limitation measure may have an adverse effect on the general financial condition of cities, counties, school districts and other local governmental entities, and may in some cases impair their ability to pay principal and interest on obligations. In addition, to the extent that the Legislature provides funds from its general fund to replace tax revenues lost by the public school system, this could have an adverse effect on the State's credit rating, particularly if alternative revenue sources are not obtained. Moreover, the tax limitation measures 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 for more information about these tax limitation measures. 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 1996, both the number of such petitions that qualified and the number of such petitions that were approved by the voters have increased and there is no reason to expect that this pattern will change in the future. There is a relatively inactive market for municipal bonds of Oregon issuers other than the general obligations of the State itself and certain other segments of the market. Consequently, the market price of such other bonds may have a higher degree of volatility and it may be more difficult to execute sales of blocks of such bonds. If the Trust were forced to sell a large volume of these bonds for any reason, such as redemptions of a large number of its shares, there is a risk that the large sale itself might adversely affect the value of the Trust's portfolio. 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 (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. To do this you must open an account for automatic investments of at least $50 each month and make an initial investment of 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. At the date of the Prospectus, Class Y Shares of the Trust are registered for sale only in Oregon. If you do not reside in Oregon you should not purchase Class Y Shares of the Trust. If shares are sold outside of Oregon, except to certain institutional investors, the Trust may be required to redeem them. Such a redemption may result in a loss to you and may have tax consequences. In addition, if your state of residence is not Oregon, the dividends from the Trust may not be exempt from the income taxes of the state in which you reside. Accordingly, you should consult your tax adviser before acquiring shares of the Trust. 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 have redemption proceeds sent to a Financial Institution Account, 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 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 at 0.40 of 1% of such net asset value; see below.). 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 ("U.S. Bank"). Bancorp is a superregional financial services holding company organized under the laws of Oregon in 1968. U.S. Bank, 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's subsidiaries include mortgage banking, lease financing, consumer financing, commercial finance, international banking, investment advisory, insurance agency and credit life insurance services, brokerage and venture capital. As of December 31, 1996, the Adviser had under management nearly $10 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, underwrite 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 and its predecessor since 1977 and before that by the Adviser's parent company, U.S. National Bank. He has more than 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 two equity funds. As of September 30, 1996, 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, 1996, fees of $615,409 were paid or accrued to each of the Adviser and the Administrator. The Distributor currently handles the distribution of the shares of fourteen funds (seven tax-free municipal bond funds, five money market funds and two equity funds), 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 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 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, 1996, 99.5% of the Trust's dividends were "exempt-interest dividends." For the calendar year 1995, 0.20% 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 or only a nominal amount of Class Y 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. 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 equity funds (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 Bond or Equity Funds are this Trust, Aquila Rocky Mountain Equity Fund, Aquila Cascadia 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 Class Y Shares of 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 for 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 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 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 "Tax Effects of Redemptions" and 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 and Aquila Cascadia 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, at the maximum public offering price (offering price includes any applicable sales charge) for 1- 5- and 10-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, if any, 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 the Trust are entitled to share pro-rata in the net assets of the Trust available for distribution to shareholders (and in the assets of the Business Trust otherwise available to shareholders of the Trust), in accordance with the respective net asset values of the shares of each of the Trust's classes at that time. All shares are presently divided into 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 800-872-6734. 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. 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: AQUILASM 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 Minor's 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:________________________ Employer's 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 Aquilasm Group of Funds by telephone. The Agent is authorized to accept and act upon my/our or any other person's 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 DEPOSITOR'S 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. 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 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 January 31, 1997 This Statement of Additional Information (the "Additional Statement") is not a Prospectus. There are two Prospectuses for the Trust dated January 31, 1997: one Prospectus describes Front Payment Class Shares "Class A Shares" and Level Payment Class Shares "Class C Shares" of the Trust and the other describes Institutional Class ("Class Y Shares") of the Trust. References in the Additional Statement to "the Prospectus" refer to either of these Prospectuses. The Additional Statement should be read in conjunction with the Prospectus for the class of shares in which you are considering investing. Either or both Prospectuses may be obtained from the Trust's Shareholder Servicing Agent, Administrative Data Management Corp., by writing to: 581 Main Street, Woodbridge, New Jersey 07095-1198 or by calling at 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, 1996, will be delivered with the Additional Statement. TABLE OF CONTENTS Investment of the Trust's Assets . . . . . . . . . . . . . . . .2 Municipal Bonds . . . . . . . . . . . . . . . . . . . . . . . .6 Performance . . . . . . . . . . . . . . . . . . . . . . . . . .8 Investment Restrictions . . . . . . . . . . . . . . . . . . . 11 Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 12 Shareholder Services Plan. . . . . . . . . . . . . . . . . . . 18 Limitation of Redemptions in Kind . . . . . . . . . . . . . . 20 Trustees and Officers . . . . . . . . . . . . . . . . . . . . 20 Additional Information as to Management Arrangements . . . . . 26 Computation of Net Asset Value . . . . . . . . . . . . . . . . 30 Automatic Withdrawal Plan . . . . . . . . . . . . . . . . . . 31 Additional Tax Information . . . . . . . . . . . . . . . . . . 32 Conversion of Class C Shares . . . . . . . . . . . . . . . . . 32 General Information . . . . . . . . . . . . . . . . . . . . . 33 Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . 35 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, 1996, in Oregon Obligations in the various rating categories: Highest rating (1) . . . . . . . . . . . . . . . . . . . . .45.7% Second highest rating (2). . . . . . . . . . . . . . . . . .46.8% Third highest rating (3) . . . . . . . . . . . . . . . . . . 5.2% Fourth highest rating (4). . . . . . . . . . . . . . . . . . 0.2% Not rated: . . . . . . . . . . . . . . . . . . . . . . . . . 2.1% 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 Although it does not currently use such instruments, 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. 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 In 1990, Oregon voters approved a property tax limitation initiative measure known as Measure 5. The measure imposed increased restrictions on property taxes, phased in over a period of years. Now fully implemented as Article XI, section 11b of the Oregon Constitution, the measure limits the amount of ad valorem property taxes that may be levied against property to not more than $5 per $1,000 of real market value of the property for the operation of the public school system, including community colleges, and not more than $10 per $1,000 for operation of local governments other than the school system. Taxes may be levied outside Measure 5 limits for State of Oregon bonds authorized by a specific provision of the Oregon Constitution, and for general obligation bonds that were issued for capital construction or improvements either before November 6, 1990, or were approved by the electors of the issuing governmental unit. The measure required the legislature to replace revenue lost by the public school system through fiscal year 1995-96. As a consequence of the measure, the legislature has increased the amount of state funding for the public school system, even though the legal obligation to do so under the measure has ended. On November 5, 1996, Oregon voters approved a further constitutional property tax limitation known as Measure 47. The measure "cuts" ad valorem property taxes for the 1997-98 fiscal year to the lesser of the operating tax levy against each property for 1996-97, minus 10 percent, or the amount of the operating levy against the property for 1995-96. Beginning in 1998-99, and in subsequent years, the levy may not be increased more than a "cap" of 3 percent each year. The measure does permit increased taxes when property is improved, subdivided, rezoned, ceases to be eligible for property tax exemption, or is placed in a different tax code area by annexation approved by the voters. The taxes on such property may not exceed the average property taxes paid on similar property in the same tax code area. The Measure 47 limits do not apply to taxes for voter- approved bonded indebtedness or refunding bonds. The proceeds of general obligation bonds may be used only for capital construction or improvements. Capital improvements do not include supplies or equipment unless they are intrinsically part of a structure, except for public safety and law enforcement vehicles. Capital improvements do not include maintenance and repairs, the need for which could reasonably have been anticipated. The measure permits voters to approve property taxes in excess of Measure 47 limits, but not in excess of Measure 5 limits. Elections to authorize new or increased taxes, including taxes for payment of bonds, must be held at a general election in an even-numbered year, or other election at which not less than 50 percent of the registered voters eligible to vote cast ballots. The measure also provides additional requirements for notices of elections for new or increased taxes or unlimited tax bonds. The measure does not determine how reductions in tax revenues will be allocated among taxing entities. The measure authorizes the legislature to make that allocation, directing the legislature to give priority to public safety and public education, and to minimize any loss of local control of cities and counties to state government. Measure 47 also limits the ability of local governments to impose new or increased fees for products or services that have been partially funded from property taxes, if the result is to shift funding for the products or services from taxes to fees, unless the new or increased fees are approved by the voters. 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 of shares. Prior to April 5, 1996, the Trust had outstanding only one class of shares which are currently designated Class A Shares.On that date the trust began to offer shares of two other classes, Class C Shares and Class Y Shares. During most of 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 unless otherwise indicated. 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-, 5- and 10 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 in each of the Trust's three classes to the value such an investment would have if it were completely redeemed at the end of each such period. In the case of Class A Shares, the calculation assumes the maximum sales charge is deducted from the hypothetical initial $1,000 purchase. In the case of Class C Shares, the calculation assumes the applicable Conditional Deferred Sales Charge ("CDSC") imposed on a redemption of Class C shares held for the period is deducted. In the case of Class Y Shares, the calculation assumes that no sales charge is deducted and no CDSC is imposed. For all three classes, it is assumed 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 for any class). 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 for Class A Shares, 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.
Average Annual Compounded Rates of Return: Class A Shares Class C Shares Class Y Shares One Year 0.56% N/A(1) N/A(1) Five Years 5.57% N/A N/A Ten Years 6.57% N/A N/A Since inception June 16, 1986 6.78% 2.58%(2) 4.14%(2) (1) During these periods no Class C Shares or Class Y Shares were outstanding. (2) Period from April 5, 1996 (inception of class) through September 30, 1996.
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-, 5- and 10- 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 for each of its three classes. 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.
Total Return Class A Shares Class C Shares Class Y Shares One Year 0.56% N/A(1) N/A(1) Five Years 33.11% N/A N/A Ten Years 88.89% N/A N/A Since inception on June 16, 1986 96.58% 2.58%(2) 4.14%(2) (1) During these periods no Class C Shares or Class Y Shares were outstanding. (2) Period from April 5, 1996 (inception of class) through September 30, 1996.
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 for each of the Trust's three classes 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 of each class during the base period net of fee waivers and reimbursements of expenses, if any. The Trust may also quote a taxable equivalent yield for each of its three classes of shares 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 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 45.04% respectively. The latter rate reflects currently-enacted Federal income tax law. 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.
Yield for the 30-day period ended September 30, 1996 (the date of the Trust's most recent audited financial statements: Class A Shares Class C Shares Class Y Shares Yield 4.36% 3.70% 4.68% Taxable Equivalent Yield 7.92% 6.72% 8.50%
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 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. Other Performance Quotations With respect to those categories of investors who are permitted to purchase Class A 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. 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. 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. The Trust may include in advertisements and sales literature, information, examples and statistics that illustrate the effect of taxable versus tax-free compounding income at a fixed rate of return to demonstrate the growth of an investment over a stated period of time resulting from the payment of dividends and capital gains distributions in additional shares. The examples used will be for illustrative purposes only and are not representations by the Trust of past or future yield or return. From time to time, in reports and promotional literature, the Trust may compare its performance to, or cite the historical performance of, U.S. Treasury bills, notes and bonds, or indices of broad groups of unmanaged securities considered to be representative of, or similar to, that Fund's portfolio holdings, such as: Lipper Analytical Services, Inc. ("Lipper") is a widely-recognized independent service that monitors and ranks the performance of regulated investment companies. The Lipper performance analysis includes the reinvestment of capital gain distributions and income dividends but does not take sales charges into consideration. The method of calculating total return data on indices utilizes actual dividends on ex-dividend dates accumulated for the quarter and reinvested at quarter end. Morningstar Mutual Funds ("Morningstar"), a semi-monthly publication of Morningstar, Inc. Morningstar proprietary ratings reflect historical risk-adjusted performance and are subject to change every month. Funds with at least three years of performance history are assigned ratings from one star (lowest) to five stars (highest). Morningstar ratings are calculated from the funds' three-, five-, and ten-year average annual returns (when available) and a risk factor that reflects fund performance relative to three-month Treasury bill monthly returns. Fund's returns are adjusted for fees and sales loads. Ten percent of the funds in an investment category receive five stars, 22.5% receive four stars, 35% receive three stars, 22.5% receive two stars, and the bottom 10% receive one star. Salomon Brothers Inc., "Market Performance," a monthly publication which tracks principal return, total return and yield on the Salomon Brothers Broad Investment-Grade Bond Index and the components of the Index. Merrill Lynch, Pierce, Fenner & Smith, Inc., "Taxable Bond Indices," a monthly corporate government index publication which lists principal, coupon and total return on over 100 different taxable bond indices which Merrill Lynch tracks. They also list the par weighted characteristics of each Index. Lehman Brothers, Inc., "The Bond Market Report," a monthly publication which tracks principal, coupon and total return on the Lehman Govt./Corp. Index and Lehman Aggregate Bond Index, as well as all the components of these Indices. The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics, is a commonly used measure of inflation. The Index shows changes in the cost of selected consumer goods and does not represent a return on an investment vehicle. From time to time, in reports and promotional literature, performance rankings and ratings reported periodically in national financial publications such as MONEY, FORBES, BUSINESS WEEK, BARRON'S, FINANCIAL TIMES and FORTUNE may also be used. In addition, quotations from articles and performance ratings and ratings appearing in daily newspaper publications such as THE WALL STREET JOURNAL, THE NEW YORK TIMES and NEW YORK DAILY NEWS may be cited. 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 Class Shares ("Class A Shares") of the Trust (regardless of whether such class is so designated or is redesignated by some other name). As used in Part I of the Plan, "Qualified Recipients" shall mean broker-dealers or others selected by Aquila Distributors, Inc. (the "Distributor"), including but not limited to any principal underwriter of the Trust, with which the Trust or the Distributor has entered into written agreements in connection with Part I ("Class A Plan Agreements") and which have rendered assistance (whether direct, administrative, or both) in the distribution and/or retention of the Trust's Front-Payment Class Shares or servicing of shareholder accounts with respect to such shares. "Qualified Holdings" shall mean, as to any Qualified Recipient, all Front-Payment Class Shares beneficially owned by such Qualified Recipient, or beneficially owned by its brokerage customers, other customers, other contacts, investment advisory clients, or other clients, if the Qualified Recipient was, in the sole judgment of the Distributor, instrumental in the purchase and/or retention of such shares and/or in providing administrative assistance or other services in relation thereto. Subject to the direction and control of the Trust's Board of Trustees, the Trust may make payments ("Class A Permitted Payments") to Qualified Recipients, which Class A Permitted Payments may be made directly, or through the Distributor or shareholder servicing agent as disbursing agent, which may not exceed, for any fiscal year of the Trust (as adjusted for any part or parts of a fiscal year during which payments under the Plan are not accruable or for any fiscal year which is not a full fiscal year), 0.15 of 1% of the average annual net assets of the Trust represented by the Front-Payment Class Shares. Such payments shall be made only out of the Trust's assets allocable to the Front-Payment Class Shares. The Distributor shall have sole authority (i) as to the selection of any Qualified Recipient or Recipients; (ii) not to select any Qualified Recipient; and (iii) the amount of Class A Permitted Payments, if any, to each Qualified Recipient provided that the total Class A Permitted Payments to all Qualified Recipients do not exceed the amount set forth above. The Distributor is authorized, but not directed, to take into account, in addition to any other factors deemed relevant by it, the following: (a) the amount of the Qualified Holdings of the Qualified Recipient; (b) the extent to which the Qualified Recipient has, at its expense, taken steps in the shareholder servicing area with respect to holders of Front- Payment Class Shares, including without limitation, any or all of the following activities: answering customer inquiries regarding account status and history, and the manner in which purchases and redemptions of shares of the Trust may be effected; assisting shareholders in designating and changing dividend options, account designations and addresses; providing necessary personnel and facilities to establish and maintain shareholder accounts and records; assisting in processing purchase and redemption transactions; arranging for the wiring of funds; transmitting and receiving funds in connection with customer orders to purchase or redeem shares; verifying and guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder designated accounts; furnishing (either alone or together with other reports sent to a shareholder by such person) monthly and year-end statements and confirmations of purchases and redemptions; transmitting, on behalf of the Trust, proxy statements, annual reports, updating prospectuses and other communications from the Trust to its shareholders; receiving, tabulating and transmitting to the Trust proxies executed by shareholders with respect to meetings of shareholders of the Trust; and providing such other related services as the Distributor or a shareholder may request from time to time; and (c) the possibility that the Qualified Holdings of the Qualified Recipient would be redeemed in the absence of its selection or continuance as a Qualified Recipient. Notwithstanding the foregoing two sentences, a majority of the Independent Trustees (as defined below) may remove any person as a Qualified Recipient. Amounts within the above limits accrued to a Qualified Recipient but not paid during a fiscal year may be paid thereafter; if less than the full amount is accrued to all Qualified Recipients, the difference will not be carried over to subsequent years. While Part I is in effect, the Trust's Distributor shall report at least quarterly to the Trust's Trustees in writing for their review on the following matters: (i) all Class A Permitted Payments made under 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 Class Shares class (or of any predecessor class or category of shares, whether or not designated as a class) and a vote of holders of at least a "majority" (as so defined) of the outstanding voting securities of the Level Payment Class Shares and/or of any other class whose shares are convertible into Front-Payment Class Shares. Part I has continued, and will, unless terminated as hereinafter provided, continue in effect, 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 Class Shares or servicing of shareholder accounts with respect to such shares. "Qualified Holdings" shall mean, as to any Qualified Recipient, all Level-Payment Class Shares beneficially owned by such Qualified Recipient, or beneficially owned by its brokerage customers, other customers, other contacts, investment advisory clients, or other clients, if the Qualified Recipient was, in the sole judgment of the Distributor, instrumental in the purchase and/or retention of such shares and/or in providing administrative assistance or other services in relation thereto. Subject to the direction and control of the Trust's Board of Trustees, the Trust may make payments ("Class C Permitted Payments") to Qualified Recipients, which Class C Permitted Payments may be made directly, or through the Distributor or shareholder servicing agent as disbursing agent, which may not exceed, for any fiscal year of the Trust (as adjusted for any part or parts of a fiscal year during which payments under the Plan are not accruable or for any fiscal year which is not a full fiscal year), 0.75 of 1% of the average annual net assets of the Trust represented by the Level-Payment Class Shares. Such payments shall be made only out of the Trust's assets allocable to the Level-Payment Class Shares. The Distributor shall have sole authority (i) as to the selection of any Qualified Recipient or Recipients; (ii) not to select any Qualified Recipient; and (iii) the amount of Class C Permitted Payments, if any, to each Qualified Recipient provided that the total Class C Permitted Payments to all Qualified Recipients do not exceed the amount set forth above. The Distributor is authorized, but not directed, to take into account, in addition to any other factors deemed relevant by it, the following: (a) the amount of the Qualified Holdings of the Qualified Recipient; (b) the extent to which the Qualified Recipient has, at its expense, taken steps in the shareholder servicing area with respect to holders of Level-Payment Class Shares, including without limitation, any or all of the following activities: answering customer inquiries regarding account status and history, and the manner in which purchases and redemptions of shares of the Trust may be effected; assisting shareholders in designating and changing dividend options, account designations and addresses; providing necessary personnel and facilities to establish and maintain shareholder accounts and records; assisting in processing purchase and redemption transactions; arranging for the wiring of funds; transmitting and receiving funds in connection with customer orders to purchase or redeem shares; verifying and guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder designated accounts; furnishing (either alone or together with other reports sent to a shareholder by such person) monthly and year-end statements and confirmations of purchases and redemptions; transmitting, on behalf of the Trust, proxy statements, annual reports, updating prospectuses and other communications from the Trust to its shareholders; receiving, tabulating and transmitting to the Trust proxies executed by shareholders with respect to meetings of shareholders of the Trust; and providing such other related services as the Distributor or a shareholder may request from time to time; and (c) the possibility that the Qualified Holdings of the Qualified Recipient would be redeemed in the absence of its selection or continuance as a Qualified Recipient. Notwithstanding the foregoing two sentences, a majority of the Independent Trustees (as defined below) may remove any person as a Qualified Recipient. Amounts within the above limits accrued to a Qualified Recipient but not paid during a fiscal year may be paid thereafter; if less than the full amount is accrued to all Qualified Recipients, the difference will not be carried over to subsequent years. While Part II is in effect, the Trust's Distributor shall report at least quarterly to the Trust's Trustees in writing for their review on the following matters: (i) all Class C Permitted Payments made under 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 Class Shares. 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 (i) their agreements with the Distributor with respect to payments under the Trust's Distribution Plan in effect prior to April 5, 1996 or (ii) Class C Plan Agreements entered into thereafter. 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 Trust 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 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 shareholders of Level-Payment Class Shares and/or maintenance of Level-Payment Class Shares shareholder accounts. "Qualified Holdings" shall mean, as to any Qualified Recipient, all Level-Payment Class Shares beneficially owned by such Qualified Recipient's customers, clients or other contacts. "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 Trust's Board of Trustees, the Trust may make payments ("Service Fees") to Qualified Recipients, which Service Fees (i) may be paid directly or through the Distributor or shareholder servicing agent as disbursing agent and (ii) may not exceed, for any fiscal year of the Trust (as adjusted for any part or parts of a fiscal year during which payments under the Services Plan are not accruable or for any fiscal year which is not a full fiscal year), 0.25 of 1% of the average annual net assets of the Trust represented by the Level-Payment Class Shares. Such payments shall be made only out of the Trust's assets allocable to the Level-Payment Class Shares. The Distributor shall have sole authority with respect to the selection of any Qualified Recipient or Recipients and the amount of Service Fees, if any, paid to each Qualified Recipient, provided that the total Service Fees paid to all Qualified Recipients may not exceed the amount set forth above and provided, further, that no Qualified Recipient may receive more than 0.25 of 1% of the average annual net asset value of shares sold by such Recipient. The Distributor is authorized, but not directed, to take into account, in addition to any other factors deemed relevant by it, the following: (a) the amount of the Qualified Holdings of the Qualified Recipient and (b) the extent to which the Qualified Recipient has, at its expense, taken steps in the shareholder servicing area with respect to holders of Level-Payment Class Shares, including without limitation, any or all of the following activities: answering customer inquiries regarding account status and history, and the manner in which purchases and redemptions of shares of the Trust may be effected; assisting shareholders in designating and changing dividend options, account designations and addresses; providing necessary personnel and facilities to establish and maintain shareholder accounts and records; assisting in processing purchase and redemption transactions; arranging for the wiring of funds; transmitting and receiving funds in connection with customer orders to purchase or redeem shares; verifying and guaranteeing shareholder signatures in connection with redemption orders and transfers and changes in shareholder designated accounts; and providing such other related services as the Distributor or a shareholder may request from time to time. Notwithstanding the foregoing two sentences, a majority of the Independent Trustees (as defined below) may remove any person as a Qualified Recipient. Amounts within the above limits accrued to a Qualified Recipient but not paid during a fiscal year may be paid thereafter; if less than the full amount is accrued to all Qualified Recipients, the difference will not be carried over to subsequent years. 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 Services Plan or in any agreements related to the Services Plan (the "Independent Trustees"), with votes cast in person at a meeting called for the purpose of voting on the Services Plan. It will continue in effect for a period of more than one year from its original effective date only so long as such continuance is specifically approved at least annually as set forth in the preceding sentence. It may be amended in like manner and may be terminated at any time by vote of the Independent Trustees. The Services Plan is 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 Services Plan is in effect, the selection and nomination of those Trustees of the Trust who are not "interested persons" of the Trust, as that term is defined in the 1940 Act, shall be committed to the discretion of such disinterested Trustees. Nothing 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 December 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 Adviser or Sub-Adviser to the following open-end investment companies, and Founder, Chairman of the Board of Trustees, and President of each: 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 two equity funds, Aquila Rocky Mountain Equity Fund since 1993 and Aquila Cascadia Equity Fund, since 1996, which, together with this Trust are called the Aquila Bond and Equity Funds; and Pacific Capital Cash Assets Trust 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; 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; Chairman of the Board of Trustees and President of Prime Cash Fund (which is inactive), since 1982 and of Short Term Asset Reserves 1984-1996; 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, 1990-1996 and currently Trustee Emeritus; 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 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, of Narragansett Insured Tax-Free Income Fund since 1992, and of Aquila Cascadia Equity Fund since 1996; 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, Plimoth 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; Chairman of The Global Business Association, since 1996; 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; Life member of the American Society of Civil Engineers; Founding Member of the Institute of Management Consultants; Trustee of Cascades Cash Fund, 1989-1994 and of Aquila Cascadia Equity Fund since 1996. 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; Program Officer and County Representative of 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;Member of the Council on Foreign Relations since 1988; Founding Member of the Pacific Council since 1995; Trustee of Cascades Cash Fund, 1989-1994; Trustee of Aquila Cascadia Equity Fund, since 1996; 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, of Churchill Tax-Free Fund of Kentucky and Churchill Cash Reserves Trust since 1995 and of Aquila Cascadia Equity Fund since 1996; Vice President of InCap Management Corporation since 1986 and Director since 1983; Senior Vice President or Vice President and formerly Assistant Vice President of the Money Funds since 1986; Vice-President of Prime Cash Fund (which is inactive), since 1986, of Cascades Cash Fund 1989-1994, and of Short Term Asset Management Fund, 1986-1988; 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, of Churchill Cash Reserves Trust since 1995, and of Aquila Cascadia Equity Fund since 1996; 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 and of Aquila Cascadia Equity Fund since 1996. 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 and of Aquila Cascadia Equity Fund since 1996; 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 Senior Vice President of Tax-Free Fund of Colorado since 1995 and Aquila Rocky Mountain Equity Fund since 1996; 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 330, Portland, Oregon 97201 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, Assistant Secretary, 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, 1996, the Trust paid $83,145 in fees and reimbursement of expenses to its other Trustees. The Trust is one of the 14 funds in the Aquilasm Group of Funds, which consist of tax-free municipal bond funds, money market funds and two equity funds. 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 $7,750 $42,380 7 Warren C. Coloney $8,371 $8,821 2 James A. Gardner $8,350 $8,600 2 Ann R. Leven $7,450 $19,000 4 Raymond H. Lung $7,966 $8,366 2 Richard C. Ross $8,282 $8,732 2
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, 1996, all of the Trust's transactions were principal transactions and no brokerage commissions were paid. For the three fiscal years ended September 30, 1996, 1995 and 1994, respectively, fees of $615,409, $729,908 and $819,214 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, 1996, 1995 and 1994, respectively, fees of $615,409, $729,908 and $819,214 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 that the Adviser may perform the advisory services for the Trust required by the Advisory Agreement, without violating federal banking laws and regulations. Moreover, it has been 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 Class A Shares or Class Y 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 If you incur a sales commission on purchase of shares of one mutual fund (the original fund) and then sell such shares or exchange them for shares of a different mutual fund without having held them at least 91 days, you 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 your gain or reduce your loss on the original fund shares. The amount of the basis reduction on the original fund shares, however, is added on the investor's basis for the fund shares acquired in the exchange or later acquired. The provision applies to commissions charged after October 3, 1989. CONVERSION OF CLASS C SHARES Level-Payment Class Shares ("Class C Shares") of the Trust, which you hold will automatically convert to Front-Payment Class Shares ("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) convert 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 C 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 Shares 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 Shares shareholders, Class C Shares will stop converting into Class A Shares unless a majority of Class C Shares 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. As of the date of this Additional Statement, the Trust is the only operational Series of the Business Trust. 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. Ownership of Securities Of the Class A Shares of the Trust outstanding on January 2, 1997, Merrill, Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561 New Brunswick, NJ held of record 2,329,049 shares (8.0%), BHC Securities Inc., 2005 Market Street, Philadelphia, PA held of record 2,695,089 shares (9.3%) and Smith Barney, Inc., 388 Greenwich Street, New York, NY held of record 2,069,828 shares (7.1%). Of the Class C Shares of the Trust outstanding on January 2, 1997, Merrill, Lynch, Pierce, Fenner & Smith, Inc., P.O. Box 30561 New Brunswick, NJ held of record 45,049 shares (86.7%). On the basis of information received from those holders, the Trust's management believes that all of such shares are held for the benefit of brokerage clients. Of the Class Y Shares of the Trust outstanding on January 2, 1997, U.S. National Bank of Oregon, P.O. Box 3168, 555 S.W. Oak Street, Portland, OR held of record 42,123 shares (61.8%) and through an nominee, 25,857 shares (38.0%). On the basis of information received from those holders, the Trust's management believes that all of such shares are held for the benefit of clients. The Trust's management is not aware of any other person owning of record or beneficially 5% or more of the shares of any class of Trust's outstanding shares as of that date. 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, 1996, 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, 1996, the aggregate dollar amount of sales charges on the sales of the Trust's shares was $642,985 and the amount retained by the Distributor was $69,664. 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 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, 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, 1996 Statement of Operations for the year ended September 30, 1996 Statement of Changes in Net Assets for the years ended September 30, 1996 and 1995 Statement of Investments as of September 30, 1996 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 (ii) (2) By-laws (ii) (3) Not applicable (4) Specimen share certificate for Tax-Free Trust of Oregon Portfolio (iii) (5) Investment Advisory Agreement for Tax-Free Trust of Oregon Portfolio (i) (6) (a) Distribution Agreement for Tax-Free Trust of Oregon Portfolio (iii) (b) Sales Agreement for Brokerage Firms for Tax-Free Trust of Oregon Portfolio (iii) (c) Sales Agreement for Financial Institutions for Tax-Free Trust of Oregon Portfolio (iii) (d) Sales Agreement for Investment Advisers for Tax-Free Trust of Oregon Portfolio (iii) (h) Services Agreement (ii) (7) Not applicable (8) (b) Custody Agreement for Tax-Free Trust of Oregon Portfolio (i) (9) (a) Transfer Agency Agreement for Tax-Free Trust of Oregon Portfolio (iii) (b) Administration Agreement for Tax-Free Trust of Oregon Portfolio (iii) (10) Opinion and consent of Trust counsel for Tax-Free Trust of Oregon Portfolio (ii) (12) Not applicable (13) Not Applicable (14) Not applicable (15) Distribution Plan for Tax-Free Trust of Oregon (ii) (15) (a) Services Plan (ii) (16) Schedule for computation of performance quotations (iii) (17) Financial Data Schedule (iii) (18) Plan Pursuant to Rule 18f-3 (ii) (i) Filed as an exhibit to Registrant's Post-Effective Amendment No. 17 dated January 31, 1996 and incorporated herein by reference. (ii) Filed as an exhibit to Registrant's Post-Effective Amendment No. 18 dated April 3, 1996 and incorporated herein by reference. (iii) Filed herewith. ITEM 25. Persons Controlled By Or Under Common Control With Registrant None ITEM 26. Number of Holders of Securities As of January 13, 1997, Registrant had 5,780 holders of record of its Class A Shares, 9 of its Class C Shares and 3 of its Class Y Shares, all in its Tax-Free Trust of Oregon portfolio, its only operating 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. 18 dated April 3, 1996. is incorporated herein by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to Trustees, officers, and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for 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 underwriter to Aquila Rocky Mountain Equity Fund, Aquila Cascadia Equity Fund, Capital Cash Management Trust, Churchill Cash Reserves 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, 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. Consent of Independent Auditors To the Shareholders and Board of Trustees Tax-Free Trust of Oregon: We consent to the use of our report dated November 8, 1996, incorporated herein by reference, and to the references to our firm under the headings "Financial Highlights" in the Prospectus and "Custodian and Auditors" in the Statement of Additional Information. /s/KPMG Peat Marwick LLP KPMG Peat Marwick LLP New York, New York January 22, 1997 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 23rd day of January, 1997. 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 1/23/97 ______________________ President, Chairman of ___________ Lacy B. Herrmann the Board and Trustee (Principal Executive Officer) /s/Vernon R. Alden 1/23/97 ______________________ Trustee ___________ Vernon R. Alden /s/Warren C. Coloney 1/23/97 ______________________ Trustee ___________ Warren C. Coloney /s/James A. Gardner 1/23/97 ______________________ Trustee ___________ James A. Gardner /s/Diana P. Herrmann 1/23/97 ______________________ Trustee ___________ Diana P. Herrmann /s/Ann R. Leven 1/23/97 ______________________ Trustee ___________ Ann R. Leven /s/Raymond H. Lung 1/23/97 ______________________ Trustee ___________ Raymond H. Lung /s/Richard C. Ross 1/23/97 ______________________ Trustee ___________ Richard C. Ross /s/Rose F. Marotta 1/23/97 ______________________ Chief Financial Officer ___________ Rose F. Marotta (Principal Financial and Accounting Officer) THE CASCADES TRUST EXHIBIT INDEX Exhibit Exhibit Page Number Name Number (4) Specimen share certificate for Tax-Free Trust of Oregon Portfolio (6) (a) Distribution Agreement for Tax-Free Trust of Oregon Portfolio (b) Sales Agreement for Brokerage Firms for Tax-Free Trust of Oregon Portfolio (c) Sales Agreement for Financial Institutions for Tax-Free Trust of Oregon Portfolio (d) Sales Agreement for Investment Advisers for Tax-Free Trust of Oregon Portfolio (9) (a) Transfer Agency Agreement for Tax-Free Trust of Oregon Portfolio (b) Administration Agreement for Tax-Free Trust of Oregon Portfolio (16) Schedule for computation of performance quotations (17) Financial Data Schedule Correspondence EX-99 2 TAX-FREE TRUST OF OREGON A MASSACHUSETTS BUSINESS TRUST I. FRONT OF CERTIFICATE (all text and other matter lies within 7-1/2" x 11-3/4" decorative border, 1/2" wide) (upper right) oval with heading: SHARES (upper left) oval with heading: NUMBER (below right oval) SEE REVERSE FOR CERTAIN DEFINITIONS (at left) THIS CERTIFIES THAT (at right) CUSIP 876932 10 4 (at left) is the owner of Shares having a par value of one cent per Share of Tax-Free Trust of Oregon (hereinafter called the ("Trust"), transferable on the books of the Trust by the holder hereof in person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Declaration of Trust of the Trust to all of which the holder by acceptance hereof assents. This certificate is not valid until countersigned by the Transfer Agent. Witness the seal of the Trust and the signatures of its duly authorized officers or facsimiles thereof. Dated: (at left of seal) (at right of seal) /s/ Edward M. W. Hines /s/ Lacy B. Herrmann ______________________ _____________________ Secretary President (centered in middle of signatures) 1-3/4" diameter facsimile seal with legend TAX-FREE TRUST OF OREGON 1986 A MASSACHUSETTS BUSINESS TRUST (at lower right, printed vertically) Countersigned: THE FIRST JERSEY NATIONAL BANK (JERSEY CITY, N.J.) Transfer Agent, By ____________________________ Authorized Signature. II. BACK OF CERTIFICATE (text reads from top to bottom of 11-3/4" dimension) The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - ..............Custodian................ (Cust.) (Minor) under Uniform Gifts to Minors Act..................... (State) Additional Abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________ [ (box for SS#) ] [_______________]____________________________________________________ (Please print or typewrite name and address of assignee) _____________________________________________________________________ _____________________________________________________________________ ______________________________________________________________ SHARES OF THE SHARES REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ___________________________________________ ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED TRUST WITH FULL POWER OF SUBSTITUTION IN THE PREMISES. Dated_________________ Signed____________________________ ____________________________ (Both must sign if joint tenancy) Signature(s) guaranteed________________________ Firm or Bank by __________________________________ Officer (text printed in Signatures must be guaranteed by a box to left of commercial bank or a member firm of a signature(s)) domestic stock exchange. (text printed NOTICE: the signature to this assignment vertically to right) must correspond with the name as written upon the face of the certificate in every particular, without alteration or enlargement or any change whatever. EX-1 3 TAX-FREE TRUST OF OREGON AMENDED AND RESTATED DISTRIBUTION AGREEMENT AGREEMENT, made as of this 30th day of September, 1992, by and between The Cascades Trust (hereinafter called the "Business Trust"), and Aquila Distributors, Inc. (hereinafter called the "Distributor"). W I T N E S S E T H : WHEREAS, the Business Trust and the Distributor have previously entered into a Distribution Agreement with respect to a portfolio of the Business Trust entitled Tax-Free Trust of Oregon (the "Trust"); and WHEREAS, the Business Trust and the Distributor now wish to amend and restate their agreement as herein set forth, (referred to hereafter as "this Agreement"); NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, it is agreed by and between the parties hereto as follows: 1. The Distributor agrees to act as principal underwriter and exclusive distributor of the shares of the Trust. The price at which shares of the Trust are issued to the public by the Distributor shall be as computed and effective as set forth in the Prospectus and Statement of Additional Information of the Trust current as of the time of such sale (collectively, the "Current Prospectus"). The Distributor is authorized to determine from time to time (i) the sales charges forming part of the public offering price and any dealer discount paid to dealers and any agency commissions paid to brokers; (ii) the terms of any privilege reducing or eliminating such sales charges; and (iii) the terms of any sales agreement entered into by the Distributor relating to the sale of the Trust's shares and the identity of any broker or dealer with which such agreements are entered into. The Business Trust agrees that it will promptly amend or supplement the Current Prospectus in connection with any change in any of the foregoing. The Distributor agrees to bear the costs 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, as well as the costs of supplemental sales literature, advertising and other promotional activities. 2. The Business Trust agrees to issue shares of the Trust, subject to the provisions of its Declaration of Trust and By-Laws, to the Distributor as ordered by the Distributor, but only to the extent that the Distributor shall have received purchase orders therefor at the times and subject to the conditions set forth in the Current Prospectus. Certificates for shares need not be created or delivered by the Business Trust in any case in which the purchase is made under terms not calling for such certificates. Shares issued by the Business Trust shall be registered in such name or names and amounts as the Distributor may request from time to time and all shares when so paid for and issued shall be fully paid and non-assessable to the extent set forth in the Current Prospectus. 3. The Distributor shall act as principal in all matters relating to promotion of the growth of the Trust and shall enter into all of its engagements, agreements and contracts as principal on its own account. The title to shares of the Trust issued and sold through the Distributor shall pass directly from the Business Trust to the dealer or investor, or shall, if the Distributor so consents, first pass to the Distributor, as may from time to time be determined by the Board of Trustees of the Business Trust. 4. The Business Trust hereby consents to any arrangements whereby the Distributor may act as principal underwriter for other investment companies or as principal underwriter, sponsor or depositor for unit investment trusts and periodic payment plan certificates issued thereby, or as investment adviser, sub-adviser or administrator to the Business Trust or other investment companies or persons. The Business Trust also consents to the Distributor carrying on a business as a broker, dealer and underwriter in securities and to carrying on any other lawful business. 5. The Business Trust covenants and agrees that it will not during the term of this Agreement, without the consent of the Distributor, offer any shares of the Trust for sale directly or through any person or corporation other than the Distributor excepting only (a) the reinvestment of dividends and/or distributions, or their declaration in shares of the Trust, in optional form or otherwise; (b) the issuance of additional shares through stock splits or stock dividends; (c) sales of shares to another investment or securities holding company in the process of purchasing all or a portion of its assets; or (d) in connection with an exchange of the Trust's shares for shares of another investment company or securities holding company. 6. The Business Trust agrees to use its best efforts to register from time to time under the Securities Act of 1933 adequate amounts of shares of the Trust for sale by the Distributor to the public and to register or qualify, or to permit the Distributor to register or qualify, such shares for offering to the public in such States or other jurisdictions as may be designated by the Distributor. 7. The Business Trust agrees to advise the Distributor of the net asset value of the Trust's shares as often as computed. The Business Trust will also furnish to the Distributor, as soon as practicable, such information as may reasonably be requested by the Distributor in order that it may know all of the facts necessary to sell shares of the Trust. 8. The Distributor is familiar with the Declaration of Trust and By-Laws of the Business Trust, each as presently in effect. Insofar as they are applicable to the Distributor as principal underwriter of the Business Trust, it will comply with the provisions of the Declaration of Trust and By-Laws of the Business Trust and with the provisions of all acts administered by the Securities and Exchange Commission (the "Commission") and rules thereunder. 9. This amended and restated Agreement shall go into effect on the date first above written, and shall, unless terminated as hereinafter provided, continue in effect until the June 30 which next precedes the second anniversary of the effective date of this Agreement, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually as provided in the Investment Company Act of 1940 (the "Act"). This Agreement shall automatically terminate in the event of its assignment (as defined in the Act) and may be terminated by either party on sixty days written notice to the other party. 10. The Business Trust agrees with the Distributor, for the benefit of the Distributor and each person, if any, who controls the Distributor within the meaning of Section 15 of the Securities Act of 1933 (the "Securities Act") and each and all and any of them, to indemnify and hold harmless the Distributor and any such controlling person from and against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, under any other statute, at common law or otherwise, and to reimburse the Distributor and such controlling persons, if any, for any legal or other expenses (including the cost of any investigation and preparation) reasonably incurred by them or any of them in connection with any litigation whether or not resulting in any liability, insofar as such losses, claims, damages, liabilities or litigation arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or any Prospectus, filed with the Commission, or any amendment thereof or supplement thereto, or which arise out of, or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this indemnity agreement shall not apply to amounts paid in settlement of any such litigation if such settlement is effected without the consent of the Business Trust or to any such losses, claims, damages, liabilities or litigation arising out of, or based upon, any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or Prospectus, or any amendment thereof or supplement thereto, or arising out of, or based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which statement or omission was made in reliance upon information furnished in writing to the Business Trust by the Distributor for inclusion in any such Registration Statement or Prospectus or any amendment thereof or supplement thereto. The Distributor and each such controlling person shall, promptly after the complaint shall have been served upon the Distributor or such controlling person in respect of which indemnity may be sought from the Business Trust on account of its agreement contained in this paragraph, notify the Business Trust in writing of the commencement thereof. The omission of the Distributor or such controlling person so to notify the Business Trust of any such litigation shall relieve the Business Trust from any liability which it may have to the Distributor or such controlling person on account of the indemnity agreement contained in this paragraph, but shall not relieve the Business Trust from any liability which it may have to the Distributor or controlling person otherwise than on account of the indemnity agreement contained in the paragraph. In case any such litigation shall be brought against the Distributor or any such controlling person and notice of the commencement thereof shall have been given to the Business Trust, the Business Trust shall be entitled to participate in (and, to the extent that it shall wish, to direct) the defense thereof at its own expense, but such defense shall be conducted by counsel of good standing and satisfactory to the Distributor or such controlling person or persons, defendant or defendants in the litigation. The indemnity agreement of the Business Trust contained in this paragraph shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Distributor or any such controlling person, and shall survive any delivery of shares of the Trust. The Business Trust agrees to notify the Distributor promptly of the commencement of any litigation or proceeding against it or any of its officers or directors of which it may be advised in connection with the issue and sale of shares of the Trust. 11. Anything herein to the contrary notwithstanding, the agreement in paragraph 10, insofar as it constitutes a basis for reimbursement by the Business Trust for liabilities (other than payment by the Business Trust of expenses incurred or paid in the successful defense of any action, suit or proceeding) arising under the Securities Act, shall not extend to the extent of any interest therein of any person who is an underwriter or a partner or controlling person of an underwriter within the meaning of Section 15 of the Securities Act or who, at the date of this Agreement, is a Trustee of the Business Trust, except to the extent that an interest of such character shall have been determined by a court of appropriate jurisdiction as not against public policy as expressed in the Securities Act. Unless in the opinion of counsel for the Business Trust the matter has been adjudicated by controlling precedent, the Business Trust, will, if a claim for such reimbursement is asserted, submit to a court of appropriate jurisdiction the question of whether or not such interest is against the public policy as expressed in the Securities Act. 12. The Distributor agrees to indemnify and hold harmless the Business Trust and its Trustees and such officers as shall have signed any Registration Statement filed with the Commission from and against any and all losses, claims, damages or liabilities, joint or several, to which the Business Trust or such Trustees or officers may become subject under the Securities Act, under any other statute, at common law or otherwise, and will reimburse the Business Trust or such Trustees or officers for any legal or other expenses (including the cost of any investigation and preparation) reasonably incurred by it or them or any of them in connection with any litigation, whether or not resulting in any liability, insofar as such losses, claims, damages, liabilities or litigation arise out of, or are based upon, any untrue statement or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which statement or omission was made in reliance upon information furnished in writing to the Business Trust by the Distributor for inclusion in any Registration Statement or any Prospectus, or any amendment thereof or supplement thereto. The Distributor shall not be liable for amounts paid in settlement of any such litigation if such settlement was effected without its consent. The Business Trust and its Trustees and such officers, defendant or defendants, in any such litigation shall, promptly after the complaint shall have been served upon the Business Trust or any such Trustee or officer in respect of which indemnity may be sought from the Distributor on account of its agreement contained in this paragraph, notify the Distributor in writing of the commencement thereof. The omission of the Business Trust or such Trustee or officer so to notify the Distributor of any such litigation shall relieve the Distributor from any liability which it may have to the Business Trust or such Trustee or officer on account of the indemnity agreement contained in this paragraph, but shall not relieve the Distributor from any liability which it may have to the Business Trust or such Trustee or officer otherwise than on account of the indemnity agreement contained in this paragraph. In case any such litigation shall be brought against the Business Trust or any such Trustee or officer and notice of the commencement thereof shall have been so given to the Distributor, the Distributor shall be entitled to participate in (and, to the extent that it shall wish, to direct) the defense thereof at its own expense, but such defense shall be conducted by counsel of good standing and satisfactory to the Business Trust. The indemnity agreement of the Distributor contained in this paragraph shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Business Trust and shall survive any delivery of shares of the Trust. The Distributor agrees to notify the Business Trust promptly of the commencement of any litigation or proceeding against it or any of its officers or directors or against any such controlling person of which it may be advised, in connection with the issue and sale of the Trust's shares. 13. Notwithstanding any provision contained in this Agreement, no party hereto and no person or persons in control of any party hereto shall be protected against any liability to the Business Trust or its security holders to which they would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of their duties, or by reason of their reckless disregard of their obligations and duties under this Agreement. 14. The Business Trust shall immediately advise the Distributor (a) when any post-effective amendment to its Registration Statement or any further amendment or supplement thereto or any further Registration Statement or amendment or supplement thereto becomes effective, (b) of any request by the Commission for amendments to the Registration Statement or the then effective Prospectus or for additional information, (c) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, or the initiation of any proceedings for that purpose, and (d) of the happening of any event which makes untrue any material statement made in the Registration Statement or the Current Prospectus or which in the opinion of counsel for the Business Trust requires the making of a change in the Registration Statement or the Current Prospectus in order to make the statements therein not misleading. In case of the happening at any time of any event which materially affects the Trust or its securities and which should be set forth in a supplement to or an amendment of the then effective Prospectus in order to make the statements therein not misleading the Business Trust shall prepare and furnish to the Distributor such amendment or amendments to the then effective Prospectus as will correct the Prospectus so that as corrected it will not contain, or such supplement or supplements to the then effective Prospectus which when read in conjunction with the then effective Prospectus will make the combined information not contain, any untrue statement of a material fact or any omission to state any material fact necessary in order to make the statements in the then effective Prospectus not misleading. The Business Trust shall, if at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, make every reasonable effort to obtain the prompt lifting of such order. 15. Except as expressly provided in paragraphs 10 and 12 hereof, the agreements herein set forth have been made and are made solely for the benefit of the Business Trust, the Distributor, and the persons expressly provided for in paragraphs 10 and 12, their respective heirs, successors, personal representatives and assigns, and except as so provided, nothing expressed or mentioned herein is intended or shall be construed to give any person, firm or corporation, other than the Business Trust, the Distributor, and the persons expressly provided for in paragraphs 10 and 12, any legal or equitable right, remedy or claim under or in respect of this Agreement or any representation, warranty or agreement herein contained. Except as so provided, the term "heirs, successors, personal representatives and assigns" shall not include any purchaser of shares merely because of such purchase. 16. The Distributor understands that the obligations of this Agreement are not binding upon any shareholder of the Trust personally, but bind only the Business Trust's property; the Distributor represents that it has notice of the provisions of the Business Trust's Declaration of Trust disclaiming shareholder liability for acts or obligations of the Business Trust. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers and their seals to be affixed as of the day and year first above written. The Cascades Trust By:________________________________ ATTEST: __________________________ Aquila Distributors, Inc. By:________________________________ ATTEST: __________________________ EX-99 4 AQUILA DISTRIBUTORS, INC. SALES AGREEMENT (for use with brokerage firms) From: ____________________________ ____________________________ ____________________________ To: Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300 New York, N.Y. 10017 Gentlemen: We desire to enter into an agreement with you for sale and distribution of the shares of any of the mutual funds of which you are, or may become, Distributor (hereinafter collectively referred to as the "Funds" and individually as the "Fund"). Upon acceptance of this Agreement by you, we understand that we may offer and sell shares of the Funds, subject to all terms and conditions hereof and to your right without notice to suspend or terminate the sale of shares of any one or more of the Funds. 1. We understand that shares of the Funds will be offered and sold at the current offering price in effect as set forth in each Fund's then current Prospectus (which term as used herein includes any related Statement of Additional Information). All purchase requests and applications submitted by us are subject to acceptance or rejection as set forth in each Fund's then current Prospectus. 2. Each of us certifies (a) that the party in question is a member of the National Association of Securities Dealers, Inc. ("NASD") and agrees to maintain membership in the NASD, or (b) in the alternative, in our case, that we are a foreign firm not eligible for membership in the NASD. In any case, we and you agree to abide by all the rules and regulations of the NASD concerning distribution of the securities of open-end investment companies, including without limitation, Section 26 of Article III of the NASD Rules of Fair Practice, all of which are incorporated herein as if set forth in full. We and you further agree to comply with all applicable State and Federal laws and regulations. We and you agree that we and you will sell or offer for sale shares of the Funds only in those states or jurisdictions whose laws permit the offers or sales in question, whether or not such permission is dependent on registration or qualification of the Funds or their shares under such laws. 3. We shall offer and sell shares of the Funds only in accordance with the terms and conditions of the then current Prospectus of each Fund, and we shall make no representations not included in said Prospectus or in any authorized supplemental material supplied by you. We agree to be responsible for the proper instruction and training of all sales personnel employed by us, in order that such shares will be offered in accordance with the terms and conditions of this Agreement and all applicable laws and regulations. We agree to hold you and the Funds harmless and to indemnify you and the Funds in the event that we, or any of our sales representatives, violate any law or regulation, or any provisions of this Agreement, which violation may result in liability to you and/or any Fund; and in the event you and/or such Fund determine to refund any amounts paid by any investor by reason of any such violation on our part, we shall return to you and/or such Fund any commissions previously paid or discounts allowed by you to us with respect to the transaction for which the refund is made. All expenses which we incur in connection with our activities under this Agreement will be borne by us. 4. We understand and agree that the sales charge and dealer commission relative to sales of shares of any Fund made by us will be in an amount as set forth in the then current Prospectus of such Fund or in separate written notice to us. 5. Payment for purchases of shares of any Fund made by wire order from us will be received by you or such Fund within five business days after the acceptance of our order or such shorter time as may be required by law. If such payment is not so received, we understand that you reserve the right, without notice, forthwith to cancel the sale, or, at your option, to sell the shares ordered by us back to such Fund, in which latter case we may be held responsible for any loss, including loss of profit, suffered by you and/or such Fund resulting from our failure to make the aforesaid payment. Where sales of shares of any Fund are contingent upon such Fund's receipt of Federal funds in payment therefor, we shall forward promptly to you any purchase orders and payments received by us from investors. 6. We agree to purchase shares only from you or from our customers. If we purchase shares from you, we agree that all such purchases shall be made only to cover orders received by us from our customers, or for our own bona fide investment. If we purchase shares from our customers, we agree to pay such customers not less than the applicable redemption price as established by the then current Prospectus. 7. Unless at the time of transmitting an order we advise you to the contrary, you may consider the order to be the total holding of the investor and assume that the investor is not entitled to any reduction in sales price beyond that accorded to the amount of the purchase as determined by the schedule set forth in the then current Prospectus. 8. We understand and agree that if shares of any Fund sold by us under the terms of this Agreement are redeemed by such Fund (including redemptions resulting from an exchange for shares of another investment company) or are repurchased by you as agent for such Fund or are tendered to such Fund for redemption within seven business days after the confirmation to us of our original purchase order for such shares, we shall pay forthwith to you the full amount of the commission allowed to us on the original sale, provided you notify us of such repurchase or redemption within ten days of the date upon which written redemption requests (and, if applicable, share certificates) are delivered to you or to such Fund. 9. Your obligations to us under this Agreement are subject to all the provisions of any agreements entered into between you and the Funds. We understand and agree that in performing our services covered by this Agreement we are acting as principal, and you are in no way responsible for the manner of our performance or for any of our acts or omissions in connection therewith. Nothing in this Agreement shall be construed to constitute us or any of our agents, employees or representatives as your agent, partner or employee, or as the Funds' agent or employee. 10. We may terminate this Agreement by notice in writing to you, which termination shall become effective thirty days after the date of mailing such notice to you. We agree that you have and reserve the right, in your sole discretion without notice, to suspend sales of shares of any one or more of the Funds, or to withdraw entirely the offering of shares of any one or more of the Funds, or, in your sole discretion, to modify, amend, or cancel this Agreement upon written notice to us of such modification, amendment, or cancellation, which shall become effective on the date stated in such notice. Without limiting the foregoing, you may terminate this Agreement for cause on violation by us of any of the provisions of this Agreement, said termination to become effective on the date of mailing notice to us of such termination. Without limiting the foregoing, any provision hereof to the contrary notwithstanding, our expulsion from the NASD will automatically terminate this Agreement without notice; our suspension from the NASD or violation of applicable State or Federal laws or regulations will terminate this Agreement effective upon the date of your mailing notice to us of such termination. Your failure to terminate for any cause will not constitute a waiver of your right to terminate at a later date for any such cause. All notices hereunder will be to the respective parties at the addresses listed hereon, unless changed by notice given in accordance with this Agreement. 11. This Agreement will become effective when it is executed and dated by you, and will be in substitution of any prior agreement between you and us covering shares of the Funds. This Agreement is not assignable or transferable, except that you may assign or transfer this Agreement to any successor firm or corporation which becomes a principal underwriter of the Funds. _________________________________ (name of brokerage firm) By:______________________________ (signature of officer) _________________________________ (name and title of officer) _________________________________ (telephone number) Accepted: Aquila Distributors, Inc. By:________________________ (signature of officer) ___________________________ (name and title of officer) Dated:______________, 19___ EX-99 5 AQUILA DISTRIBUTORS, INC. SALES AGREEMENT (for use with financial institutions) From: ____________________________ ____________________________ ____________________________ To: Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300 New York, N.Y. 10017 Gentlemen: We desire to enter into an agreement with you to make available to our customers the shares of any of the funds of which you are, or may become, Distributor (hereinafter collectively referred to as the "Funds" or individually as the "Fund") on a fully disclosed basis wherein you would confirm transactions of our customers in such shares directly to them. Upon acceptance of this Agreement by you, we understand that we may make shares of the Funds available to our customers, subject to all terms and conditions hereof and to your right without notice to suspend or terminate the sale of shares of any one or more of the Funds. 1. We understand that shares of the Funds will be offered and sold by you at the current offering price in effect as set forth in each Fund's then current Prospectus (which term as used herein includes any related Statement of Additional Information). All purchase requests and applications submitted by us are subject to acceptance or rejection as set forth in each Fund's then current Prospectus. 2. Each of us certifies (a) that the party in question is a member of the National Association of Securities Dealers, Inc. ("NASD") and agrees to maintain membership in the NASD, or (b) in the alternative, in our case, that we are either (i) a foreign firm not eligible for membership in the NASD, or (ii) a bank, as defined in Section 3(a)(6) of the Securities Exchange Act of 1934. In any case, we and you agree to abide by all applicable rules and regulations of the NASD, including without limitation, Section 26 of Article III of the NASD Rules of Fair Practice, all of which are incorporated herein as if set forth in full. We and you further agree to comply with all applicable State and Federal laws and regulations. We and you agree that we and you will make available for sale shares of the Funds only in those states or jurisdictions whose laws so permit, whether or not such permission is dependent on registration or qualification of the Funds or their shares under such laws. 3. We shall make shares of the Funds available only in accordance with the terms and conditions of the then current Prospectus of each Fund, and we shall make no representations not included in said Prospectus or in any authorized supplemental material supplied by you. In no transaction where we make shares of the Funds available to our customers shall we have any authority to act as agent for the Funds. The customers in question are for all purposes our customers and not your customers. However, you will be responsible for mailing each Fund's then current Prospectus (not including the related Statement of Additional Information) with the confirmations. You will clear transactions for each of our customers only upon our authorization, it being understood in all cases that (i) we are acting as agent for the customer, (ii) the transactions are without recourse against us by the customer except to the extent that our failure to transmit orders in a timely fashion results in a loss to our customer, (iii) our customer will have full beneficial ownership of the shares, (iv) each transaction is initiated solely upon the order of the customer, and (v) each transaction is for the account of the customer and not for our account. We agree to be responsible for the proper instruction and training of all personnel employed by us in this area, in order that such shares will be offered in accordance with the terms and conditions of this Agreement and all applicable laws and regulations. We agree to hold you and the Funds harmless and to indemnify you and the Funds in the event that we, or any of such personnel, violate any law or regulation, or any provisions of this Agreement, which violation may result in liability to you and/or any Fund; and in the event you and/or such Fund determine to refund any amounts paid by any investor by reason of any such violation on our part, we shall return to you and/or such Fund any agency commissions previously paid to us with respect to the transaction for which the refund is made. All expenses which we incur in connection with our activities under this Agreement will be borne by us. 4. We understand and agree that the sales charge to the customer and the agency commission payable to us relative to sales of shares of any Fund made by us will be in an amount as set forth in the then current Prospectus of such Fund or in separate written notice to us. 5. Payment for purchases by our customers of shares of any Fund made by wire order from us will be received by you or such Fund within five business days after the acceptance of our order or such shorter time as may be required by law. If such payment is not so received, we understand that you reserve the right, without notice, forthwith to cancel the sale, or, at your option, to sell the shares ordered by us back to such Fund, in which latter case we may be held responsible for any loss, including loss of profit, suffered by you and/or such Fund resulting from our failure to make the aforesaid payment. Where sales of shares of any Fund are contingent upon such Fund's receipt of Federal funds in payment therefor, we shall forward promptly to you any purchase orders and payments received by us from our customers. 6. We agree to make shares available to our customers only (a) at the public offering price (except as provided in Paragraph 12 hereunder), (b) from you, and (c) to cover orders already received from our customers. We shall not withhold placing with you orders received from our customers so as to profit ourselves as a result of such withholding; e.g., by a change in the net asset value from that used in determining the public offering price to our customers. 7. Unless at the time of transmitting an order we advise you to the contrary, you may consider the order to be the total holding of the investor and assume that the investor is not entitled to any reduction in sales price beyond that accorded to the amount of the purchase as determined by the schedule set forth in the then current Prospectus. If we make shares available to our customers as provided in Paragraph 12 hereunder, we shall so indicate to you at the time of transmitting such order. 8. We understand and agree that if any shares sold to our customers under the terms of this Agreement are redeemed by any Fund (including redemptions resulting from an exchange for shares of another investment company) or are repurchased by you as agent for such Fund or are tendered to such Fund for redemption within seven business days after the confirmation to our customers of our original purchase order for such shares, we shall pay forthwith to you the full amount of the commission allowed to us on the original sale, provided you notify us of such repurchase or redemption within ten days of the date upon which written redemption requests (and, if applicable, share certificates) are delivered to you or to such Fund. 9. Your obligations to us under this Agreement are subject to all the provisions of any agreements entered into between you and the Funds. We understand and agree that in performing our services covered by this Agreement we are acting as agent for our customers, and you are in no way responsible for the manner of our performance or for any of our acts or omissions in connection therewith. Nothing in this Agreement shall be construed to constitute us or any of our agents, employees or representatives as your agent, partner or employee, or as the Funds' agent or employee. 10. We may terminate this Agreement by notice in writing to you, which termination shall become effective thirty days after the date of mailing such notice to you. However, our termination of this Agreement will not terminate our responsibilities under sections (iv) and (v) of Paragraph 12 hereunder. We agree that you have and reserve the right, in your sole discretion without notice, to suspend sales of shares of any one or more of the Funds, or to withdraw entirely the offering of shares of any one or more of the Funds, or, in your sole discretion, to modify, amend, or cancel this Agreement upon written notice to us of such modification, amendment, or cancellation, which shall become effective on the date stated in such notice. Without limiting the foregoing, you may terminate this Agreement for cause on violation by us of any of the provisions of this Agreement, said termination to become effective on the date of mailing notice to us of such termination. Without limiting the foregoing, any provision hereof to the contrary notwithstanding, our expulsion from the NASD, if we are a member of the NASD, will automatically terminate this Agreement without notice; our suspension from the NASD, if we are a member of the NASD, or violation of applicable State or Federal laws or regulations (whether or not we are a member of the NASD) will terminate this Agreement effective upon the date of your mailing notice to us of such termination. Your failure to terminate for any cause will not constitute a waiver of your right to terminate at a later date for any such cause. All notices hereunder will be to the respective parties at the addresses listed hereon, unless changed by notice given in accordance with this Agreement. 11. This Agreement will become effective when it is executed and dated by you, and will be in substitution of any prior agreement between you and us covering shares of the Funds. This Agreement is not assignable or transferable, except that you may assign or transfer this Agreement to any successor firm or corporation which becomes a principal underwriter of the Funds. 12. We may make shares of the Funds available to our customers at the next determined net asset value of such shares under the following circumstances: (i) each such purchase order is on behalf of a trust, agency, or custodial client, (ii) we have, as to each such purchase order, discretionary investment responsibility over the assets in question, (iii) the relationship between the us and the client was not formed solely for the purpose of purchasing shares of any Fund at net asset value, (iv) the shares purchased pursuant to such purchase order will not be resold except by redemption, (v) there is no charge relating to such purchase other than our normal service charge, and (vi) we may disclose the name of any Fund to the client without your consent. _________________________________ (name of financial institution) By:______________________________ (signature of officer) _________________________________ (name and title of officer) _________________________________ (telephone number) Accepted: Aquila Distributors, Inc. By:________________________ (signature of officer) ___________________________ (name and title of officer) Dated:______________, 19__ EX-99 6 Revised 2/94 AQUILA DISTRIBUTORS, INC. SALES AGREEMENT (for use with investment advisers) From: ____________________________ ____________________________ ____________________________ To: Aquila Distributors, Inc. 380 Madison Avenue, Suite 2300 New York, N.Y. 10017 Gentlemen: We desire to enter into an agreement with you to make avail- able to our clients the shares of any of the funds of which you are, or may become, Distributor (hereinafter collective- ly referred to as the "Funds" or individually as the "Fund") on a fully disclosed basis wherein you would confirm trans- actions of our clients in such shares directly to them. Upon acceptance of this Agreement by you, we understand that we may make shares of the Funds available to our clients, subject to all terms and conditions hereof and to your right without notice to suspend or terminate the sale of shares of any one or more of the Funds. 1. We understand that shares of the Funds will be offered and sold by you at the current net asset value in effect as set forth in each Fund's then current Prospectus (which term as used herein includes any related Statement of Additional Information). All purchase requests and applications sub- mitted by us are subject to acceptance or rejection as set forth in each Fund's then current Prospectus. 2. We certify that we are an investment adviser, registered with the Securities and Exchange Commission under the In- vestment Advisers Act of 1940 and registered under relevant state statutes; we furthermore undertake to maintain such registrations. You certify that you are a broker-dealer, registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, registered with the Na- tional Association of Securities Dealers, Inc., and regis- tered under relevant state statutes; you furthermore under- take to maintain such registrations. We and you further agree to comply with all applicable statutes and regula- 2 tions. We and you agree that we and you will make available for sale shares of the Funds only in those states or juris- dictions whose laws so permit, whether or not such permis- sion is dependent on registration or qualification of the Funds or their shares under such laws. 3. We shall make shares of the Funds available only in ac- cordance with the terms and conditions of the then current Prospectus of each Fund, and we shall make no representa- tions not included in said Prospectus or in any authorized supplemental material supplied by you. In no transaction where we make shares of the Funds available to our clients shall we have any authority to act as agent for the Funds. The clients in question are for all purposes our clients and not your clients. However, you will be responsible for mai- ling each Fund's then current Prospectus (not including the related Statement of Additional Information) with the con- firmations. You will clear transactions for each of our clients only upon our authorization, it being understood in all cases that (i) we are acting as agent for the client, (ii) the transactions are without recourse against us by the client, (iii) our client will have full beneficial ownership of the shares, and (iv) each transaction is for the account of the client and not for our account. We agree to be re- sponsible for the proper instruction and training of all personnel employed by us in this area, in order that such shares will be offered in accordance with the terms and con- ditions of this Agreement and all applicable laws and regu- lations. We agree to hold you and the Funds harmless and to indemnify you and the Funds in the event that we, or any of such personnel, violate any law or regulation, or any provi- sions of this Agreement, which violation may result in lia- bility to you and/or any Fund. All expenses which we incur in connection with our activities under this Agreement will be borne by us. 4. Payment for purchases by our clients of shares of any Fund made by wire order from us will be received by you or such Fund within five business days after the acceptance of our order or such shorter time as may be required by law. If such payment is not so received, we understand that you reserve the right, without notice, forthwith to cancel the sale, or, at your option, to sell the shares ordered by us back to such Fund, in which latter case we may be held re- sponsible for any loss, including loss of profit, suffered by you and/or such Fund resulting from our failure to make the aforesaid payment. Where sales of shares of any Fund are contingent upon such Fund's receipt of Federal funds in payment therefor, we shall forward promptly to you any pur- chase orders and payments received by us from our clients. 3 5. We agree to make shares available to our clients only (a) at the net asset value, (b) from you, and (c) to cover or- ders already received from our clients. We shall not with- hold placing with you orders received from our clients so as to profit ourselves as a result of such withholding; e.g., by a change in the net asset value from that used in deter- mining the net asset value to our clients. 6. Your obligations to us under this Agreement are subject to all the provisions of any agreements entered into between you and the Funds. We understand and agree that in perfor- ming our services covered by this Agreement we are acting as agent for our clients, and you are in no way responsible for the manner of our performance or for any of our acts or omissions in connection therewith. Nothing in this Agree- ment shall be construed to constitute us or any of our a- gents, employees or representatives as your agent, partner or employee, or as the Funds' agent or employee. 7. We may terminate this Agreement by notice in writing to you, which termination shall become effective thirty days after the date of mailing such notice to you. However, our termination of this Agreement will not terminate our respon- sibilities under sections (iv) and (v) of Paragraph 9 here- under. We agree that you have and reserve the right, in your sole discretion without notice, to suspend sales of shares of any one or more of the Funds, or to withdraw en- tirely the offering of shares of any one or more of the Funds, or, in your sole discretion, to modify, amend, or cancel this Agreement upon written notice to us of such mo- dification, amendment, or cancellation, which shall become effective on the date stated in such notice. Without limi- ting the foregoing, you may terminate this Agreement for cause on violation by us of any of the provisions of this Agreement, said termination to become effective on the date of mailing notice to us of such termination. Your failure to terminate for any cause will not constitute a waiver of your right to terminate at a later date for any such cause. All notices hereunder will be to the respective parties at the addresses listed hereon, unless changed by notice given in accordance with this Agreement. 8. This Agreement will become effective when it is executed and dated by you, and will be in substitution of any prior agreement between you and us covering shares of the Funds. This Agreement is not assignable or transferable, except that you may assign or transfer this Agreement to any suc- cessor firm or corporation which becomes a principal under- writer of the Funds. 4 9. We agree that (i) each purchase order is on behalf of an investment advisory client, (ii) the relationship between us and the client was not formed solely for the purpose of pur- chasing shares of any Fund at net asset value, (iii) the shares purchased pursuant to such purchase order will not be resold except by redemption, (iv) there is no charge rela- ting to such purchase other than our normal service charge, and (v) we may disclose the name of any Fund to the client without your consent. _________________________________ (name of investment adviser) By:______________________________ (signature of officer) _________________________________ (name and title of officer) _________________________________ (telephone number) Accepted: Aquila Distributors, Inc. By:________________________ (signature of officer) ___________________________ (name and title of officer) Dated:______________, 19__ EX-10 7 TRANSFER AGENCY AGREEMENT THIS AGREEMENT is made this 9th day of February, 1989, by and between Tax-Free Trust of Oregon, an unincorporated business trust organized under the laws of Massachusetts (the "Fund"), and ADMINISTRATIVE DATA MANAGEMENT CORP., a corporation organized and existing under the laws of the State of New York ("ADM"). R E C I T A L S WHEREAS, the Fund is registered as an open-end, diversified, management investment company under the Investment Company Act of 1940, as amended (the "1940 Act") currently offering one class of shares (the "Shares"); and WHEREAS, the Fund desires to retain ADM to serve as the Fund's transfer agent, registrar and dividend disbursing agent, and ADM is willing to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment. The Fund hereby appoints ADM to serve as transfer agent, registrar and dividend disbursing agent for the Fund, for the period and on the terms set forth in this Agreement. ADM accepts such appointment and agrees to furnish the services herein set forth in return for the compensation as provided for in Paragraph 15 of this Agreement. 2. Delivery of Documents. (a) The Fund has furnished ADM with copies properly certified or authenticated of each of the following: (i) Resolutions of the Fund's Board of Trustees authorizing the execution of this Agreement; (ii) Appendix B identifying and containing the signatures of the Fund's officers and other persons authorized to sign Written Instructions and give Oral Instructions, each as hereinafter defined, on behalf of the Fund; (iii) The Fund's Declaration of Trust filed with the Secretary of State of the Commonwealth of Massachusetts and all amendments thereto (such Declaration of Trust, as presently in effect and as it shall from time to time be amended, is herein called the "Declaration"); (iv) The Fund's By-Laws and all amendments thereto (such By-Laws, as presently in effect and as they shall from time to time be amended, are herein called the "By-Laws"); (v) The Fund's Registration Statement on Form N-1A under the Securities Act of 1933, as amended (the "1933 Act") and under the 1940 Act as filed with the Securities and Exchange Commission ("SEC") and all amendments thereto; (vi) The Fund's most recent prospectus and statement of additional information (such prospectus and statement of additional information, as from time to time in effect and all amendments and supplements thereto are herein called the "Prospectus"). (b) ADM has furnished the Fund with copies properly certified or authenticated its Registration Statement on Form TA-1 under the Securities Exchange Act of 1934, as amended and all annual or other public reports filed with the SEC as may be requested by the Fund. (c) Each party from time to time will furnish the other with copies, properly certified or authenticated, of all amendments or supplements to the foregoing, if any. Neither party is obligated hereby to provide the other with otherwise confidential information. 3. Definitions. (a) "Authorized Person". As used in this Agreement, the term "Authorized Person" means the Fund's officers and other persons duly authorized by the Board of Trustees of the Fund to give Oral and Written Instructions on behalf of the Fund and listed on the Certificate annexed hereto as Appendix B or any amendment thereto as may be received by ADM from time to time. (b) "Oral Instructions". As used in this Agreement, the term "Oral Instructions" means verbal instructions actually received by ADM from an Authorized Person or from a person reasonably believed by ADM to be an Authorized Person. The Fund agrees to deliver to ADM Written Instructions confirming Oral Instructions. (c) "Written Instructions". As used in this Agreement, the term "Written Instructions" means written instructions delivered by mail, telegram, cable, telex or facsimile sending device, and received by ADM and signed by an Authorized Person or reasonably believed by ADM to have been signed by or authorized by an Authorized Person unless otherwise required by a resolution of the Board of Trustees furnished to ADM pursuant to Section 2(a) hereof. 4. Instructions Consistent with Declaration, etc. (a) Unless otherwise provided in this Agreement, ADM shall act only upon Oral or Written Instructions. Although ADM may take cognizance of the provisions of the Declaration and By-Laws of the Fund, the Fund's Prospectus and the laws, rules and regulations applicable to the Fund, ADM may assume that any Oral or Written Instructions received hereunder are not in any way inconsistent with any provisions of such Declaration or By-Laws, the Fund's Prospectus or with any laws, rules or regulations applicable to the Fund or any vote, resolution or proceeding of the Shareholders, or of the Board of Trustees, or of any committee thereof. (b) ADM shall be entitled to rely upon any Oral Instructions and any Written Instructions actually received by ADM pursuant to this Agreement and shall have no liability for any action which it takes or omits in accordance with such Oral Instructions or Written Instructions, whether received from personnel of the Fund, its investment adviser, its administrator, or otherwise. The Fund agrees to forward to ADM Written Instructions confirming Oral Instructions in such manner that the Written Instructions are received by ADM, whether by hand delivery, telex, facsimile sending device or otherwise, as promptly as practicable after Oral Instructions are given to ADM. The Fund agrees that the fact that such confirming Written Instructions are not received by ADM shall in no way affect the validity of the actions or transactions or enforceability of the actions or transactions authorized by the Fund by giving Oral Instructions. 5. Transactions Not Requiring Instructions. (a) In the absence of contrary Written Instructions, ADM is authorized to take and to the extent set forth in the Activities List shall take the following actions: (i) issuance, transfer and redemption of Shares; (ii) opening, maintenance, servicing and closing of accounts of Shareholders or prospective Shareholders; (iii) acting as agent of the Fund, in connection with plan accounts, upon the terms and subject to the conditions contained in the application relating to the plan account in question; (iv) causing the reinvestment in Shareholders' accounts of dividends and distributions declared upon shares; (v) transferring the investment of an investor into, or from, the shares of other open-end investment companies, if and to the extent permitted by the Prospectus; (vi) processing redemptions; (vii) examining and approving legal transfers; (viii) furnishing to Shareholders confirmations of transactions relating to their Shares; (ix) preparing and mailing to the Internal Revenue Service and all payees all information returns and payee statements required under the Internal Revenue Code in respect to the Fund's dividends and distributions and taking all other necessary actions in connection with the dividend and other withholding requirements of that Code; (x) mailing to Shareholders annual and semi-annual reports prepared by or on behalf of the Fund, and mailing new Prospectuses upon their issue to shareholders. (xi) preparation and sending such other information from the Fund records held by ADM as may be reasonably requested by the Fund; (xii) preparation and sending to the Fund such affidavits of mailing and certifications as are reasonably requested by an officer of the Fund; (xiii) transferring stock certificates representing shares for other stock certificates representing such shares; (xiv) replacing allegedly lost, stolen or destroyed stock certificates with or without surety bonds; and (xv) maintaining such books and records relating to transactions effected by ADM as are required by the 1940 Act, or by any other applicable provisions of law, to be maintained by the Fund or its transfer agent with respect to such transactions, and preserving, or causing to be preserved, any such books and records for such periods as may be required by any such law, rule or regulation. (b) ADM agrees to act as Proxy Agent in connection with the holding of annual or special meetings of Shareholders, mailing to Shareholders notices, proxies and proxy statements in connection with the holding of such meetings, receiving and tabulating votes cast by proxy and communicating to the Fund the results of such tabulation accompanied by appropriate certificates, and preparing and furnishing to the Fund certified lists of Shareholders as of such date, and in such form and containing such information as may be required by the Fund to comply with any applicable provisions of law or its Declaration and/or By-Laws relating to such meetings. ADM shall be reimbursed for out-of-pocket expenses in performing such services, such as the costs of forms, envelopes and postage. ADM at its cost with the consent of the Fund may employ another firm to perform all or some of the functions required by this subsection. The Fund shall pay such additional charges as the parties may agree upon for the services of the Transfer Agent in connection with special meetings of shareholders of the Fund in excess of one such meeting held in any fiscal year of the Fund. (c) ADM shall furnish to the Fund such information and at such intervals as the Fund may reasonably request for the Fund to comply with the normal registration and/or the normal reporting requirements of the SEC, Blue Sky authorities or other regulatory agencies. All such information shall be materially correct and complete based upon information supplied to ADM. (d) ADM shall, in addition to the services herein itemized, if so requested by the Fund and for such additional fees as the Fund and ADM may from time to time agree, perform and do all other acts and services that are customarily performed and done by transfer agents, dividend disbursing agents and shareholder servicing agents of open-end mutual funds such as the Fund, provided that normally occurring improvements in the services of such agents will be provided without initial capital cost to the Fund and at service fees which are competitive with those prevailing in the industry. (e) The parties hereto agree that without prejudice to any other provisions of this Agreement, the functions of ADM and the Fund under this Agreement will be substantially performed in accordance with the Activities List set out in Appendix A to this Agreement. Such activities List as amended from time to time is an integral part of this Agreement. In the event that the provisions of this Agreement are in conflict with or are inconsistent with those set forth in such Activity List the provisions of the Activities List shall govern. (f) ADM agrees to provide to the Fund upon request such information as may reasonably be required to enable the Fund to reconcile the number of outstanding shares of the Fund between ADM's records and the account books of the Fund. 6. Authorized Shares. The Fund hereby represents that the Declaration authorizes the Board of Trustees to issue an unlimited number of shares. 7. Dividends and Distributions. The Fund shall furnish ADM with the amount of each daily dividend and with appropriate evidence of action by the Fund's Board of Trustees authorizing the daily declaration of dividends and distributions in respect of Shares as described in the then current Prospectus. Upon declaration of each dividend other than daily dividends, each capital gain distribution or other distribution by the Board of Trustees of the Fund, the Fund shall promptly notify ADM of the date of such declaration, the amount payable per share, the record date for determining the shareholders entitled to payment, the payment date, and the reinvestment date and price which is to be used to purchase shares for reinvestment, all sufficiently in advance to permit ADM to process properly such dividend or capital gain distribution or other distribution in a timely and orderly manner. Sufficiently in advance of each payment date to permit ADM to have federal funds available to it for the payment thereof, the Fund will transfer, or cause the Custodian to transfer, to ADM in its capacity as dividend disbursing agent, at First Financial Savings Bank, S.L.A. or at such bank or other financial institution as ADM with the consent of the Fund shall select, which may but need not be an affiliate of ADM, the total amount of the dividend or distribution currently payable. After deducting any amount reasonably believed by ADM to be required to be withheld by any applicable tax laws, rules and regulations or other applicable laws, rules and regulations, based upon information available to it, ADM shall, as agent for each Shareholder and in accordance with the provisions of the Fund's Declaration and then current Prospectus, invest dividends in Shares in the manner described in the Prospectus or pay them in cash. ADM shall prepare, file with the Internal Revenue Service, and address and mail to shareholders such returns and information relating to dividends and distributions paid by the Fund as are required to be so prepared, filed and mailed by applicable laws, rules and regulations, or such substitute form of notice as may from time to time be permitted or required by the Internal Revenue Service. The Fund shall promptly provide ADM with the information necessary to prepare such returns and information, all sufficiently in advance to permit ADM to prepare properly and mail such returns and information in a timely and orderly manner. On behalf of the Fund, ADM shall pay on a timely basis to the appropriate Federal authorities any taxes withheld on dividends and distributions paid by the Fund. 8. Notification of ADM: The Fund shall promptly notify ADM of the closing net asset value per share and the offering price per share each day there are any transaction in shares of the Fund, but in any event not later than sixty (60) minutes after the closing of the New York Stock Exchange (if the Fund is not a money market Fund) or before 1:00 p.m. New York Time (if the Fund is a money market Fund.) In the event ADM is not so notified, it may assume that the price is unchanged from the prior price. 9. Communications with Shareholders. (a) Communications to Shareholders. The Fund shall prepare, print and provide ADM with sufficient quantities of all communications by the Fund to its shareholders all sufficiently in advance to permit ADM to properly address and mail in a timely and orderly manner all communications by the Fund to its Shareholders, including reports to Shareholders, dividend and distribution notices and proxy material for its meetings of Shareholders. ADM agrees to mail all such material to shareholders of the Fund in a timely manner. ADM or a firm employed by ADM will at ADM'S cost and expense receive and tabulate the proxy cards for the meetings of the Fund's Shareholders. (b) Correspondence. ADM will answer such correspondence from Shareholders, securities brokers and others relating to its duties hereunder and such other correspondence as may from time to time be mutually agreed upon between ADM and the Fund. 10. Records. ADM shall keep the records described on the Activities List, including but not limited to the following: (a) accounts for each Shareholder showing the following information: (i) name, address and United States Tax Identification or Social Security number; (ii) number of Shares held and number of Shares for which certificates, if any, have been issued, including certificate numbers and denominations; (iii) historical information regarding the account of each Shareholder, including dividends and distributions paid and the date and the price, if applicable, for all transactions in a Shareholder's account; (iv) any stop or restraining order placed against a Shareholder's account; (v) any correspondence relating to the current maintenance of a Shareholder's account; (vi) information with respect to withholdings in the case of a foreign account; and (vii) information with respect to withholding in the case of an account subject to backup withholding; (ix) any information required in order for ADM to perform any calculations contemplated or required by this Agreement. (b) If agreed between the Fund and ADM, subaccounts may be maintained for each Shareholder requesting such services in connection with shares held by such Shareholder for separate accounts containing the same information for each subaccount as required by subparagraph (a) above. The books and records pertaining to the Fund which are in the possession of ADM shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the 1940 Act and other applicable securities laws and rules and regulations in effect from time to time. ADM will, if so requested by the counsel to the Fund, modify the manner in which such books and records are prepared and maintained so as to comply with the reasonable opinion of such counsel as to such laws and rules. The Fund, or the Fund's authorized representatives, shall have access to such books and records at all times during ADM's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by ADM to the Fund or the Fund's authorized representative at the Fund's expense. 11. Reports and Other Information. Upon reasonable request of the Fund, provided that the cost or effort required therefor are, singly or in the aggregate, not unduly burdensome or expensive to it, ADM will promptly transmit to the Fund, at no additional cost to the Fund, (a) documents and information in the possession of ADM and not otherwise available necessary to enable it and its affiliates to comply with the requirements of the Internal Revenue Service, the SEC, the National Association of Securities Dealers, Inc., state blue sky authorities, and any other regulatory bodies having jurisdiction; (b) documents and information in the possession of ADM necessary to enable the Fund to conduct annual and special meetings of its shareholder; and (c) such other information, including shareholder lists and statistical information concerning accounts as may be agreed upon from time to time between the Fund and ADM. 12. Cooperation with Accountants. ADM shall cooperate with the Fund's independent public accountants and shall take all reasonable action in the performance of its obligations under this Agreement to assure that the necessary information is made available on a timely basis to such accountants for the expression of their unqualified opinion, including but not limited to the opinion included in the Fund's annual report to Shareholders and on Form N-SAR, or similar form. 13. Confidentiality. ADM agrees on behalf of itself and its employees to treat confidentially all confidential records and other confidential information relative to the Fund and its prior, present or potential shareholders and relative to the Fund's Distributor and its prior, present or potential customers. ADM will under normal circumstances not divulge any such confidential records or information to anyone other than the shareholder, dealer, Fund or other person, firm, corporation or other entity which ADM reasonably believes is entitled to such records or information except, after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where ADM may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Fund. ADM shall not be considered to have breached this provision if it, in good faith, has provided information or documents to an individual, firm, corporation or other entity (governmental or otherwise) which it reasonably believes is entitled to such information or documents; provided that it shall, with respect to any non-routine governmental investigation or inquiry, first provide notice thereof to the Fund. 14. Equipment Failures. ADM shall maintain adequate and reliable computer and other equipment necessary or appropriate to carry out its obligations under this Agreement. In the event of computer or other equipment failures at its own facilities beyond ADM's reasonable control, ADM shall, at its expense, take reasonable steps to minimize service interruptions. The foregoing obligation of ADM shall not extend to computer terminals owned or maintained by others, located outside of premises maintained by ADM. ADM represents that it has presently in effect backup and emergency systems described on Appendix C hereto. ADM will maintain such arrangements or equivalent while this Agreement is in force unless ADM notifies the Fund to the contrary and establishes to the satisfaction of the Fund that industry standards no longer require such arrangements. 15. Compensation. As compensation for the services rendered by ADM during the term of this Agreement, ADM shall be entitled to receive such reimbursement for out-of-pocket expenses and such compensation is specified on Appendix D attached hereto or as may from time to time be otherwise agreed on in writing between the parties. 16. Responsibility of ADM. In the performance of its duties hereunder, ADM shall be obligated to exercise care and diligence and to act in good faith and to use its best efforts within reasonable limits to insure the accuracy and completeness of all services performed under this Agreement. ADM and the affiliates and agents of ADM shall not be responsible for or liable for any taxes, assessments, penalties, fines or other governmental charges of whatever description which may be levied or assessed on any basis whatsoever in connection with withholding of amounts, verifying or providing taxpayer identification numbers or otherwise under applicable tax laws and preparing and filing of tax forms, excepting only for taxes assessed on the basis of its compensation hereunder, provided that ADM exercises the care and diligence required by this Agreement, and in the case of its responsibilities for backup withholding, verifying or providing taxpayer identification numbers or otherwise, as to any shareholder from whom such withholding is required, it withholds the necessary amount and attempts with reasonable frequency, but no less often than once a calendar quarter, to obtain the necessary information from the shareholder until withholding is no longer required. ADM and the affiliates and agents of ADM shall not be responsible or liable for the actions, inactions, or any losses or damages caused by any such actions or inactions of any agents, brokers or others who are specifically selected by the Fund in writing. 17. Release. ADM understands that the obligations of this Agreement are not binding upon any Shareholder of the Fund personally, but bind only the Fund's property; ADM represents that it has notice of the provisions of the Fund's Declaration disclaiming Shareholder liability for acts or obligations of the Fund. The Fund understands that the obligations of this Agreement are not binding upon the parent corporation of ADM or any affiliates or subsidiaries of ADM and that the Fund, its Directors, Trustees, Officers, Shareholders and others shall look only to the separate assets of ADM. 18. Right to Receive Advice. (a) Advice of Fund. If ADM shall be in doubt as to any action to be taken or omitted by it, it may request, and shall receive, from the Fund directions or advice, including Oral or Written Instructions where appropriate. (b) Advice of Counsel. If ADM shall be in doubt as to any question of law involved in any action to be taken or omitted by ADM, it may request advice without cost to itself from counsel of its own choosing (who may be counsel for the Adviser, the Fund or ADM, at the option of ADM). (c) Conflicting Advice. In case of conflict between directions, advice or Oral or Written Instructions received by ADM pursuant to subparagraph (a) of this paragraph and advice received by ADM pursuant to subparagraph (b) of this paragraph, ADM shall be entitled to rely on and follow the advice received pursuant to the latter provision alone. (d) Protection of ADM. ADM shall be fully protected in any action or inaction which it takes in reliance on the provisions of the Fund's Prospectus, procedures established between ADM and the Fund, or in reliance on any directions, advice or Oral or Written Instructions received pursuant to subparagraph (a) or (b) of this paragraph which ADM, after receipt of any such directions, advice or Oral or Written Instructions, in good faith believes to be consistent with such directions, advice or Oral or Written Instructions, as the case may be. However, nothing in this paragraph shall be construed as imposing upon ADM any obligation (i) to seek such directions, advice or Oral or Written Instructions, or (ii) to act in accordance with such directions, advice or Oral or Written Instructions when received, unless, under the terms of another provision of this Agreement, the same is a condition to ADM's properly taking or omitting to take such action. 19. Compliance with Governmental Rules and Regulations. ADM shall have no responsibility for insuring that the contents of each Prospectus of the Fund complies with all applicable requirements of the 1933 Act, the 1940 Act, and any laws, rules and regulations of governmental authorities having jurisdiction, except that ADM shall cause a senior officer of ADM, who shall be its General Counsel unless otherwise agreed upon, or his designee to provide such information and represents and warrants that all information so furnished by it for specific use in any such Prospectus will be correct and complete in all material respects. 20. Records From Others: ADM, its affiliates and agents shall have no responsibility or liability for the accuracy or completeness of any documents, records, or information maintained or provided by or reasonably believed by ADM to have been maintained or provided by any prior transfer agent, any shareholder or dealer, or by the Fund or anyone on behalf of the Fund and the Fund hereby specifically agrees that ADM, its affiliates and agents may rely on and will be fully protected in so relying on the completeness and accuracy of all such documents, records and information; provided, that ADM will inform the Fund of material errors coming to its attention in the course of the performance of its duties hereunder. ADM, its affiliates and agents may conclusively rely on, and will be fully protected in relying on, the authenticity and accuracy of any documents or communications, whether oral, written or facsimile, it receives from the Fund or which ADM, its affiliates or agents reasonably believes are from the Fund, provided these are received from Authorized Persons in accordance with this Agreement. This provision will apply to, among other things, the daily public offering and net asset value prices for Fund shares; instructions from the Fund concerning dividends and other distributions; and other matters relating to the Fund and its shareholders. 21. Responsibilities of the Fund: The Fund and the Agents of the Fund hereby acknowledge and agree that ADM, its affiliates and its agents are responsible only for those functions and duties set forth in this Agreement and unless so set forth are not responsible for any of the following which are to be handled by the Fund: (a) creating or maintaining any records on behalf of the Fund or others required by any federal or state law, or regulation or rule of any agency thereof or any self- regulatory authority except (i) those relating to shareholder account information set forth in Rule 31a- 1(b)(2)(iv) promulgated under the 1940 Act or equivalent regulation applicable from time to time; and (ii) such additional records as may reasonably be requested from time to time by the Fund which are customarily maintained by transfer agents to mutual funds, and which ADM by use of its best efforts may provide at minimal cost and inconvenience to it; with respect to these records ADM agrees that they: (i) are the property of the Fund; (ii) will be maintained by ADM for the period prescribed in Rule 31a-2 or equivalent regulation; (iii) will be made available, upon request to the Fund and the SEC; and (iv) will be surrendered promptly upon the request of the Fund; (b) determining the legality of any sale, exchange, issuance or redemption of any shares of the Fund; (c) determining the legality of any communications, oral or written, which is sent or provided by ADM, its affiliates or its agents on behalf of the Fund; (d) complying with any federal or state laws or the regulations or rules of any agency thereof or of any self-regulatory authority except those specifically applicable to ADM as a transfer agent; (e) filing any documents on behalf of the Fund or any one else with any federal or state government or with any agency thereof or of any self-regulatory authority except ADM will file with the Internal Revenue Service copies of 1099 Div, 1099R and 1099B Forms sent to shareholders of the Fund and forms relating to withholding and non- resident alien withholding; (f) monitoring the activities of the Fund or any one else or their compliance with applicable law, rules and regulations or with the provisions of the Fund's Prospectus, of Trust, By-Laws or other governing instruments; or (g) compliance of the Fund or others with applicable federal and state laws, regulations and rules of any agency thereof, or of any self-regulatory authority pertaining to the registration of the Fund or of shares of the Fund or the legality of their sale although ADM will, in order to provide the Fund with assistance in complying with normal Blue Sky requirements, upon the reasonable request of the Fund provide the Fund with a report generated from the information readily available to ADM detailing the amount of shares of the Fund purchased and redeemed and the states of residence of the shareholders purchasing or redeeming such shares. 22. Information and Documents: (a) The Fund shall promptly provide ADM with the current Prospectus for the Fund, the Annual and Semi-Annual Reports to shareholders of the Fund, Proxy Statement and other Fund material, all in sufficient quantities and sufficiently in advance to permit ADM to provide them to shareholders of the Fund in a timely and orderly fashion. (b) To the extent necessary or appropriate to enable ADM to carry out its responsibilities under this Agreement, the Fund shall (i) promptly notify ADM of all material events which affect the Fund or any affiliate of the Fund; (ii) promptly notify ADM of any suits or other proceedings threatened or actually instituted against the Fund or any affiliate of the Fund by the federal government, any state government, or any agency thereof (including but not limited to the SEC, the Securities Commission of any state) or by the National Association of Securities Dealers, Inc., or any other self-regulatory authority; (iii) promptly notify ADM of any consent order, stop orders or similar orders affecting the Fund or any affiliate of the Fund issued by the federal government, any state government, or any agency thereof (including but not limited to the SEC, the Securities Commission of any state) or by the National Association of Securities Dealers, Inc. or any other self-regulatory authority; (iv) promptly provide ADM, with copies of the audited Annual Financial Statements for each affiliate of the Fund which is an Investment Advisor, Investment Sub-Advisor, Distributor or Administrator of the Fund; (v) promptly provide ADM, upon request, with copies of any filings made by the Fund or any affiliate of the Fund which is an Investment Advisor, Investment Sub- Advisor, Distributor or Administrator of the Fund with the federal government or any state government or any agency thereof or with any self-regulatory authority; and (vi) promptly provide ADM, upon request, with copies of any documents relating to items (ii) and (iii) above. (vii) discuss with ADM changes in the description of ADM and the services which ADM provides to shareholders contained in the Prospectus of the Fund at the time of filing any amendments to the registration statement of the Fund involving any such change. ADM shall use its best efforts to assure the accuracy and completeness of all material information furnished by it for inclusion in any such document. 23. Indemnification. Neither party nor any of its nominees shall be indemnified against any liability to the other party (or any expenses incident to such liability) arising solely out of (a) such party's or such nominee's own willful misfeasance, bad faith or gross negligence or reckless disregard of its duties in connection with the performance of any duties, obligations or responsibilities provided for in this Agreement or (b) such party's or such nominee's own negligent failure to perform its duties expressly provided for in this Agreement or otherwise agreed to in writing. 24. Liability. (a) ADM shall be responsible for the performance of its obligations under this Agreement notwithstanding the delegation of some or all of such obligations to others in accordance with the terms of this Agreement. (b) ADM shall not be responsible for loss, liability cost or expense arising out of occurrences beyond its control caused by fire, flood, power failure, unanticipated equipment failure, acts of God, or war or civil insurrection; provided, however, that it shall have contingency planning for equipment or electrical failure and such other contingencies as provided in this Agreement. 25. Insurance. ADM shall maintain fidelity, errors and omissions and other insurance coverage in amounts and on terms and conditions as set forth in information provided to the Fund from time to time. 26. Advancement of Monies: Nothing in this Agreement shall require ADM or any affiliate or agent of ADM to pay any monies prior to its receipt of federal funds for such payment or for ADM or any of its affiliates or agents to incur or assume any liability for the payment of any such monies prior to its receipt of federal funds for such payment. 27. Exclusivity. It is expressly understood and agreed that the services to be rendered by ADM to the Fund under the provisions of this Transfer Agency Agreement are not deemed to be exclusive and ADM shall be free to render similar or different services to others. 28. Further Actions. Each party agrees to perform such further acts and execute such further documents as are reasonably necessary to effectuate the purposes hereof. 29. Amendments. This Agreement or any part hereof may be changed or waived only by an instrument in writing signed by the party against which enforcement of such change or waiver is sought. 30. Assignment. This Agreement and the performance hereunder may not be assigned by ADM without the Fund's written consent. Not withstanding the previous sentence, ADM may, without the Fund's consent, assign the performance of all or a portion of its responsibilities and duties hereunder to an affiliate of ADM, provided that the Fund shall incur no additional cost or expense in connection therewith. 31. Declaration and Termination. This Agreement shall continue until termination by the Fund on sixty (60) days' written notice or by ADM on ninety (90) days' written notice. 32. Notices. All notices and other communications, including Written Instructions (collectively referred to as "Notice" or "Notices" in this paragraph), hereunder shall be in writing or by confirming telegram, cable, telex or facsimile sending device. Notices shall be addressed; (a) if to ADM at: Administrative Data Management Corp. 10 Woodbridge Center Drive Woodbridge, New Jersey 07095-1198 Attn: Ms. Anne Condon, Vice President or to such other address as ADM shall instruct the Fund, in writing, from time to time; (b) if to the Fund at: ___________________________ 200 Park Avenue, Suite 4515 New York, New York 10017 Attention: President or to such other address as the Fund shall instruct ADM, in writing, from time to time; or (c) if to neither of the foregoing, at such other address as shall have been notified to the sender of any such Notice or other communication. 33. Miscellaneous. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof, provided that the parties hereto may embody in one or more separate documents their agreement, if any, with respect to Oral Instructions. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement shall be deemed to be a contract made in New York and governed by New York law. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. None of the provisions contained in this Agreement shall be deemed waived or modified because of a previous failure of a party to insist upon strict performance thereof. This Agreement shall be binding and shall inure to the benefit of the parties hereto and their respective successors. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below on the day and year first above written. /s/Kenneth L. MacRitchie /s/Lacy B. Herrmann Attest:By: ______________________ By:______________________ Kenneth L. MacRitchie, Lacy B. Herrmann, Assistant Secretary President ADMINISTRATIVE DATA MANAGEMENT CORP. /s/Andrew J. Donohue /s/Glenn O. Head Attest:By: ______________________ By:_______________________ Name: Andrew J. Donohue Name: Glenn O. Head Title: Secretary & General Title: Chairman Counsel APPENDIX A ACTIVITIES LIST It is understood that the Fund, its Custodian, and other persons, firms, corporations or other entities performing services for or on behalf of the Fund shall provide ADM and the Fund with such services, information, or other assistance as may be necessary or appropriate to permit the Transfer Agent to properly perform the services hereunder. A. SHAREHOLDER ACCOUNTING SERVICES 1. General Scope All terms used herein shall be as defined in the attached Agreement (the "Agreement") except that ADM is referred to as the "Transfer Agent." In accordance with the terms of the Agreement the Transfer Agent will provide a comprehensive Shareholder accounting service generally consistent with that provided to other investment companies, including: a. dividend accounting; b. arrangement for wire receipt and payout of Shareholder funds; c. to the extent that it is reasonably within the control of, or can be reasonably arranged without additional cost by, the Transfer Agent, the rapid and efficient transfer of investment monies between various accounts; d. to the extent that it is reasonably within the control of, or can reasonably be arranged without additional cost by, the Transfer Agent, the effective and controlled processing of expedited redemptions and exchanges by telegraphic and telephonic means. 2. Computer Accounting and Record Keeping The Transfer Agent will perform daily maintenance and routine file update. The Transfer Agent will perform a dividend credit run as required in order to credit all existing Shareholder accounts with each daily dividend, monthly dividend, capital gain distribution or other distribution. The Transfer Agent will establish new and adjust or close existing Shareholder accounts if necessary on or as of each business day. The Transfer Agent will take reasonable precautions for safeguarding of all Shareholder accounts during these computer runs. The Transfer Agent will provide continuous proof to the outstanding Shares maintained by the Fund on a daily basis, and off-line availability of all file data pertaining to Shareholder accounts. The Transfer Agent will to the extent technically feasible create and maintain the ability to liquidate and back out dividends reinvested in accounts which are subsequently liquidated by or on behalf of the Fund due to nonreceipt of funds, improper registration, or other sufficient reason. 3. Establishing and Servicing Accounts The Transfer agent will, as set forth in the Fund's Prospectus, or substantially in conformity with procedures established by or on behalf of the Fund, accept instructions from investors to open new accounts and perform such functions consistent with opening a new account: a. Accept applications in proper form sent directly to the Fund or its Custodian when they are properly delivered to the Transfer Agent; b. Accept applications in proper form sent directly to it when they are received by the Transfer Agent; c. Transfer Shares accompanied by apparent proper instructions; d. Audit and verify payment items for apparent compliance with the requirements established by the Fund, e.g. minimum investment amount, apparent proper endorsements on third party checks or drafts if the Fund elects to accept such third party checks or drafts, and other particulars as prescribed in the prospectus. The Fund will provide the Transfer Agent, from time to time, with names and taxpayer identification numbers of individuals entitled to purchase shares at a reduced offering price as described in the prospectus; e. Review existing accounts to determine whether there are any other existing accounts with the same registration; process W-9 or similar forms received by the Transfer Agent; and compare upon receipt of a computer tape from the Internal Revenue Service taxpayer identification numbers contained in such tape against those maintained by the Transfer Agent for the Fund. f. Assign account numbers as necessary and, where appropriate, indicate the account number on applications; g. Review payment items to determine whether the payee, original or by endorsement, on such payment items corresponds to the registration of the account to which it is to be credited (permitted exceptions include ADM or the Fund specified as the payee when accompanied by a valid account number or all necessary documents to establish a new account or such other exceptions as the Transfer Agent and the Fund shall agree); h. Upon opening incoming mail, record the date and approximate time of day all checks were received; i. Produce microfilm record of all incoming checks and other documentation on filmstrips or other microfilm retrieval method so as to be retrievable and reproducible upon request; j. Process address changes and acknowledge such changes to previous address of record; k. Answer inquiries from Shareholders or other individuals, corporations, or other entity who appear to be the Shareholder, dealer or otherwise entitled to receive information as to account information; l. Open new accounts per telephone instructions received from a prospective Shareholder, his dealer or his fiduciary pending receipt of funds transmitted by bank wire or other means; forward a new account application to the prospective investor; and issue a confirmation, including duplicates where requested, when funds are received by the Transfer Agent or the Fund's Custodian; under normal circumstances the new account application bearing the Shareholder account number assigned must be completed by or appear to have been completed by the Shareholder and received by the Transfer Agent before any redemption orders are accepted and processed for that account. m. Prepare confirmations in such form as may be agreed between the Fund and the Transfer Agent from time to time for all "Open Accounts" after each non-dividend transaction in a Shareholder's account which affects the share balance; mailing confirmations to the Shareholder as such changes occur; n. Process on a daily basis if necessary or appropriate routine transactions such as: (1) Deposit or withdrawal of Shares from Shareholders' accounts; (2) Changes of address; (3) Miscellaneous changes; (4) Stop-transfers; (5) Instructions relating to the remittance or reinstatement of Dividends and other distributions; o. Incorporate in the Shareholder accounting software and procedures the necessary flags, audits, and tests reasonably designed to assure that the various provisions and requirements specified elsewhere in this Agreement to be performed by the Transfer Agent will be substantially satisfied. B. TRANSFER AGENT SERVICES In accordance with the Agreement, and in particular Section 5(d) thereof, the Transfer Agent will perform the functions normally performed by the Transfer Agent for other investment companies of a similar type. Such functions shall include but not necessarily be limited to: 1. Processing a. Keep such records in the form and manner as the Transfer Agent may deem advisable but not inconsistent with the rules and regulations of appropriate governmental authorities applicable to the Transfer Agent or as may otherwise be agreed from time to time in writing between the Fund and the Transfer Agent; b. Process transfers as requested by Shareholders or persons, firms, corporations or other entities the Transfer Agent reasonably believes to be the Shareholder or authorized to act on behalf of the Shareholder including obtaining and reviewing papers and all other documents necessary to satisfy transfer requirements; the Fund will, upon request of the Transfer Agent, advise the Transfer Agent of the transfer requirements of the Fund, and the Transfer Agent will be fully protected by the Fund if it is following such transfer requirements; c. Process initial and subsequent investments from Shareholders; d. On a semi-monthly or other basis acceptable to the Transfer Agent and the Fund initiate, accept and process pre-authorized checks or, when available, electronic funds transfers drawn against Shareholders' checking accounts; e. Process and record redemption of Shares to satisfy ordinary redemptions and Plan account; f. Proportionally allocate dividends, which are provided to the Transfer Agent by the Fund in gross dollar amount, to the benefit of the Fund Shareholders entitled to receive them. The procedure used must show that the amounts allocated daily substantially balance to the gross dollar amount provided by the Fund to the Transfer Agent. Until otherwise specified by the Fund, dividends shall be in accordance with the following: Three- day accrual on Monday for the previous weekend; Two- day accrual on the first business day following a holiday or Four-day accrual if the holiday immediately precedes or follows a weekend; compatibility with the Merrill Lynch Automatic Investment of Dividends System, and the issuance of all reports incidental thereto provided the Fund's method of operation is so compatible. 2. Custody and Control of Shares and Certificates: Certificates will not be issued except on Shareholder request but shares will be credited to the Shareholder's account in non-certificate form. The Transfer Agent will examine certificates surrendered for transfer or redemption, or requests for transfer or redemption of shares not represented by certificates, for apparent genuineness or alterations; pass upon the apparent validity thereof including endorsements, signature guarantees and (if applicable) tax stamps or waivers, provided that the Transfer Agent shall not be required to compare any such endorsements against other records it maintains except in accordance with written procedures agreed upon between it and the Fund. The Transfer Agent will also: a. Countersign all certificates; b. Prepare, mail, or deliver certificates for original issue, subsequent investments, exchanges, or transfers upon request from the Shareholder or one reasonably believed to be the Shareholder; c. Prepare, mail, or deliver certificates for Shares previously held in non-certificate form; d. Deposit certificate Shares; e. Cancel surrendered certificates; f. Establish and maintain safeguards for cancelled and uncancelled certificates; g. Establish and maintain a system to monitor stop- transfers; h. Replace lost certificates. C. SUBSCRIPTION AGENT SERVICES: The Transfer Agent will act as Subscription Agent for the Fund. In addition to subscription functions described elsewhere in this Agreement, the Transfer Agent will: 1. Maintain a Subscription Account for the Fund. This account shall be established and operated so as to satisfy the following criteria: a. The account shall be established by the Transfer Agent for the benefit of the Fund in accordance with the terms of the Agreement; b. The account shall be provided at no additional cost except as may otherwise be stated in Appendix D of the Agreement; c. The account shall serve as the sole depository for subscription monies intended for the purchase of Fund Shares until such funds are transferred to the Custody Account; d. The Transfer Agent shall be prepared to receive and efficiently process incoming cash, checks, Federal Reserve Drafts and bank wire transfers of funds; e. Withdrawals from the account shall be for the purpose of transferring funds into the Custody Account or, where appropriate, the crediting or payment of commission or dealer's commissions; withdrawals are also permitted to accommodate net settlements with the Custodian; f. No dividend or redemption or any other payments shall be made to Fund Shareholders from the Subscription Account; g. The Transfer Agent will cashier all items presented in payment as expeditiously as possible. 2. In connection with managing the Subscription Account, the Transfer Agent will exercise all possible care in satisfying operational requirements in each of the following critical areas: a. Validation Receipt of Good Subscription Funds Procedures and criteria are to be established by the Transfer Agent and approved by the Fund for the purpose of providing assurance that good (collected) funds were received from Shareholders prior to paying out any redemption proceeds (under a Plan account or as a result of one or more specific redemption requests). Such procedures are to deal with: (1) Screening subscriptions to prevent: -forgery, fraud, improper endorsement or other unauthorized use particularly when accepting third party funds; -maintenance of accounts in names other than proper form; funds received where the legal existence or legal capacity of the subscriber is in doubt shall be employed in a temporary investment status until a proper account is established to which prior income will be credited, or until the funds are returned upon determination that no subscriber of legal existence and capacity exits. (2) Establishing and maintaining procedures reasonably designed to assure the clearance and collection of checks which are otherwise properly drawn. In this regard, the Transfer Agent with the approval of the Fund will: -Establish for all parts of the United States the normal number of days required for check clearance and return notice of uncollectability; -Establish redemption amount and clearing time criteria which together place an automatic stop on issuance of certificates, if any, and upon redemption payments until the Transfer Agent reasonably believes that good subscription funds were received. In general, the redemption of a subscription payment received in the form of a check, draft or similar instrument shall not be made until the Transfer Agent has determined, by telephone call to the drawee bank or otherwise, that the deposit has cleared the drawee bank or until fifteen (15) calendar days after the receipt of such subscription payment, in order to permit the orderly clearing thereof. -Provide a means to record and promptly retrieve the status of a subscription received (which may include days remaining before redemptions permitted, name of bank, or other similar information as may be agreed upon.) Shareholder checks returned for insufficient funds or other reasons will be promptly processed for liquidation on or after the date of receipt or notification to the effect that a check is being returned. Returned checks will be cleared promptly and processed through a Returned Check Account in conjunction with the following actions: (1) Place a freeze on the account to prevent redemption of the amount of such returned check or such lesser amount as is in the affected account; (2) Determine how many shares are to be liquidated due to the investment attributable to such returned check; (3) Calculate and back out accrued dividends, if any, attributable to such investment; (4) Process the liquidation for the appropriate amount; (5) Mail the Shareholder confirmation of the liquidation and the check with a letter of explanation; (6) Allocate the accrued dividends, if any, which were attributable to such investment, as the Fund shall direct which will normally be to the remaining Shareholder accounts as of the next month-end dividend run; (7) Take reasonable steps to recover commissions or dealer concessions applicable to such returned check, although the Distributor shall be ultimately responsible therefor. b. Establish Procedures to Process Effectively Bank Wire Transfers Establish and maintain procedures reasonably designed by the Transfer Agent and approved by the Fund to maintain positive control over movements of incoming money by bank wire so as to: (1) Accept requests (WATS and local calls) for bank wire instructions, record account information and client telephone number, assign as appropriate a wire control number, establish Shareholder pending file, and if appropriate alert the bank wire department; (2) Advise the Fund of pending bank wire receipts at selected cutoff times during the course of each business day so as to facilitate full investment of Fund assets; (3) Confirm to the Fund actual bank wire receipts at selected cutoff times during the course of each business day; (4) Close out pending Shareholder files if bank wire receipts are not received as of the date agreed upon; (5) Open new or credit existing Shareholder account in accordance with the provisions of the current prospectus upon receipt of bank wire funds; (6) Take appropriate action to secure from Shareholders who invest by bank wire the necessary written applications and redemption authorizations. D. DIVIDEND DISBURSING AND REDEMPTION AGENT SERVICES In performance of the Dividend Disbursing and Redemption Agent functions, the Transfer Agent will provide the Fund with regular checks (or electronic funds transfer if available, at the Shareholder's option) and carry out the following functional activities: 1. Dividends a. The Fund shall advise the Transfer Agent of dividend amounts which shall then be applied as described in the Prospectus or as directed by the Fund, or its officers or Trustees; b. Confirmation of dividend reinvestments shall be mailed to Shareholders after each reinvestment. c. Additional dividend information, if provided by the Fund to the Transfer Agent shall then be provided to Shareholders upon written request. 2. Redemption Procedures The Transfer Agent with the approval of the Fund shall establish procedures reasonably designed to insure that redemption requirements established by the Transfer Agent and agreed to by the Fund have been met, including the receipt and examination of stock certificates, endorsements, signature guarantees and obtaining any needed papers or documents, including properly completed Application, where lacking. More specifically: a. The Transfer Agent will accept redemption requests in written, telegraphic or telephonic form provided the necessary instructions and authorizations are reasonably believed by the Transfer Agent to be in good form. Generally, telephonic redemption requests will be repeated for confirmation to the person making the request, and upon voice confirmation by such person, will be recorded in a log kept for that purpose. b. Requests for the redemption of shares not represented by certificates received and without signature guarantees will be honored only if: (1) the applicable portion of the Application has been completed and the proceeds are forwarded to the previously designated bank account, address, or other destination identified on the Application; (2) Expedited Redemption Authorization instructions filed at any time other than upon the original opening of a Shareholder's account are filed on an appropriate form and bear or reasonably appear to bear a signature guarantee; (3) Shareholder accounts in the name of joint tenants shall generally be handled on the basis of jointly signed instructions and signature guarantees (where applicable) for any payments. c. The Transfer Agent will provide a means to record, call up, and display on Cathode Ray tube or otherwise an appropriate symbol or other indication that redemption authorization instructions are on file and appear to be in proper form. d. All redemption requests will be promptly reviewed to insure: (1) that there are sufficient shares available in the Shareholder's account; (2) the applicable subscription check has not been returned to ADM or its agent and the applicable period of days has expired before using the funds for redemption (see above); (3) that no redemptions in accounts represented in whole or in part by certificates are effected without cancellation of an adequate number of certificate shares, if necessary. (4) that no signature guarantees shall be acceptable unless they reasonably appear to have been provided by a commercial bank or by a brokerage firm which is a member of the New York, American, Midwest, or Pacific Stock Exchanges, except as otherwise stated in the Prospectus or in instructions received from the Fund. e. Certificate acceptance and replacement: (1) Accept for redemption, certificates received for redemptions accompanied by what reasonably appears to be Shareholder's instructions. (2) Furnish to the Shareholder, after with the policies and procedures established by the Fund and the Transfer Agent proper investigation and receipt of necessary documentation for protection of the Fund, replacement certificates and dividend and redemption checks alleged to have been lost, stolen, destroyed, or not received. 3. Dividend Account The Transfer Agent will maintain a Dividend Account for the Fund. This account shall be established and operated so as to satisfy the following criteria: 1. This account shall be used to disburse cash in payment of dividends, capital gain distributions and returns of capital. 2. This account shall be operated in the same manner as the Redemption Account (see below) except as otherwise required by the purpose for which it shall be used; it may, at the election of the Transfer Agent, be operated as a combined account with the Redemption Account (see below). 4. Redemption Account The Transfer Agent will maintain a Redemption Account for the Fund. This account shall generally be established and operated so as to satisfy the following criteria. 1. All withdrawals from the account shall be for the exclusive purpose of making payments to Fund Shareholders. These payments are to be made only to satisfy automatic or other account liquidation payment requirements. 2. No deposits or subscription receipts shall be made directly in the Redemption Account. 3. The Transfer Agent will advise the Fund at various mutually established times during each business day as to the total demand for valid payments to be honored that day or the following day. Valid payments consist of liquidations of shares for which funds are payable in cash or check to shareholders, whether initiated by check, wire, letter, automatic distribution plan, determination of the Fund or otherwise. The notification of demand for payments shall only include valid demands for payment which are actually in hand, such that the Fund need not fund the Redemption Account with any more funds than are actually required. The Fund agrees to fund, or cause the Custodian to fund, the Redemption Account sufficiently to cover all demands for payment which are currently valid or will become valid the following business day. The Fund and the Transfer Agent agree that a goal of this procedure is to allow for the maximum employment of Fund Assets while still adequately funding the Redemption Account. The Transfer Agent and its affiliates shall not be required to honor any demand for payment for which previously collected funds have not been received from the Custodian or other Agent of the Fund. 4. The Transfer Agent with the approval of the Fund will develop specific procedures reasonably designed to protect against: (a) raising of dollar amounts or any other alteration of instruments representing redemption payments; (b) fraudulent or forged endorsements; (c) other improper use of a redemption item which could result in the Fund or its Shareholders being defrauded. Such procedures shall take into account the type of accounts involved, the sums involved and the cost effectiveness of such procedures. 5. Employ due diligence in servicing redemption requests as promptly as possible. E. EXCHANGE AGENT SERVICES The Transfer Agent will provide services as required to implement the exchange privileges described from time to time in the prospectus of the Fund. The Transfer Agent will install and utilize a telephonic system that is designed to afford the Shareholder the opportunity to exchange Shares among eligible Funds and that will record the telephone request for such exchange. It is understood that the Transfer Agent is only able to effect exchanges among funds for which the Transfer Agent has entered into an agreement similar to this Agreement for provision of Transfer Agency services. F. PROXY AGENT SERVICES The Transfer Agent agrees to act as Proxy Agent in connection with the holding of annual or special meetings of Shareholders, mailing to Shareholders notice, proxies and proxy statements in connection with the holding of such meetings, receiving and tabulating votes cast by proxy and communicating to the Fund the results of such tabulation accompanied by appropriate certificates, and preparing and communicating to the Fund certified lists of Shareholders as of such date, and in such form and containing such information as may be required by the Fund to comply with any applicable provisions relating to such meetings. The Transfer Agent may at its expense employ another firm to provide all or a portion of such services. I. Reports to be provided by Transfer Agent: A. Daily 1. Payment Journals 2. Transfers 3. Non-Certificate Redemption Journal 4. Original Issue Non-Certificate Shares 5. Clerical Journal 6. New Account Journal 7. Closed Account Journal B. Monthly 1. Sales By State and Dividends Reinvested 2. Withdrawals and Dividends Paid in Cash List 3. Record of Out-of-Pocket Costs Incurred C. Annual Reports Provide Fund Management upon request with all reports reasonably required to conduct an annual review of Transfer Agency functions relating to the Fund, including but not limited to performance, volume, error ratios, costs and other matters relating to the Fund. The Transfer Agent shall also provide to the Fund general information concerning its operations which might be believed to affect adversely the future services to the Fund. D. Periodic Marketing Reports - Provided these reports are readily available from existing information and can be produced without unreasonable effort or expense by the Transfer Agent, including, e.g., 1. Geographic Distribution Data 2. Size of Holdings Data II. Other Services The Transfer Agent will provide the following additional services: A. Security 1. Design and maintain security procedures reasonably designed to guard against the possible theft and/or use by others of the names and addresses of Fund Shareholders. 2. Periodic duplication of all records (computer/microfilm/hardcopy/copy) at a frequency and in a detail reasonably designed to assure protection of Shareholder record information in the event of a disaster to the Transfer Agent's facilities, including: (a) significant voltage drop; (b) power blackout; (c) major destruction of the Transfer Agent's central facilities. 3. The Transfer Agent will maintain equipment reasonably designed or represented to assure an uninterrupted power supply of at least 10 minutes at the offices of the Transfer Agent to allow for orderly shut down of hardware in the event of a power outage; periodic back-up of tapes to be stored at an offsite facility of the Transfer Agent's choosing; and will provide redundancy capacity in accordance with the Agreement. B. Statements 1. Provide for up to two extra lines of print on Shareholder statements which may be employed by the Fund to advise Shareholders of such information as yield or other explanatory account information. The Fund will advise the Transfer Agent of such information sufficiently in advance to permit it to properly insert such information in a timely and orderly manner. 2. Provide a combined dividend check and statement to Shareholders electing cash distributions. C. Processing Routine Shareholder Inquiries 1. Receive, control, research, and promptly reply to all routine Shareholder and other inquiries whether received by written or telephonic means which pertain to a Shareholder's account. 2. Exercise due care to protect confidential information in responding to inquiries. 3. Request ATT or such other telephone company as may be appropriate to provide, at the Distributor's expense, for a dedicated transmission line between Aquila Distributors, 380 Madison Avenue, New York and Transfer Agent, Woodbridge, N.J. for inquiry via a dedicated or P.C. terminal. 4. Provide if possible for continuity of present 800 telephone numbers for existing funds and adequate personnel for live telephone response generally until 7:00 PM, New York time on normal business days. It is mutually understood that continuity of the 800 numbers is dependant on cooperation from the prior transfer agent and appropriate telephone companies. 5. Provide for the automated tracking of all Shareholder/Dealer telephone inquiries with on line update status. D. Other Mailings 1. Mailing services include addressing, enclosing, and mailing quarterly reports, semi-annual reports, annual reports, prospectuses and notices to all accounts will be provided. To the extent the Transfer Agent utilizes the services of another firm to accomplish this for any First Investors Fund, it shall be permitted to do so for the Fund, at the Transfer Agent's expense. 2. All routine mailings to Shareholder/Dealers will, where appropriate, utilize pre-sorted zip codes. 3. All month-end reinvestment statements, with any month-end dividend check attached, will generally be mailed to Shareholders, with duplicates to dealer and representative, by the fourth business day of the next month. 4. Commission checks and statements will generally be mailed to brokerage firms on at least a weekly basis for direct investments of prior weeks. E. Other Services 1. Refer all Shareholder, dealer or governmental inquiries of a policy or non-routine nature to the Fund. 2. Provide an Account Officer to serve as the primary point of contact between the Fund and the Transfer Agent. The Transfer Agent will exercise due care in assigning an individual who is both conversant with standard investment company practices and of sufficient stature to deal quickly and efficiently with problems peculiar to placing a new investment company on line. F. Messenger Service Provide messenger pick-up and delivery as necessary but no less frequently than once daily between the Fund's offices provided they are located within the borough of Manhattan and the offices of the Transfer Agent. Exhibit 1 The Fund and the Transfer Agent anticipate that the following activities should be incorporated into and become a part of Appendix A as they become effective: 1. Installation of the National Security Clearing Corporation, Fund/SERV system which shall be operational no later than June 30, 1989. 2. The Transfer Agent will make a best effort to provide networking capabilities with tape transmission to dealers when and as required by market competitiveness. 3. The Transfer Agent will work with the Distributor to define criteria for an Audio Response system and arrange for the implementation of such a system on a timely basis. TAX-FREE TRUST OF OREGON APPENDIX B Signatures On the date of the Agreement and thereafter until further notice, the following persons shall be Authorized Persons as defined therein: /s/Lacy B. Herrmann Lacy B Herrmann _____________________ Chairman of the Board of Trustees Lacy B. Herrmann /s/William C. Wallace William C. Wallace _____________________ Vice President William C. Wallace /s/Robert P. Sanchez Robert P. Sanchez _____________________ Vice President Robert P. Sanchez /s/Rose F. Marotta Rose F. Marotta _____________________ Treasurer Rose F. Marotta /s/Kenneth L. MacRitchie Kenneth L. MacRitchie _____________________ Assistant Secretary Kenneth L. MacRitchie /s/William K. Killeen William K. Killeen _____________________ William K. Killeen /s/Diana P. Herrmann Diana P. Herrmann _____________________ Diana P. Herrmann /s/Charles E. Childs III Charles E. Childs III ______________________ Charles E. Childs III /s/Stephen J. Caridi Stephen J. Caridi ______________________ Stephen J. Caridi /s/Brian R. Katzman Brian R. Katzman ______________________ Brian R. Katzman /s/Sandra J. Hermida Sandra J. Hermida ______________________ Sandra J. Hermida APPENDIX C Backup Arrangement ADM currently has in effect a redundancy arrangement with Comdisco Disaster Recovery Services, Inc. The agreement with Comdisco provides that in the event of a data processing systems disaster at ADM's facilities in Woodbridge, New Jersey, ADM may use equipment available at Comdisco's facilities for routine and other processing. The agreement with Comdisco also provides for dedicated time on Comdisco's data processing equipment each year to allow ADM to test the redundancy system. APPENDIX D Compensation In accordance with the provisions of Section 15 of the attached Agreement, the Fund shall pay ADM the monthly amount of $1.25 for each account in the Fund open at any time during the month. The minimum amount of compensation for each month shall be $208.33. In addition to the above charges, the Fund shall pay or reimburse ADM for out-of pocket expenses, including but not limited to: postage; forms relating to the Fund or shareholders of the Fund; envelopes; paper; bank charges; costs relating to the production of special reports for the Fund, its distributor, or otherwise; and similar expenses. The Fund will also reimburse ADM for counsel fees in accordance with the Agreement. EX-10 8 TAX-FREE TRUST OF OREGON AMENDED AND RESTATED ADMINISTRATION AGREEMENT THIS AGREEMENT, made the 1st day of July, 1995, by and between The Cascades Trust (the "Business Trust"), a Massachusetts business Trust, 380 Madison Avenue, Suite 2300, New York, New York 10017 and Aquila Management Corporation (the "Administrator"), a New York corporation, 380 Madison Avenue, Suite 2300, New York, New York 10017 W I T N E S S E T H WHEREAS, the Business Trust and the Administrator have previously entered into an Administration Agreement with respect to a portfolio of the Business Trust entitled Tax-Free Trust of Oregon (the "Trust"); and WHEREAS, the Business Trust and the Administrator now wish to amend and restate their agreement as herein set forth, referred to hereafter as "this Agreement"; NOW THEREFORE, in consideration of the mutual promises and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. In General. The Administrator shall perform (at its own expense) the functions set forth more fully herein for the Trust and for the investment adviser for the Trust (the "Adviser"). 2. Duties and Obligations of the Adviser and Administrator to the Trust and to Each Other. (a) Subject to the succeeding provisions of this section and subject to the direction and control of the Board of Trustees of the Business Trust, the Administrator shall provide all administrative services to the Trust other than those services relating to the investment portfolio of the Trust and the maintenance of its accounting books and records; as part of such duties, the Administrator shall: (i) provide office space, personnel, facilities and equipment for the performance of the following functions and for the maintenance of the headquarters of the Trust; (ii) oversee all relationships between the Trust and its transfer agent, custodian, legal counsel, auditors and principal underwriter, including the negotiation of agreements in relation thereto, the supervision and coordination of the performance of such agreements, and the overseeing of all administrative matters which are necessary or desirable for the effective operation of the Trust and for the sale, servicing or redemption of the Trust's shares; (iii) provide to the Adviser and the Trust statistical and other factual information and advice regarding economic factors and trends, but shall not generally furnish advice or make recommendations regarding the purchase or sale of securities; (iv) maintain the Trust's books and records (other than accounting books and records), and prepare (or assist counsel and auditors in the preparation of) all required proxy statements, reports to the Trust's shareholders and Trustees, reports to and other filings with the Securities and Exchange Commission and any other governmental agencies, and tax returns, and oversee the insurance relationships of the Trust; (v) prepare, on behalf of the Trust and at the Trust's expense, such applications and reports as may be necessary to register or maintain the registration of the Trust and/or its shares under the securities or "Blue-Sky" laws of all such jurisdictions as may be required from time to time; (vi) respond to any inquiries or other communications of shareholders of the Trust and broker-dealers, or if any such inquiry or communication is more properly to be responded to by the Trust's shareholder servicing and transfer agent or distributor, oversee such shareholder servicing and transfer agent's or distributor's response thereto. (b) Any activities performed by the Administrator under this section shall at all times conform to, and be in accordance with, any requirements imposed by: (1) the Investment Company Act of 1940 (the "Act") and any rules or regulations in force thereunder; (2) any other applicable laws, rules and regulations; (3) the Declaration of Trust and By-Laws of the Business Trust as amended and restated from time to time; (4) any policies and determinations of the Board of Trustees of the Business Trust; and (5) the fundamental policies of the Trust, as reflected in its registration statement under the Act, or as amended by the shareholders of the Trust. (c) The Administrator assumes no responsibility under this Agreement other than to render the services called for hereunder, and specifically assumes no responsibilities for investment advice or the investment or reinvestment of the Trust's assets. (d) The Administrator shall not be liable for any error in judgment or for any loss suffered by the Trust in connection with the matters to which this Agreement relates, except a loss resulting from wilful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under this Agreement. (e) Nothing in this Agreement shall prevent the Administrator or any officer thereof from acting as investment adviser, sub-adviser, administrator or manager for any other person, firm, or corporation, and shall not in any way limit or restrict the Administrator or any of its officers, stockholders or employees from buying, selling or trading any securities for its own or their own accounts or for the accounts of others for whom it or they may be acting, provided, however, that the Administrator expressly represents that it will undertake no activities which, in its judgment, will adversely affect the performance of its obligations to the Adviser or the Trust under this Agreement. The Business Trust shall indemnify the Administrator to the full extent permitted by the Business Trust's Declaration of Trust. 3. Allocation of Expenses. The Administrator shall, at its own expense, provide office space, facilities, equipment, and personnel for the performance of its functions hereunder and shall pay all compensation of Trustees, officers, and employees of the Trust who are affiliated persons of the Administrator. 4. Compensation of the Administrator. (a) The Business Trust shall pay the Administrator, and the Administrator shall accept as full compensation for all services rendered hereunder, 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, the annual management fee shall be payable at the annual rate of 0.20 of 1% of such net asset value. (b) 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 such assets in excess of $100 million, or (ii) 25% of the Trust's total annual investment income. The payment of the above fee 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, subject to readjustment during the year. 5. Duration and Termination. (a) This Agreement shall become effective as of the date first written above, after approval by a vote of a majority of the Trustees who are not parties to this Agreement or "interested persons" (as defined in the Act) of any such party, with votes cast in person at a meeting called for the purpose of voting on such approval and shall, unless terminated as hereinafter provided, continue in effect until the June 30 next preceding the first anniversary of the effective date of this Agreement, and from year to year thereafter. (b) This Agreement may be terminated by the Administrator at any time without penalty upon giving the Adviser and the Business Trust sixty days' written notice (which notice may be waived by them) and may be terminated by the Business Trust at any time without penalty upon giving the Administrator sixty days' written notice (which notice may be waived by the Administrator) provided that such termination by the Business Trust shall be directed or approved by a vote of a majority of its Trustees in office at the time, including a majority of the Trustees who are not interested persons (as defined in the Act) of the Business Trust. (c) This Agreement may not be amended, nor shall any successor agreement between the parties be executed or delivered, to increase the compensation of the Administrator without the vote of the Business Trust's Board of Trustees, including a vote of a majority of the Trustees who are not parties to this Agreement or "interested persons" (as defined in the Act) of any such party, with votes cast in person at a meeting called for the purpose of voting on such approval, and the vote of the holders of a "majority" (as so defined) of the outstanding voting securities of the Trust. 6. Disclaimer of Shareholder Liability The Administrator understands that the obligations of this Agreement are not binding upon any shareholder of the Trust personally, but bind only the Trust's property; the Administrator represents that it has notice of the provisions of the Business Trust's Declaration of Trust disclaiming shareholder liability for acts or obligations of the Business Trust. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their duly authorized officers and their seals to be hereunto affixed, all as of the day and year first above written. ATTEST: The Cascades Trust ________________________ By:___________________________________ ATTEST: Aquila Management Corporation _______________________ By:___________________________________ EX-99 9
1 - Y E A R T O T A L R E T U R N B A S E D O N P O P Tax-Free Trust of Oregon (Class A Shares) AVG. ANNUAL TOTAL RETURN AS OF 9/30/96 0.56% CUMULATIVE TOTAL RETURN AS OF 9/30/96 0.56% Initial Investment $1,000 Net Asset Value Per Share (NAV) $10.55 As of 9/30/95 Public Offering Price Per Share (POP) $10.99 As of 9/30/95 Number of Shares Purchased 90.992 Based on POP ENDING INVESTMENT NUMBER PERIOD PERIOD NET ASSET @ BEGINNING OF DIVIDEND $ VALUE PER OF PERIOD SHARES FACTOR DIVIDEND SHARE OCTOBER 1995 1,000.00 90.992 0.04077600 * 3.71 10.60 NOVEMBER 1995 968.22 91.342 0.04572200 4.18 10.66 DECEMBER 1995 977.88 91.734 0.05415700 4.97 10.71 JANUARY 1996 987.44 92.197 0.04456800 4.11 10.71 FEBRUARY 1996 991.54 92.581 0.04595400 4.25 10.68 MARCH 1996 993.02 92.980 0.04450400 4.14 10.51 APRIL 1996 981.35 93.373 0.04471100 4.17 10.45 MAY 1996 979.92 93.773 0.04767200 4.47 10.46 JUNE 1996 985.33 94.200 0.04302700 4.05 10.38 JULY 1996 981.85 94.591 0.04436351 4.20 10.45 AUGUST 1996 992.67 94.992 0.04519532 4.29 10.48 SEPTEMBER 26, 1996** 999.81 95.402 0.04529285 4.32 10.49 SEPTEMBER 30, 1996 1,005.09 95.814 0.00585251 0.56 10.49 ENDING OFFERING INVESTMENT CUMULATIVE PRICE PER DIVIDEND @ END TOTAL SHARE SHARES OF PERIOD RETURN OCTOBER 1995 10.83 0.350 968.22 -3.18% NOVEMBER 1995 10.84 0.392 977.88 -2.21% DECEMBER 1995 10.83 0.464 987.44 -1.26% JANUARY 1996 10.98 0.384 991.54 -0.85% FEBRUARY 1996 11.06 0.398 993.02 -0.70% MARCH 1996 11.16 0.394 981.35 -1.86% APRIL 1996 11.15 0.400 979.92 -2.01% MAY 1996 11.08 0.427 985.33 -1.47% JUNE 1996 10.89 0.390 981.85 -1.81% JULY 1996 10.82 0.402 992.67 -0.73% AUGUST 1996 10.83 0.410 999.81 -0.02% SEPTEMBER 26, 1996** 10.74 0.412 1,005.09 0.51% SEPTEMBER 30, 1996 10.81 0.053 1,005.65 0.56% * For the period 10/1/95-10/27/95 ** Record Date
5 - Y E A R T O T A L R E T U R N B A S E D O N P O P Tax-Free Trust of Oregon (Class A Shares) AVG. ANNUAL TOTAL RETURN AS OF 9/30/96 5.57% CUMULATIVE TOTAL RETURN AS OF 9/30/96 31.11% Initial Investment $1,000 Net Asset Value Per Share (NAV) $10.15 As of 9/30/91 Public Offering Price Per Share (POP) $10.57 As of 9/30/91 Number of Shares Purchased 94.607 Based on POP ENDING INVESTMENT NUMBER PERIOD PERIOD NET ASSET @ BEGINNING OF DIVIDEND $ VALUE PER OF PERIOD SHARES FACTOR DIVIDEND SHARE OCTOBER 1991 1,000.00 94.607 0.04229900 * 4.00 10.15 NOVEMBER 1991 964.27 95.002 0.05241100 4.98 10.17 DECEMBER 1991 971.15 95.491 0.05221200 4.99 10.28 JANUARY 1992 986.64 95.976 0.05399100 5.18 10.35 FEBRUARY 1992 998.54 96.477 0.04972200 4.80 10.25 MARCH 1992 993.69 96.945 0.04931500 4.78 10.19 APRIL 1992 992.65 97.414 0.05169400 5.04 10.23 MAY 1992 1,001.58 97.906 0.05028800 4.92 10.32 JUNE 1992 1,015.32 98.383 0.04959100 4.88 10.40 JULY 1992 1,028.07 98.853 0.05115400 5.06 10.61 AUGUST 1992 1,053.88 99.329 0.04919900 4.89 10.46 SEPTEMBER 1992 1,043.87 99.796 0.04914500 4.90 10.47 OCTOBER 1992 1,049.77 100.265 0.05086900 5.10 10.29 NOVEMBER 1992 1,036.82 100.760 0.04945300 4.98 10.43 DECEMBER 1992 1,055.91 101.238 0.08171800 8.27 10.45 JANUARY 1993 1,066.21 102.030 0.04874000 4.97 10.53 FEBRUARY 1993 1,079.35 102.502 0.04808900 4.93 10.81 MARCH 1993 1,112.98 102.958 0.04973700 5.12 10.69 APRIL 1993 1,105.74 103.437 0.04745500 4.91 10.71 MAY 1993 1,112.72 103.895 0.04733900 4.92 10.72 JUNE 1993 1,118.68 104.354 0.04912500 5.13 10.79 JULY 1993 1,131.11 104.829 0.04742200 4.97 10.76 AUGUST 1993 1,132.93 105.291 0.04701600 4.95 10.90 SEPTEMBER 1993 1,152.63 105.746 0.04841800 5.12 10.96 OCTOBER 1993 1,164.09 106.213 0.04641800 4.93 10.90 NOVEMBER 1993 1,162.65 106.665 0.04685900 5.00 10.80 DECEMBER 1993 1,156.98 107.128 0.04793200 5.13 10.92 JANUARY 1994 1,174.97 107.598 0.04456700 4.80 10.93 FEBRUARY 1994 1,180.84 108.037 0.04578800 4.95 10.73 MARCH 1994 1,164.18 108.498 0.04471400 4.85 10.52 APRIL 1994 1,146.25 108.959 0.04780900 5.21 10.39 MAY 1994 1,137.29 109.460 0.04640500 5.08 10.37 JUNE 1994 1,140.18 109.950 0.04620100 5.08 10.34 JULY 1994 1,141.96 110.441 0.04709300 5.20 10.34 AUGUST 1994 1,147.16 110.944 0.04687400 5.20 10.34 SEPTEMBER 1994 1,152.37 111.447 0.04896100 5.46 10.22 OCTOBER 1994 1,144.45 111.981 0.04433600 4.96 10.04 NOVEMBER 1994 1,129.26 112.476 0.04777400 5.37 9.75 DECEMBER 1994 1,102.01 113.027 0.08461600 9.56 9.93 JANUARY 1995 1,131.92 113.990 0.04616500 5.26 10.03 FEBRUARY 1995 1,148.58 114.515 0.04439300 5.08 10.29 MARCH 1995 1,183.44 115.009 0.04719000 5.43 10.39 APRIL 1995 1,200.37 115.531 0.04564100 5.27 10.40 MAY 1995 1,206.80 116.038 0.04574400 5.31 10.52 JUNE 1995 1,226.03 116.543 0.04647400 5.42 10.53 JULY 1995 1,232.61 117.057 0.04606600 5.39 10.47 AUGUST 1995 1,230.98 117.572 0.04709600 5.54 10.48 SEPTEMBER 1995 1,237.69 118.100 0.04376600 5.17 10.48 OCTOBER 1995 1,242.86 118.594 0.04367800 5.18 10.60 NOVEMBER 1995 1,262.27 119.082 0.04572200 5.44 10.66 DECEMBER 1995 1,274.86 119.593 0.05415700 6.48 10.71 JANUARY 1996 1,287.32 120.198 0.04456800 5.36 10.71 FEBRUARY 1996 1,292.67 120.698 0.04595400 5.55 10.68 MARCH 1996 1,294.60 121.217 0.04450400 5.39 10.51 APRIL 1996 1,279.39 121.731 0.04471100 5.44 10.45 MAY 1996 1,277.53 122.251 0.04767200 5.83 10.46 JUNE 1996 1,284.58 122.809 0.04302700 5.28 10.38 JULY 1996 1,280.04 123.318 0.04436351 5.47 10.45 AUGUST 1996 1,294.14 123.841 0.04519532 5.60 10.48 SEPTEMBER 26, 1996** 1,303.45 124.375 0.04529285 5.63 10.49 SEPTEMBER 30, 1996 1,310.33 124.912 0.00585251 0.73 10.49 ENDING OFFERING INVESTMENT CUMULATIVE PRICE PER DIVIDEND @ END TOTAL SHARE SHARES OF PERIOD RETURN OCTOBER 1991 10.39 0.394 964.27 -3.57% NOVEMBER 1991 10.43 0.490 971.15 -2.89% DECEMBER 1991 10.49 0.485 986.64 -1.34% JANUARY 1992 10.52 0.501 998.54 -0.15% FEBRUARY 1992 10.50 0.468 993.69 -0.63% MARCH 1992 10.64 0.469 992.65 -0.74% APRIL 1992 10.68 0.492 1,001.58 0.16% MAY 1992 10.61 0.477 1,015.32 1.53% JUNE 1992 10.57 0.469 1,028.07 2.81% JULY 1992 10.60 0.477 1,053.88 5.39% AUGUST 1992 10.67 0.467 1,043.87 4.39% SEPTEMBER 1992 10.77 0.468 1,049.77 4.98% OCTOBER 1992 11.06 0.496 1,036.82 3.68% NOVEMBER 1992 10.91 0.478 1,055.91 5.59% DECEMBER 1992 10.96 0.792 1,066.21 6.62% JANUARY 1993 10.79 0.472 1,079.35 7.93% FEBRUARY 1993 10.95 0.456 1,112.98 11.30% MARCH 1993 10.92 0.479 1,105.74 10.57% APRIL 1993 10.98 0.458 1,112.72 11.27% MAY 1993 11.28 0.459 1,118.68 11.87% JUNE 1993 11.13 0.475 1,131.11 13.11% JULY 1993 11.16 0.462 1,132.93 13.29% AUGUST 1993 11.17 0.454 1,152.63 15.26% SEPTEMBER 1993 11.27 0.467 1,164.09 16.41% OCTOBER 1993 11.22 0.452 1,162.65 16.26% NOVEMBER 1993 11.41 0.463 1,156.98 15.70% DECEMBER 1993 11.48 0.470 1,174.97 17.50% JANUARY 1994 11.46 0.439 1,180.84 18.08% FEBRUARY 1994 11.30 0.461 1,164.18 16.42% MARCH 1994 11.40 0.461 1,146.25 14.62% APRIL 1994 11.41 0.501 1,137.29 13.73% MAY 1994 11.14 0.490 1,140.18 14.02% JUNE 1994 10.88 0.491 1,141.96 14.20% JULY 1994 10.72 0.503 1,147.16 14.72% AUGUST 1994 10.67 0.503 1,152.37 15.24% SEPTEMBER 1994 10.65 0.534 1,144.45 14.44% OCTOBER 1994 10.68 0.495 1,129.26 12.93% NOVEMBER 1994 10.67 0.551 1,102.01 10.20% DECEMBER 1994 10.54 0.963 1,131.92 13.19% JANUARY 1995 10.35 0.525 1,148.58 14.86% FEBRUARY 1995 10.00 0.494 1,183.44 18.34% MARCH 1995 10.23 0.522 1,200.37 20.04% APRIL 1995 10.35 0.507 1,206.80 20.68% MAY 1995 10.65 0.505 1,226.03 22.60% JUNE 1995 10.75 0.514 1,232.61 23.26% JULY 1995 10.78 0.515 1,230.98 23.10% AUGUST 1995 10.91 0.528 1,237.69 23.77% SEPTEMBER 1995 10.92 0.493 1,242.86 24.29% OCTOBER 1995 10.83 0.489 1,262.27 26.23% NOVEMBER 1995 10.84 0.511 1,274.86 27.49% DECEMBER 1995 10.83 0.605 1,287.32 28.73% JANUARY 1996 10.98 0.500 1,292.67 29.27% FEBRUARY 1996 11.06 0.519 1,294.60 29.46% MARCH 1996 11.16 0.513 1,279.39 27.94% APRIL 1996 11.15 0.521 1,277.53 27.75% MAY 1996 11.08 0.557 1,284.58 28.46% JUNE 1996 10.89 0.509 1,280.04 28.00% JULY 1996 10.82 0.524 1,294.14 29.41% AUGUST 1996 10.83 0.534 1,303.45 30.35% SEPTEMBER 26, 1996** 10.74 0.537 1,310.33 31.03% SEPTEMBER 30, 1996 10.81 0.070 1,311.06 31.11% * For the period 10/1/91-10/25/91 ** Record Date
1 0 - Y E A R T O T A L R E T U R N B A S E D O N P O P Tax-Free Trust of Oregon (Class A Shares) AVG. ANNUAL TOTAL RETURN AS OF 9/30/96 6.57% CUMULATIVE TOTAL RETURN AS OF 9/30/96 88.89% Initial Investment $1,000 Net Asset Value Per Share (NAV) $9.82 As of 9/30/86 Public Offering Price Per Share (POP) $10.23 As of 9/30/86 Number of Shares Purchased 97.752 Based on POP ENDING INVESTMENT NUMBER PERIOD PERIOD NET ASSET @ BEGINNING OF DIVIDEND $ VALUE PER OF PERIOD SHARES FACTOR DIVIDEND SHARE OCTOBER 1986 1,000.00 97.752 0.06084100 5.95 10.05 NOVEMBER 1986 988.35 98.343 0.05264100 5.18 10.12 DECEMBER 1986 1,000.41 98.855 0.06247500 6.18 10.07 JANUARY 1987 1,001.65 99.468 0.05729500 5.70 10.19 FEBRUARY 1987 1,019.28 100.028 0.05251800 5.25 10.26 MARCH 1987 1,031.54 100.540 0.05928100 5.96 10.12 APRIL 1987 1,023.42 101.129 0.05555000 5.62 9.48 MAY 1987 964.32 101.721 0.05286700 5.38 9.21 JUNE 1987 942.23 102.305 0.05812700 5.95 9.39 JULY 1987 966.59 102.938 0.05531300 5.69 9.50 AUGUST 1987 983.61 103.538 0.05571300 5.77 9.53 SEPTEMBER 1987 992.48 104.143 0.05272900 5.49 9.11 OCTOBER 1987 954.23 104.746 0.05361400 5.62 9.07 NOVEMBER 1987 955.66 105.365 0.05557600 5.86 9.33 DECEMBER 1987 988.91 105.993 0.05572300 5.91 9.48 JANUARY 1988 1,010.72 106.616 0.05207600 5.55 9.74 FEBRUARY 1988 1,043.99 107.186 0.05506100 5.90 9.78 MARCH 1988 1,054.18 107.789 0.05510700 5.94 9.56 APRIL 1988 1,036.40 108.410 0.05098900 5.53 9.54 MAY 1988 1,039.76 108.990 0.05724100 6.24 9.51 JUNE 1988 1,042.73 109.646 0.05391900 5.91 9.58 JULY 1988 1,056.32 110.263 0.05169200 5.70 9.57 AUGUST 1988 1,060.92 110.859 0.05925900 6.57 9.56 SEPTEMBER 1988 1,066.38 111.546 0.05345300 5.96 9.67 OCTOBER 1988 1,084.61 112.162 0.05542500 6.22 9.75 NOVEMBER 1988 1,099.80 112.800 0.05372700 6.06 9.71 DECEMBER 1988 1,101.35 113.424 0.05372800 6.09 9.64 JANUARY 1989 1,099.50 114.056 0.05700700 6.50 9.81 FEBRUARY 1989 1,125.39 114.719 0.04988500 5.72 9.73 MARCH 1989 1,121.94 115.307 0.05566800 6.42 9.61 APRIL 1989 1,114.52 115.975 0.05012300 5.81 9.80 MAY 1989 1,142.37 116.568 0.05939000 6.92 9.94 JUNE 1989 1,165.61 117.265 0.05193600 6.09 9.95 JULY 1989 1,172.87 117.877 0.04985100 5.88 9.98 AUGUST 1989 1,182.29 118.466 0.05633400 6.67 9.89 SEPTEMBER 1989 1,178.30 119.140 0.05145100 6.13 9.77 OCTOBER 1989 1,170.13 119.768 0.05147300 6.16 9.85 NOVEMBER 1989 1,185.88 120.394 0.05844600 7.04 9.89 DECEMBER 1989 1,197.73 121.105 0.05112200 6.19 9.93 JANUARY 1990 1,208.77 121.729 0.05325500 6.48 9.78 FEBRUARY 1990 1,196.99 122.392 0.05642300 6.91 9.79 MARCH 1990 1,205.12 123.097 0.04894300 6.02 9.77 APRIL 1990 1,208.68 123.714 0.05323100 6.59 9.69 MAY 1990 1,205.37 124.393 0.05314000 6.61 9.77 JUNE 1990 1,221.93 125.070 0.05431300 6.79 9.79 JULY 1990 1,231.23 125.764 0.05286300 6.65 9.85 AUGUST 1990 1,245.42 126.439 0.05270400 6.66 9.66 SEPTEMBER 1990 1,228.06 127.128 0.05438500 6.91 9.66 OCTOBER 1990 1,234.97 127.844 0.05464800 6.99 9.73 NOVEMBER 1990 1,250.91 128.562 0.05637700 7.25 9.88 DECEMBER 1990 1,277.44 129.296 0.05287300 6.84 9.88 JANUARY 1991 1,284.28 129.988 0.05244600 6.82 9.93 FEBRUARY 1991 1,297.59 130.674 0.05380500 7.03 10.01 MARCH 1991 1,315.08 131.377 0.04998900 6.57 9.92 APRIL 1991 1,309.82 132.039 0.05205600 6.87 9.95 MAY 1991 1,320.66 132.729 0.04885200 6.48 10.00 JUNE 1991 1,333.78 133.378 0.05336000 7.12 9.92 JULY 1991 1,330.23 134.095 0.05189100 6.96 10.00 AUGUST 1991 1,347.91 134.791 0.05310300 7.16 10.06 SEPTEMBER 1991 1,363.16 135.503 0.05140000 6.96 10.15 OCTOBER 1991 1,382.32 136.189 0.05095900 6.94 10.15 NOVEMBER 1991 1,389.26 136.873 0.05241100 7.17 10.17 DECEMBER 1991 1,399.17 137.578 0.05221200 7.18 10.28 JANUARY 1992 1,421.48 138.277 0.05399100 7.47 10.35 FEBRUARY 1992 1,438.63 138.998 0.04972200 6.91 10.25 MARCH 1992 1,431.64 139.672 0.04931500 6.89 10.19 APRIL 1992 1,430.15 140.348 0.05169400 7.26 10.23 MAY 1992 1,443.02 141.057 0.05028800 7.09 10.32 JUNE 1992 1,462.81 141.745 0.04959100 7.03 10.40 JULY 1992 1,481.18 142.421 0.05115400 7.29 10.61 AUGUST 1992 1,518.37 143.107 0.04919900 7.04 10.46 SEPTEMBER 1992 1,503.94 143.780 0.04914500 7.07 10.47 OCTOBER 1992 1,512.45 144.455 0.05086900 7.35 10.29 NOVEMBER 1992 1,493.79 145.169 0.04945300 7.18 10.43 DECEMBER 1992 1,521.30 145.858 0.08171800 11.92 10.45 JANUARY 1993 1,536.13 146.998 0.04874000 7.16 10.53 FEBRUARY 1993 1,555.06 147.679 0.04808900 7.10 10.81 MARCH 1993 1,603.51 148.336 0.04973700 7.38 10.69 APRIL 1993 1,593.09 149.026 0.04745500 7.07 10.71 MAY 1993 1,603.14 149.686 0.04733900 7.09 10.72 JUNE 1993 1,611.72 150.347 0.04912500 7.39 10.79 JULY 1993 1,629.63 151.032 0.04742200 7.16 10.76 AUGUST 1993 1,632.26 151.697 0.04701600 7.13 10.90 SEPTEMBER 1993 1,660.63 152.352 0.04841800 7.38 10.96 OCTOBER 1993 1,677.15 153.025 0.04641800 7.10 10.90 NOVEMBER 1993 1,675.07 153.676 0.04685900 7.20 10.80 DECEMBER 1993 1,666.91 154.343 0.04793200 7.40 10.92 JANUARY 1994 1,692.83 155.021 0.04456700 6.91 10.93 FEBRUARY 1994 1,701.28 155.653 0.04578800 7.13 10.73 MARCH 1994 1,677.28 156.317 0.04471400 6.99 10.52 APRIL 1994 1,651.44 156.981 0.04780900 7.51 10.39 MAY 1994 1,638.54 157.704 0.04640500 7.32 10.37 JUNE 1994 1,642.71 158.409 0.04620100 7.32 10.34 JULY 1994 1,645.27 159.117 0.04709300 7.49 10.34 AUGUST 1994 1,652.77 159.842 0.04687400 7.49 10.34 SEPTEMBER 1994 1,660.26 160.567 0.04896100 7.86 10.22 OCTOBER 1994 1,648.85 161.336 0.04433600 7.15 10.04 NOVEMBER 1994 1,626.96 162.048 0.04777400 7.74 9.75 DECEMBER 1994 1,587.71 162.842 0.08461600 13.78 9.93 JANUARY 1995 1,630.80 164.230 0.04616500 7.58 10.03 FEBRUARY 1995 1,654.81 164.986 0.04439300 7.32 10.29 MARCH 1995 1,705.03 165.697 0.04719000 7.82 10.39 APRIL 1995 1,729.42 166.450 0.04564100 7.60 10.40 MAY 1995 1,738.68 167.181 0.04574400 7.65 10.52 JUNE 1995 1,766.39 167.907 0.04647400 7.80 10.53 JULY 1995 1,775.87 168.649 0.04606600 7.77 10.47 AUGUST 1995 1,773.52 169.391 0.04709600 7.98 10.48 SEPTEMBER 1995 1,783.19 170.152 0.04376600 7.45 10.48 OCTOBER 1995 1,790.64 170.862 0.04367800 7.46 10.60 NOVEMBER 1995 1,818.60 171.566 0.04572200 7.84 10.66 DECEMBER 1995 1,836.74 172.302 0.05415700 9.33 10.71 JANUARY 1996 1,854.69 173.174 0.04456800 7.72 10.71 FEBRUARY 1996 1,862.41 173.894 0.04595400 7.99 10.68 MARCH 1996 1,865.18 174.642 0.04450400 7.77 10.51 APRIL 1996 1,843.26 175.382 0.04471100 7.84 10.45 MAY 1996 1,840.58 176.132 0.04767200 8.40 10.46 JUNE 1996 1,850.74 176.935 0.04302700 7.61 10.38 JULY 1996 1,844.20 177.669 0.04436351 7.88 10.45 AUGUST 1996 1,864.52 178.423 0.04519532 8.06 10.48 SEPTEMBER 26, 1996* 1,877.93 179.192 0.04529285 8.12 10.49 SEPTEMBER 30, 1996 1,887.84 179.966 0.00585251 1.05 10.49 ENDING OFFERING INVESTMENT CUMULATIVE PRICE PER DIVIDEND @ END TOTAL SHARE SHARES OF PERIOD RETURN OCTOBER 1986 9.85 0.592 988.35 -1.16% NOVEMBER 1986 10.30 0.512 1,000.41 0.04% DECEMBER 1986 10.19 0.613 1,001.65 0.16% JANUARY 1987 10.43 0.559 1,019.28 1.93% FEBRUARY 1987 10.59 0.512 1,031.54 3.15% MARCH 1987 10.49 0.589 1,023.42 2.34% APRIL 1987 10.64 0.593 964.32 -3.57% MAY 1987 10.70 0.584 942.23 -5.78% JUNE 1987 10.50 0.633 966.59 -3.34% JULY 1987 9.96 0.599 983.61 -1.64% AUGUST 1987 9.67 0.605 992.48 -0.75% SEPTEMBER 1987 9.84 0.603 954.23 -4.58% OCTOBER 1987 9.84 0.619 955.66 -4.43% NOVEMBER 1987 9.84 0.628 988.91 -1.11% DECEMBER 1987 9.36 0.623 1,010.72 1.07% JANUARY 1988 9.33 0.570 1,043.99 4.40% FEBRUARY 1988 9.60 0.603 1,054.18 5.42% MARCH 1988 9.80 0.621 1,036.40 3.64% APRIL 1988 10.08 0.579 1,039.76 3.98% MAY 1988 10.08 0.656 1,042.73 4.27% JUNE 1988 9.81 0.617 1,056.32 5.63% JULY 1988 9.74 0.596 1,060.92 6.09% AUGUST 1988 9.75 0.687 1,066.38 6.64% SEPTEMBER 1988 9.86 0.617 1,084.61 8.46% OCTOBER 1988 9.86 0.638 1,099.80 9.98% NOVEMBER 1988 9.80 0.624 1,101.35 10.13% DECEMBER 1988 9.95 0.632 1,099.50 9.95% JANUARY 1989 10.10 0.663 1,125.39 12.54% FEBRUARY 1989 9.98 0.588 1,121.94 12.19% MARCH 1989 10.00 0.668 1,114.52 11.45% APRIL 1989 10.20 0.593 1,142.37 14.24% MAY 1989 10.00 0.696 1,165.61 16.56% JUNE 1989 9.92 0.612 1,172.87 17.29% JULY 1989 10.13 0.589 1,182.29 18.23% AUGUST 1989 10.26 0.675 1,178.30 17.83% SEPTEMBER 1989 10.29 0.627 1,170.13 17.01% OCTOBER 1989 10.33 0.626 1,185.88 18.59% NOVEMBER 1989 10.22 0.711 1,197.73 19.77% DECEMBER 1989 10.10 0.623 1,208.77 20.88% JANUARY 1990 10.22 0.663 1,196.99 19.70% FEBRUARY 1990 10.23 0.705 1,205.12 20.51% MARCH 1990 10.29 0.617 1,208.68 20.87% APRIL 1990 10.17 0.680 1,205.37 20.54% MAY 1990 10.16 0.677 1,221.93 22.19% JUNE 1990 10.15 0.694 1,231.23 23.12% JULY 1990 10.08 0.675 1,245.42 24.54% AUGUST 1990 10.15 0.690 1,228.06 22.81% SEPTEMBER 1990 10.17 0.716 1,234.97 23.50% OCTOBER 1990 10.22 0.718 1,250.91 25.09% NOVEMBER 1990 9.97 0.734 1,277.44 27.74% DECEMBER 1990 9.96 0.692 1,284.28 28.43% JANUARY 1991 10.06 0.687 1,297.59 29.76% FEBRUARY 1991 10.20 0.702 1,315.08 31.51% MARCH 1991 10.20 0.662 1,309.82 30.98% APRIL 1991 10.26 0.691 1,320.66 32.07% MAY 1991 10.35 0.648 1,333.78 33.38% JUNE 1991 10.28 0.717 1,330.23 33.02% JULY 1991 10.34 0.696 1,347.91 34.79% AUGUST 1991 10.39 0.712 1,363.16 36.32% SEPTEMBER 1991 10.30 0.686 1,382.32 38.23% OCTOBER 1991 10.39 0.684 1,389.26 38.93% NOVEMBER 1991 10.43 0.705 1,399.17 39.92% DECEMBER 1991 10.49 0.699 1,421.48 42.15% JANUARY 1992 10.52 0.721 1,438.63 43.86% FEBRUARY 1992 10.50 0.674 1,431.64 43.16% MARCH 1992 10.64 0.676 1,430.15 43.01% APRIL 1992 10.68 0.709 1,443.02 44.30% MAY 1992 10.61 0.687 1,462.81 46.28% JUNE 1992 10.57 0.676 1,481.18 48.12% JULY 1992 10.60 0.687 1,518.37 51.84% AUGUST 1992 10.67 0.673 1,503.94 50.39% SEPTEMBER 1992 10.77 0.675 1,512.45 51.24% OCTOBER 1992 11.06 0.714 1,493.79 49.38% NOVEMBER 1992 10.91 0.688 1,521.30 52.13% DECEMBER 1992 10.96 1.141 1,536.13 53.61% JANUARY 1993 10.79 0.680 1,555.06 55.51% FEBRUARY 1993 10.95 0.657 1,603.51 60.35% MARCH 1993 10.92 0.690 1,593.09 59.31% APRIL 1993 10.98 0.660 1,603.14 60.31% MAY 1993 11.28 0.661 1,611.72 61.17% JUNE 1993 11.13 0.685 1,629.63 62.96% JULY 1993 11.16 0.666 1,632.26 63.23% AUGUST 1993 11.17 0.654 1,660.63 66.06% SEPTEMBER 1993 11.27 0.673 1,677.15 67.72% OCTOBER 1993 11.22 0.652 1,675.07 67.51% NOVEMBER 1993 11.41 0.667 1,666.91 66.69% DECEMBER 1993 11.48 0.677 1,692.83 69.28% JANUARY 1994 11.46 0.632 1,701.28 70.13% FEBRUARY 1994 11.30 0.664 1,677.28 67.73% MARCH 1994 11.40 0.664 1,651.44 65.14% APRIL 1994 11.41 0.722 1,638.54 63.85% MAY 1994 11.14 0.706 1,642.71 64.27% JUNE 1994 10.88 0.708 1,645.27 64.53% JULY 1994 10.72 0.725 1,652.77 65.28% AUGUST 1994 10.67 0.725 1,660.26 66.03% SEPTEMBER 1994 10.65 0.769 1,648.85 64.89% OCTOBER 1994 10.68 0.712 1,626.96 62.70% NOVEMBER 1994 10.67 0.794 1,587.71 58.77% DECEMBER 1994 10.54 1.388 1,630.80 63.08% JANUARY 1995 10.35 0.756 1,654.81 65.48% FEBRUARY 1995 10.00 0.712 1,705.03 70.50% MARCH 1995 10.23 0.753 1,729.42 72.94% APRIL 1995 10.35 0.730 1,738.68 73.87% MAY 1995 10.65 0.727 1,766.39 76.64% JUNE 1995 10.75 0.741 1,775.87 77.59% JULY 1995 10.78 0.742 1,773.52 77.35% AUGUST 1995 10.91 0.761 1,783.19 78.32% SEPTEMBER 1995 10.92 0.711 1,790.64 79.06% OCTOBER 1995 10.83 0.704 1,818.60 81.86% NOVEMBER 1995 10.84 0.736 1,836.74 83.67% DECEMBER 1995 10.83 0.871 1,854.69 85.47% JANUARY 1996 10.98 0.721 1,862.41 86.24% FEBRUARY 1996 11.06 0.748 1,865.18 86.52% MARCH 1996 11.16 0.740 1,843.26 84.33% APRIL 1996 11.15 0.750 1,840.58 84.06% MAY 1996 11.08 0.803 1,850.74 85.07% JUNE 1996 10.89 0.733 1,844.20 84.42% JULY 1996 10.82 0.754 1,864.52 86.45% AUGUST 1996 10.83 0.769 1,877.93 87.79% SEPTEMBER 26, 1996* 10.74 0.774 1,887.84 88.78% SEPTEMBER 30, 1996 10.81 0.100 1,888.90 88.89% * Record Date
S I N C E I N C E P T I O N T O T A L R E T U R N B A S E D O N P O P Tax-Free Trust of Oregon (Class A Shares) AVG ANN'L TOTAL RETURN AS OF 9/30/96 6.78% CUMULATIVE TOTAL RETURN AS OF 9/30/96 96.58% Initial Investment $1,000 Net Asset Value Per Share (NAV) $9.60 As of 6/16/86 Public Offering Price Per Share (POP) $10.00 As of 6/16/86 Number of Shares Purchased 100.000 Based on POP ENDING INVESTMENT NUMBER PERIOD PERIOD NET ASSET @ BEGINNING OF DIVIDEND $ VALUE PER OF PERIOD SHARES FACTOR DIVIDEND SHARE JUNE 1986 1,000.00 100.000 0.00457100 0.46 9.58 JULY 1986 958.46 100.048 0.04794600 4.80 9.48 AUGUST 1986 953.25 100.554 0.05435600 5.47 9.89 SEPTEMBER 1986 999.94 101.106 0.06056000 6.12 9.82 OCTOBER 1986 998.99 101.730 0.06084100 6.19 10.05 NOVEMBER 1986 1,028.57 102.346 0.05264100 5.39 10.12 DECEMBER 1986 1,041.13 102.878 0.06247500 6.43 10.07 JANUARY 1987 1,042.41 103.516 0.05729500 5.93 10.19 FEBRUARY 1987 1,060.76 104.098 0.05251800 5.47 10.26 MARCH 1987 1,073.52 104.631 0.05928100 6.20 10.12 APRIL 1987 1,065.07 105.244 0.05555000 5.85 9.48 MAY 1987 1,003.56 105.861 0.05286700 5.60 9.21 JUNE 1987 980.58 106.469 0.05812700 6.19 9.39 JULY 1987 1,005.93 107.128 0.05531300 5.93 9.50 AUGUST 1987 1,023.64 107.751 0.05571300 6.00 9.53 SEPTEMBER 1987 1,032.87 108.381 0.05272900 5.71 9.11 OCTOBER 1987 993.07 109.009 0.05361400 5.84 9.07 NOVEMBER 1987 994.55 109.653 0.05557600 6.09 9.33 DECEMBER 1987 1,029.16 110.306 0.05572300 6.15 9.48 JANUARY 1988 1,051.85 110.954 0.05207600 5.78 9.74 FEBRUARY 1988 1,086.47 111.548 0.05506100 6.14 9.78 MARCH 1988 1,097.08 112.176 0.05510700 6.18 9.56 APRIL 1988 1,078.58 112.822 0.05098900 5.75 9.54 MAY 1988 1,082.08 113.425 0.05724100 6.49 9.51 JUNE 1988 1,085.17 114.108 0.05391900 6.15 9.58 JULY 1988 1,099.31 114.750 0.05169200 5.93 9.57 AUGUST 1988 1,104.09 115.370 0.05925900 6.84 9.56 SEPTEMBER 1988 1,109.78 116.085 0.05345300 6.21 9.67 OCTOBER 1988 1,128.75 116.727 0.05542500 6.47 9.75 NOVEMBER 1988 1,144.56 117.390 0.05372700 6.31 9.71 DECEMBER 1988 1,146.17 118.040 0.05372800 6.34 9.64 JANUARY 1989 1,144.25 118.698 0.05700700 6.77 9.81 FEBRUARY 1989 1,171.19 119.388 0.04988500 5.96 9.73 MARCH 1989 1,167.60 120.000 0.05566800 6.68 9.61 APRIL 1989 1,159.88 120.695 0.05012300 6.05 9.80 MAY 1989 1,188.86 121.312 0.05939000 7.20 9.94 JUNE 1989 1,213.05 122.037 0.05193600 6.34 9.95 JULY 1989 1,220.61 122.674 0.04985100 6.12 9.98 AUGUST 1989 1,230.40 123.287 0.05633400 6.95 9.89 SEPTEMBER 1989 1,226.25 123.989 0.05145100 6.38 9.77 OCTOBER 1989 1,217.75 124.642 0.05147300 6.42 9.85 NOVEMBER 1989 1,234.14 125.293 0.05844600 7.32 9.89 DECEMBER 1989 1,246.47 126.034 0.05112200 6.44 9.93 JANUARY 1990 1,257.96 126.683 0.05325500 6.75 9.78 FEBRUARY 1990 1,245.70 127.372 0.05642300 7.19 9.79 MARCH 1990 1,254.16 128.107 0.04894300 6.27 9.77 APRIL 1990 1,257.87 128.748 0.05323100 6.85 9.69 MAY 1990 1,254.42 129.456 0.05314000 6.88 9.77 JUNE 1990 1,271.66 130.160 0.05431300 7.07 9.79 JULY 1990 1,281.33 130.882 0.05286300 6.92 9.85 AUGUST 1990 1,296.10 131.584 0.05270400 6.94 9.66 SEPTEMBER 1990 1,278.04 132.302 0.05438500 7.20 9.66 OCTOBER 1990 1,285.23 133.047 0.05464800 7.27 9.73 NOVEMBER 1990 1,301.82 133.794 0.05637700 7.54 9.88 DECEMBER 1990 1,329.43 134.558 0.05287300 7.11 9.88 JANUARY 1991 1,336.54 135.278 0.05244600 7.09 9.93 FEBRUARY 1991 1,350.40 135.992 0.05380500 7.32 10.01 MARCH 1991 1,368.60 136.723 0.04998900 6.83 9.92 APRIL 1991 1,363.13 137.412 0.05205600 7.15 9.95 MAY 1991 1,374.40 138.131 0.04885200 6.75 10.00 JUNE 1991 1,388.06 138.806 0.05336000 7.41 9.92 JULY 1991 1,384.36 139.553 0.05189100 7.24 10.00 AUGUST 1991 1,402.77 140.277 0.05310300 7.45 10.06 SEPTEMBER 1991 1,418.63 141.017 0.05140000 7.25 10.15 OCTOBER 1991 1,438.57 141.731 0.05095900 7.22 10.15 NOVEMBER 1991 1,445.79 142.443 0.05241100 7.47 10.17 DECEMBER 1991 1,456.11 143.177 0.05221200 7.48 10.28 JANUARY 1992 1,479.33 143.904 0.05399100 7.77 10.35 FEBRUARY 1992 1,497.18 144.655 0.04972200 7.19 10.25 MARCH 1992 1,489.90 145.357 0.04931500 7.17 10.19 APRIL 1992 1,488.35 146.060 0.05169400 7.55 10.23 MAY 1992 1,501.74 146.798 0.05028800 7.38 10.32 JUNE 1992 1,522.34 147.513 0.04959100 7.32 10.40 JULY 1992 1,541.45 148.217 0.05115400 7.58 10.61 AUGUST 1992 1,580.16 148.931 0.04919900 7.33 10.46 SEPTEMBER 1992 1,565.15 149.632 0.04914500 7.35 10.47 OCTOBER 1992 1,574.00 150.334 0.05086900 7.65 10.29 NOVEMBER 1992 1,554.59 151.077 0.04945300 7.47 10.43 DECEMBER 1992 1,583.21 151.794 0.08171800 12.40 10.45 JANUARY 1993 1,598.65 152.981 0.04874000 7.46 10.53 FEBRUARY 1993 1,618.34 153.689 0.04808900 7.39 10.81 MARCH 1993 1,668.77 154.373 0.04973700 7.68 10.69 APRIL 1993 1,657.92 155.091 0.04745500 7.36 10.71 MAY 1993 1,668.38 155.778 0.04733900 7.37 10.72 JUNE 1993 1,677.31 156.466 0.04912500 7.69 10.79 JULY 1993 1,695.95 157.178 0.04742200 7.45 10.76 AUGUST 1993 1,698.69 157.871 0.04701600 7.42 10.90 SEPTEMBER 1993 1,728.22 158.552 0.04841800 7.68 10.96 OCTOBER 1993 1,745.41 159.252 0.04641800 7.39 10.90 NOVEMBER 1993 1,743.24 159.931 0.04685900 7.49 10.80 DECEMBER 1993 1,734.74 160.624 0.04793200 7.70 10.92 JANUARY 1994 1,761.72 161.329 0.04456700 7.19 10.93 FEBRUARY 1994 1,770.52 161.987 0.04578800 7.42 10.73 MARCH 1994 1,745.54 162.679 0.04471400 7.27 10.52 APRIL 1994 1,718.65 163.370 0.04780900 7.81 10.39 MAY 1994 1,705.22 164.122 0.04640500 7.62 10.37 JUNE 1994 1,709.56 164.856 0.04620100 7.62 10.34 JULY 1994 1,712.23 165.593 0.04709300 7.80 10.34 AUGUST 1994 1,720.03 166.347 0.04687400 7.80 10.34 SEPTEMBER 1994 1,727.82 167.101 0.04896100 8.18 10.22 OCTOBER 1994 1,715.95 167.902 0.04433600 7.44 10.04 NOVEMBER 1994 1,693.18 168.643 0.04777400 8.06 9.75 DECEMBER 1994 1,652.33 169.469 0.08461600 14.34 9.93 JANUARY 1995 1,697.17 170.913 0.04616500 7.89 10.03 FEBRUARY 1995 1,722.15 171.700 0.04439300 7.62 10.29 MARCH 1995 1,774.42 172.441 0.04719000 8.14 10.39 APRIL 1995 1,799.80 173.224 0.04564100 7.91 10.40 MAY 1995 1,809.44 173.984 0.04574400 7.96 10.52 JUNE 1995 1,838.27 174.741 0.04647400 8.12 10.53 JULY 1995 1,848.14 175.512 0.04606600 8.09 10.47 AUGUST 1995 1,845.70 176.284 0.04709600 8.30 10.48 SEPTEMBER 1995 1,855.76 177.076 0.04376600 7.75 10.48 OCTOBER 1995 1,863.51 177.816 0.04367800 7.77 10.60 NOVEMBER 1995 1,892.62 178.549 0.04572200 8.16 10.66 DECEMBER 1995 1,911.49 179.314 0.05415700 9.71 10.71 JANUARY 1996 1,930.17 180.221 0.04456800 8.03 10.71 FEBRUARY 1996 1,938.20 180.971 0.04595400 8.32 10.68 MARCH 1996 1,941.09 181.750 0.04450400 8.09 10.51 APRIL 1996 1,918.28 182.519 0.04471100 8.16 10.45 MAY 1996 1,915.49 183.300 0.04767200 8.74 10.46 JUNE 1996 1,926.06 184.136 0.04302700 7.92 10.38 JULY 1996 1,919.25 184.899 0.04436351 8.20 10.45 AUGUST 1996 1,940.40 185.684 0.04519532 8.39 10.48 SEPTEMBER 26, 1996* 1,954.36 186.485 0.04529285 8.45 10.49 SEPTEMBER 30, 1996 1,964.67 187.290 0.00585251 1.10 10.49 ENDING OFFERING INVESTMENT CUMULATIVE PRICE PER DIVIDEND @ END TOTAL SHARE SHARES OF PERIOD RETURN JUNE 1986 10.18 0.048 958.46 -4.15% JULY 1986 10.03 0.506 953.25 -4.68% AUGUST 1986 9.73 0.553 999.94 -0.01% SEPTEMBER 1986 9.85 0.624 998.99 -0.10% OCTOBER 1986 9.85 0.616 1,028.57 2.86% NOVEMBER 1986 10.30 0.532 1,041.13 4.11% DECEMBER 1986 10.19 0.638 1,042.41 4.24% JANUARY 1987 10.43 0.582 1,060.76 6.08% FEBRUARY 1987 10.59 0.533 1,073.52 7.35% MARCH 1987 10.49 0.613 1,065.07 6.51% APRIL 1987 10.64 0.617 1,003.56 0.36% MAY 1987 10.70 0.608 980.58 -1.94% JUNE 1987 10.50 0.659 1,005.93 0.59% JULY 1987 9.96 0.624 1,023.64 2.36% AUGUST 1987 9.67 0.630 1,032.87 3.29% SEPTEMBER 1987 9.84 0.627 993.07 -0.69% OCTOBER 1987 9.84 0.644 994.55 -0.54% NOVEMBER 1987 9.84 0.653 1,029.16 2.92% DECEMBER 1987 9.36 0.648 1,051.85 5.18% JANUARY 1988 9.33 0.593 1,086.47 8.65% FEBRUARY 1988 9.60 0.628 1,097.08 9.71% MARCH 1988 9.80 0.647 1,078.58 7.86% APRIL 1988 10.08 0.603 1,082.08 8.21% MAY 1988 10.08 0.683 1,085.17 8.52% JUNE 1988 9.81 0.642 1,099.31 9.93% JULY 1988 9.74 0.620 1,104.09 10.41% AUGUST 1988 9.75 0.715 1,109.78 10.98% SEPTEMBER 1988 9.86 0.642 1,128.75 12.87% OCTOBER 1988 9.86 0.664 1,144.56 14.46% NOVEMBER 1988 9.80 0.650 1,146.17 14.62% DECEMBER 1988 9.95 0.658 1,144.25 14.42% JANUARY 1989 10.10 0.690 1,171.19 17.12% FEBRUARY 1989 9.98 0.612 1,167.60 16.76% MARCH 1989 10.00 0.695 1,159.88 15.99% APRIL 1989 10.20 0.617 1,188.86 18.89% MAY 1989 10.00 0.725 1,213.05 21.30% JUNE 1989 9.92 0.637 1,220.61 22.06% JULY 1989 10.13 0.613 1,230.40 23.04% AUGUST 1989 10.26 0.702 1,226.25 22.63% SEPTEMBER 1989 10.29 0.653 1,217.75 21.78% OCTOBER 1989 10.33 0.651 1,234.14 23.41% NOVEMBER 1989 10.22 0.740 1,246.47 24.65% DECEMBER 1989 10.10 0.649 1,257.96 25.80% JANUARY 1990 10.22 0.690 1,245.70 24.57% FEBRUARY 1990 10.23 0.734 1,254.16 25.42% MARCH 1990 10.29 0.642 1,257.87 25.79% APRIL 1990 10.17 0.707 1,254.42 25.44% MAY 1990 10.16 0.704 1,271.66 27.17% JUNE 1990 10.15 0.722 1,281.33 28.13% JULY 1990 10.08 0.702 1,296.10 29.61% AUGUST 1990 10.15 0.718 1,278.04 27.80% SEPTEMBER 1990 10.17 0.745 1,285.23 28.52% OCTOBER 1990 10.22 0.747 1,301.82 30.18% NOVEMBER 1990 9.97 0.763 1,329.43 32.94% DECEMBER 1990 9.96 0.720 1,336.54 33.65% JANUARY 1991 10.06 0.714 1,350.40 35.04% FEBRUARY 1991 10.20 0.731 1,368.60 36.86% MARCH 1991 10.20 0.689 1,363.13 36.31% APRIL 1991 10.26 0.719 1,374.40 37.44% MAY 1991 10.35 0.675 1,388.06 38.81% JUNE 1991 10.28 0.747 1,384.36 38.44% JULY 1991 10.34 0.724 1,402.77 40.28% AUGUST 1991 10.39 0.740 1,418.63 41.86% SEPTEMBER 1991 10.30 0.714 1,438.57 43.86% OCTOBER 1991 10.39 0.712 1,445.79 44.58% NOVEMBER 1991 10.43 0.734 1,456.11 45.61% DECEMBER 1991 10.49 0.727 1,479.33 47.93% JANUARY 1992 10.52 0.751 1,497.18 49.72% FEBRUARY 1992 10.50 0.702 1,489.90 48.99% MARCH 1992 10.64 0.703 1,488.35 48.84% APRIL 1992 10.68 0.738 1,501.74 50.17% MAY 1992 10.61 0.715 1,522.34 52.23% JUNE 1992 10.57 0.703 1,541.45 54.15% JULY 1992 10.60 0.715 1,580.16 58.02% AUGUST 1992 10.67 0.701 1,565.15 56.51% SEPTEMBER 1992 10.77 0.702 1,574.00 57.40% OCTOBER 1992 11.06 0.743 1,554.59 55.46% NOVEMBER 1992 10.91 0.716 1,583.21 58.32% DECEMBER 1992 10.96 1.187 1,598.65 59.86% JANUARY 1993 10.79 0.708 1,618.34 61.83% FEBRUARY 1993 10.95 0.684 1,668.77 66.88% MARCH 1993 10.92 0.718 1,657.92 65.79% APRIL 1993 10.98 0.687 1,668.38 66.84% MAY 1993 11.28 0.688 1,677.31 67.73% JUNE 1993 11.13 0.712 1,695.95 69.60% JULY 1993 11.16 0.693 1,698.69 69.87% AUGUST 1993 11.17 0.681 1,728.22 72.82% SEPTEMBER 1993 11.27 0.700 1,745.41 74.54% OCTOBER 1993 11.22 0.678 1,743.24 74.32% NOVEMBER 1993 11.41 0.694 1,734.74 73.47% DECEMBER 1993 11.48 0.705 1,761.72 76.17% JANUARY 1994 11.46 0.658 1,770.52 77.05% FEBRUARY 1994 11.30 0.691 1,745.54 74.55% MARCH 1994 11.40 0.691 1,718.65 71.87% APRIL 1994 11.41 0.752 1,705.22 70.52% MAY 1994 11.14 0.734 1,709.56 70.96% JUNE 1994 10.88 0.737 1,712.23 71.22% JULY 1994 10.72 0.754 1,720.03 72.00% AUGUST 1994 10.67 0.754 1,727.82 72.78% SEPTEMBER 1994 10.65 0.801 1,715.95 71.60% OCTOBER 1994 10.68 0.741 1,693.18 69.32% NOVEMBER 1994 10.67 0.826 1,652.33 65.23% DECEMBER 1994 10.54 1.444 1,697.17 69.72% JANUARY 1995 10.35 0.787 1,722.15 72.22% FEBRUARY 1995 10.00 0.741 1,774.42 77.44% MARCH 1995 10.23 0.783 1,799.80 79.98% APRIL 1995 10.35 0.760 1,809.44 80.94% MAY 1995 10.65 0.757 1,838.27 83.83% JUNE 1995 10.75 0.771 1,848.14 84.81% JULY 1995 10.78 0.772 1,845.70 84.57% AUGUST 1995 10.91 0.792 1,855.76 85.58% SEPTEMBER 1995 10.92 0.739 1,863.51 86.35% OCTOBER 1995 10.83 0.733 1,892.62 89.26% NOVEMBER 1995 10.84 0.766 1,911.49 91.15% DECEMBER 1995 10.83 0.907 1,930.17 93.02% JANUARY 1996 10.98 0.750 1,938.20 93.82% FEBRUARY 1996 11.06 0.779 1,941.09 94.11% MARCH 1996 11.16 0.770 1,918.28 91.83% APRIL 1996 11.15 0.781 1,915.49 91.55% MAY 1996 11.08 0.835 1,926.06 92.61% JUNE 1996 10.89 0.763 1,919.25 91.93% JULY 1996 10.82 0.785 1,940.40 94.04% AUGUST 1996 10.83 0.801 1,954.36 95.44% SEPTEMBER 26, 1996* 10.74 0.805 1,964.67 96.47% SEPTEMBER 30, 1996 10.81 0.104 1,965.77 96.58% * Record Date
S I N C E I N C E P T I O N T O T A L R E T U R N B A S E D O N P O P Tax-Free Trust of Oregon (Class C Shares) AVG. ANNUAL TOTAL RETURN AS OF 9/30/96 2.58% CUMULATIVE TOTAL RETURN AS OF 9/30/96 2.58% Initial Investment $1,000 Net Asset Value Per Share (NAV) $10.34 As of 4/5/96 (Commencement of Class) Public Offering Price Per Share (POP) $10.34 As of 4/5/96 (Commencement of Class) Number of Shares Purchased 96.712 Based on POP ENDING INVESTMENT NUMBER PERIOD PERIOD NET ASSET @ BEGINNING OF DIVIDEND $ VALUE PER OF PERIOD SHARES FACTOR DIVIDEND SHARE APRIL '96 1,000.00 96.712 0.03172500 3.07 10.45 MAY '96 1,013.71 97.005 0.04003100 3.88 10.46 JUNE '96 1,018.56 97.377 0.03607300 3.51 10.38 JULY '96 1,014.28 97.715 0.03192761 3.12 10.45 AUGUST '96 1,024.24 98.014 0.03758896 3.68 10.48 SEPTEMBER 26, 1996* 1,030.87 98.365 0.03837737 3.77 10.49 SEPTEMBER 30, 1996 1,035.63 98.725 0.00487702 0.48 10.39 ENDING OFFERING INVESTMENT CUMULATIVE PRICE PER DIVIDEND @ END TOTAL SHARE SHARES OF PERIOD RETURN APRIL '96 10.83 0.294 1,013.71 1.37% MAY '96 10.84 0.371 1,018.56 1.86% JUNE '96 10.83 0.338 1,014.28 1.43% JULY '96 10.98 0.299 1,024.24 2.42% AUGUST '96 11.06 0.352 1,030.87 3.09% SEPTEMBER 26, 1996* 11.16 0.360 1,035.63 3.56% SEPTEMBER 30, 1996 11.15 0.046 1,025.75 2.58% * Record Date
S I N C E I N C E P T I O N T O T A L R E T U R N B A S E D O N P O P Tax-Free Trust of Oregon (Class Y Shares) AVG. ANNUAL TOTAL RETURN AS OF 9/30/96 4.14% CUMULATIVE TOTAL RETURN AS OF 9/30/96 4.14% Initial Investment $1,000 Net Asset Value Per Share (NAV) $10.34 As of 4/5/96 (Commencement of Class) Public Offering Price Per Share (POP) $10.34 As of 4/5/96 (Commencement of Class) Number of Shares Purchased 96.712 Based on POP ENDING INVESTMENT NUMBER PERIOD PERIOD NET ASSET @ BEGINNING OF DIVIDEND $ VALUE PER OF PERIOD SHARES FACTOR DIVIDEND SHARE APRIL '96 1,000.00 96.712 0.03535600 3.42 10.45 MAY '96 1,014.06 97.039 0.04902200 4.76 10.46 JUNE '96 1,019.79 97.494 0.04424500 4.31 10.38 JULY '96 1,016.30 97.909 0.04564278 4.47 10.45 AUGUST '96 1,027.62 98.337 0.05250479 5.16 10.42 SEPTEMBER 30, 1996* 1,029.83 98.833 0.04664520 4.61 10.49 ENDING OFFERING INVESTMENT CUMULATIVE PRICE PER DIVIDEND @ END TOTAL SHARE SHARES OF PERIOD RETURN APRIL '96 10.83 0.327 1,014.06 1.41% MAY '96 10.84 0.455 1,019.79 1.98% JUNE '96 10.83 0.416 1,016.30 1.63% JULY '96 10.98 0.428 1,027.62 2.76% AUGUST '96 11.06 0.496 1,029.83 2.98% SEPTEMBER 30, 1996* 11.16 0.439 1,041.36 4.14% * Record Date
SEC ADVERTISING YIELD SECURITY INCOME DETAIL FOR THE PERIOD 8/31/96 through 9/30/96 Tax-Free Trust of Oregon SUMMARY DATA CLASS A CLASS C CLASS Y TOTAL DAILY INCOME 43,880.72 48.47 34.71 TOTAL INCOME 1,324,100.04 1,462.35 1,047.25 TOTAL EXPENSES 181,486.63- 433.78- 114.02- AVERAGE SHARES 29,015,629.4693 32,060.6794 22,949.9642 MAXIMUM OFFERING PRICE 10.93 10.49 10.52 SEC ADVERTISED YIELD 4.362559 3.6981819 4.683497
Tax-Free Trust of Oregon Taxable Equivalent Yield September 30, 1996 Class A ------- S.E.C. Yield 4.36 % Taxable Portion 0.5 % Tax-Exempt Portion 99.5 % Combined Effective Tax Rate 45.04 % Balance (remainder) 54.96 % Taxable Equivalent Yield 7.92 % [ (.0436 * .995) / .5496) + (.0436 * .005) ] 0.07893377 + 0.000218 0.0792 OR 7.92%
Tax-Free Trust of Oregon Taxable Equivalent Yield September 30, 1996 Class C ------- S.E.C. Yield 3.7 % Taxable Portion 0.5 % Tax-Exempt Portion 99.5 % Combined Effective Tax Rate 45.04 % Balance (remainder) 54.96 % Taxable Equivalent Yield 6.72 % [ (.037 * .995) / .5496) + (.037 * .005) ] 0.066985 + 0.000185 0.0672 OR 6.72%
Tax-Free Trust of Oregon Taxable Equivalent Yield September 30, 1996 Class Y ------- S.E.C. Yield 4.68 % Taxable Portion 0.5 % Tax-Exempt Portion 99.5 % Combined Effective Tax Rate 45.04 % Balance (remainder) 54.96 % Taxable Equivalent Yield 8.50 % [ (.0468 * .995) / .5496) + (.0468 * .005) ] 0.084727 + 0.000234 0.085 OR 8.50%
EX-27 10 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S ANNUAL REPORT DATED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000791049 TAX-FREE TRUST OF OREGON - CLASS A SHARES YEAR SEP-30-1996 SEP-30-1996 289,372,613 299,313,208 6,366,802 597,222 0 306,277,232 0 0 602,498 602,498 0 295,992,918 29,081,652 29,423,007 63,425 0 (322,204) 0 9,940,595 305,096,492 0 18,016,548 0 2,211,283 15,805,265 455,992 (2,192,001) 14,069,256 0 15,733,886 (292,146) 0 2,096,132 3,319,853 882,366 (4,879,366) 0 179,410 0 0 615,409 0 2,237,401 306,256,476 10.55 .54 (.05) (.54) (.01) 0 10.49 .72 0 0
EX-27 11 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S ANNUAL REPORT DATED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000791049 TAX-FREE TRUST OF OREGON - CLASS C SHARES YEAR SEP-30-1996 SEP-30-1996 289,372,613 299,313,208 6,366,802 597,222 0 306,277,232 0 0 602,498 602,498 0 295,992,918 0 0 63,425 0 (322,204) 0 9,940,595 336,314 0 18,016,548 0 2,211,283 15,805,265 455,992 (2,192,001) 14,069,256 0 (3,382) 0 0 32,006 0 69 (4,879,366) 0 179,410 0 0 615,409 0 2,237,401 169,640 10.42 .22 .07 (.22) 0 0 10.49 1.56 0 0
EX-27 12
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S ANNUAL REPORT DATED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000791049 TAX-FREE TRUST OF OREGON - CLASS Y SHARES YEAR SEP-30-1996 SEP-30-1996 289,372,613 299,313,208 6,366,802 597,222 0 306,277,232 0 0 602,498 602,498 0 295,992,918 23 0 63,425 0 (322,204) 0 9,940,595 241,928 0 18,016,548 0 2,211,283 15,805,265 455,992 (2,192,001) 14,069,256 0 (4,572) 0 0 24,548 2,000 505 (4,879,366) 0 179,410 0 0 615,409 0 2,237,401 203,845 10.42 .27 .10 (.27) 0 0 10.52 .57 0 0
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