-----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, MEfsYutT96s8XS8i7axWXv4pgBPgUvnPMSqXZHf3+nOBasAsY7sr6BaQenIcSG1F s45AjJu2kBCkdSWIS2irxQ== 0000791049-99-000015.txt : 19991208 0000791049-99-000015.hdr.sgml : 19991208 ACCESSION NUMBER: 0000791049-99-000015 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASCADES TRUST CENTRAL INDEX KEY: 0000791049 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136868231 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04626 FILM NUMBER: 99769809 BUSINESS ADDRESS: STREET 1: 380 MADISON AVE STE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126976666 MAIL ADDRESS: STREET 1: 380 MADISON AVENUE STREET 2: # 2300 CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: TAX FREE TRUST OF OREGON DATE OF NAME CHANGE: 19890810 N-30D 1 MANAGER AND FOUNDER AQUILA MANAGEMENT CORPORATION 380 Madison Avenue, Suite 2300 New York, New York 10017 INVESTMENT SUB-ADVISER U.S. Bank National Association 111 S.W. Fifth Avenue U.S. Bancorp Tower Portland, Oregon 97204 BOARD OF TRUSTEES Lacy B. Herrmann, Chairman Vernon R. Alden David B. Frohnmayer James A. Gardner Diana P. Herrmann Sterling K. Jenson Raymond H. Lung John W. Mitchell Richard C. Ross OFFICERS Diana P. Herrmann, President James M. McCullough, Senior Vice President Kerry A. Lemert, Vice President Christine L. Neimeth, 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 PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 CUSTODIAN BANK ONE TRUST COMPANY, N.A. 100 East Broad Street Columbus, Ohio 43271 INDEPENDENT AUDITORS KPMG LLP 345 Park Avenue New York, New York 10154 Further information is contained in the Prospectus, which must precede or accompany this report. ANNUAL REPORT SEPTEMBER 30, 1999 TAX-FREE TRUST OF OREGON [Logo of the Tax-Free Trust of Oregon: Square box with 2 fir trees in front of a mountain and the sun] A TAX-FREE INCOME INVESTMENT [Logo of the Aquilasm Group of Funds: an eagle's head in an oval] ONE OF THE AQUILASM GROUP OF FUNDS [Logo of the Tax-Free Trust of Oregon: Square box with 2 fir trees in front of a mountain and the sun] SERVING OREGON INVESTORS FOR OVER A DECADE TAX-FREE TRUST OF OREGON ANNUAL REPORT "TAKE PRIDE IN HOW YOUR INVESTMENT IS HELPING OTHERS - WHILE PRIMARILY HELPING YOU" Dear Fellow Shareholders: November 15, 1999 Our surveys of shareholders of Tax-Free Trust of Oregon have shown that you and other owners of the Trust bought your shares primarily for TAX-FREE INCOME. And, secondarily, the knowledge - provided through the price STABILITY of the shares of the Trust - that your money would be there when YOU needed it. Additionally, our surveys showed that most of our shareholders are pre-retirees or retirees. These are people who are looking forward to making sure that they have the security of a sound income source from the Trust when they are no longer in the workforce. The point you may not have fully appreciated - when you made your investment in the Trust - was that in the process of having the Trust provide YOU with these benefits, it also provides help to a variety of OTHERS within your community and Oregon. And, this is a factor in which you can take real PRIDE. The economy of Oregon has been growing at a significant rate. As this growth takes place, new and additional municipal projects are needed for the benefit of the citizens of Oregon and the various communities in the State. These projects include schools, highways, recreational facilities, and a whole array of useful public purpose projects. These projects are what help economic development and provide a high quality of life for the citizens of Oregon. We think it is important for you to realize this. The projects that the Trust helped finance are all ones that you and others can reach out and touch. We are illustrating for you some of the various kinds of municipal projects that your investment in the Trust has helped create in Oregon. [Photo] Eugene Water and Electric Board [Photo] Clackamas County School District [Photo] Portland International Airport [Photo] Max Light Rail As you know, interest rates continuously change - both up and down. However, the value of Tax-Free Trust of Oregon is that it provides you with a decent DOUBLE TAX-FREE return, plus high stability and a high level of safety for your capital - regardless of such interest rate changes - by having a high quality portfolio of a variety of municipal bonds with differing maturities. The tax laws of Oregon, as well as those of the Federal government, allow you to receive income from your investment in the Trust DOUBLE TAX-FREE. It is realized by the State and Federal governmental authorities that it is essential that various municipal projects be built with an advantage to the investor. This advantage is primarily one of TAX-FREE income for you. More specifically though, you can take comfort in the knowledge that your investment in the Trust is comprised of a portfolio of municipal securities which possess extremely high quality. Therefore, you can "SLEEP WELL AT NIGHT" knowing that the chances of anything happening to these high quality bonds is very slight indeed. The reason for this, of course, is that the various municipal projects represented in the Trust have behind them a very sound stream of income from taxes and revenues generated by the projects themselves. We again wish to emphasize that while primarily HELPING YOU, Tax-Free Trust of Oregon is also HELPING OTHERS in your communities and Oregon. Consequently, you can take great PRIDE in your investment in Tax-Free Trust of Oregon. You can rest assured that the overall management of the Trust is doing a very careful job of "MINDING THE STORE" for you. We appreciate the continued confidence that you have placed in the Trust through your investment in Tax-Free Trust of Oregon. Sincerely, /s/ Diana P. Herrmann - --------------------- Diana P. Herrmann President /s/ Lacy B. Herrman - ------------------- Lacy B. Herrmann Chairman, Board of Trustees PERFORMANCE REPORT The following graph illustrates the value of $10,000 invested in the Class A shares of Tax-Free Trust of Oregon for the 10-year period ended September 30, 1999 as compared with the Lehman Brothers Municipal Bond Index and the Consumer Price Index (a cost of living index). The performance of each of the other classes is not shown in the graph but is included in the table below. It should be noted that the Lehman Index does not include any operating expenses nor sales charges and being nationally oriented, does not reflect state specific bond market performance. [Line chart with the following information:] 10,000 10,000 9,600 10,000 10,680 10,557 10,131 10,616 12,088 11,817 11,341 10,976 13,352 12,929 12,408 11,304 15,053 14,337 13,759 11,616 14,690 14,096 13,527 11,960 16,334 15,308 14,691 12,264 17,321 16,139 15,488 12,632 18,885 17,319 16,621 12,912 20,530 18,439 17,696 13,097 20,386 18,392 17,650 13,442
Trust's Class A Shares Lehman Brothers Municipal Bond Index Without Sales Charge With Sales Charge Cost of Living Index
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED SEPTEMBER 30, 1999 SINCE 1 YEAR 5 YEARS 10 YEARS INCEPTION Class A (6/16/86) With Sales Charge (4.58)% 4.63% 5.85% 6.25% Without Sales Charge (0.62)% 5.49% 6.28% 6.57% Class C (4/5/96) With CDSC (2.36)% n/a n/a 3.80% Without CDSC (1.38)% n/a n/a 3.80% Class Y (4/5/96) No Sales Charge (0.39)% n/a n/a 5.15% Lehman Index (0.70)% 6.77% 7.39% 7.63%* (Class A) (0.70)% n/a n/a 5.67% (Class C&Y) * From commencement of the index on 1/1/87. Total return figures shown for the Trust reflect any change in price and assume all distributions within the period were invested in additional shares. Returns for Class A shares are calculated with and without the effect of the initial 4% maximum sales charge. Returns for Class C shares are calculated with and without the effect of the 1% contingent deferred sales charge (CDSC), imposed on redemptions made within the first 12 months after purchase. Class Y shares are sold without any sales charge. The rates of return will vary and the principal value of an investment will fluctuate with market conditions. Shares, if redeemed, may be worth more or less than their original cost. A portion of each classes' income may be subject to federal and state income taxes. Past performance is not predictive of future investment results. MANAGEMENT DISCUSSION One of our major goals with Tax-Free Trust of Oregon is the protection of the net asset value of your shares. Historically - to a creditable degree - we have achieved this goal on a reasonably consistent basis. Much of this is accomplished through the management style we pursue. This involves utilization of the conservative approach of having a high quality portfolio of municipal bonds which are chosen to meet various maturity standards. As at September 30, 1999, the percentage of securities having a credit rating of AAA or AA was 92.5%. With bond maturities, we employ a practice of structuring the portfolio so that it has 1 year to 30 years in its maturity selection, with the overall portfolio maturity having an average life of approximately 12 years. Despite our efforts to control the movement of the share net asset value of the Trust, we sometimes find the task to be a very difficult one. This is because we cannot control the movement of interest rates, which are governed considerably by the actions of the Federal Reserve Board. Over the past year and a half, we have witnessed the decline in interest rates of three separate steps of .25 of 1% each, for a total of .75 of 1%. Then, recently, the Fed decided to increase rates again three separate times by the same basic amounts of .25 of 1% apiece, for a total of .75 of 1%. As a result, the net asset value of a Class A share of Tax-Free Trust of Oregon underwent a slight decline from $10.86 on September 30, 1998 to the level of $10.27 on September 30, 1999. The Federal Reserve action to lower rates was prompted by the concern that our policy makers felt toward economic and monetary difficulties in the international scene. Then as those fears dissipated, another concern raised its head. This was the possibility of inflationary pressures in our economy caused by the vibrant economic growth being experienced in the United States, coupled with the extremely low unemployment rate. While it is true that municipal bonds of Oregon are not directly affected by international events, they do react to market conditions of domestic interest rate changes. This situation is the primary reason for the price change in the Trust's share net asset value that we experienced during the last fiscal year of the Trust. Additionally, in 1998 there was an abundance of supply of municipal bonds in the market, as issuers saw the opportunity to refinance their existing debt. However, in 1999 when interest rates began to increase, such opportunities began to wane. Through September, 1999, municipal issuance is down 20% in the year over year comparison. All in all, we feel that it is very important that investors focus upon the relationship between the double tax-free return that is provided by Tax-Free Trust of Oregon and that of taxable fixed income securities. When a comparison is made between tax-free vs. taxable, one realizes the distinct benefits to them in terms of the actual amount of money that you can keep in your pocket from an investment in Tax-Free Trust of Oregon. We will continually strive to provide the shareholders of the Trust with a satisfactory double tax-free yield as well as high stability of the principal of their investment, through maintaining the disciplines that have prevailed since the inception of Tax-Free Trust of Oregon. [Logo of KPMG LLP:four solid rectangles with the letters KPMG in front] INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders of Tax-Free Trust of Oregon: We have audited the accompanying statement of assets and liabilities of Tax-Free Trust of Oregon, including the statement of investments, as of September 30, 1999, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 1999, by correspondence with the custodia n and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Tax-Free Trust of Oregon as of September 30, 1999, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. /s/ KPMG LLP - ------------- New York, New York November 5, 1999 TAX-FREE TRUST OF OREGON STATEMENT OF INVESTMENTS SEPTEMBER 30, 1999 City of Beaverton $ 910,000 5.950%, 04/01/2003 Aa3/AA- $ 944,125 960,000 6.050%, 04/01/2004 Aa3/AA- 994,800 1,020,000 6.150%, 04/01/2005 Aa3/AA- 1,056,975 1,080,000 6.250%, 04/01/2006 Aa3/AA- 1,121,850 Clackamas County School District #115 (AMBAC Indemnity Corporation Insured) 600,000 5.600%, 06/01/2006 Aaa/AAA 636,750 615,000 5.700%, 06/01/2007 Aaa/AAA 655,744 1,000,000 6.150%, 06/01/2014 Aaa/AAA 1,083,750 Clackamas County School District #12 (Financial Guaranty Insurance Corporation) 4,000,000 4.800%, 06/01/2018 Aaa/AAA 3,545,000 Clackamas and Washington County School District #3J 2,000,000 5.850%, 08/01/2006 A1/AAA 2,082,500 1,150,000 5.875%, 10/01/2009 A1/A+ 1,188,813 Clackamas, Multnomah and Washington County School District #7J 1,000,000 7.100%, 06/15/2009 Aaa/NR 1,022,880 250,000 7.100%, 06/15/2010 Aaa/NR 255,720 1,500,000 5.700%, 06/15/2010 Aa2/NR 1,545,000 Deschutes and Jefferson County School District #2J (MBIA Corporation Insured) 3,700,000 5.600%, 06/01/2009 Aaa/AAA 3,769,375 Eugene Oregon (Parks & Open Space) 1,465,000 5.250%, 02/01/2018 Aa2/NR 1,411,894 1,555,000 5.250%, 02/01/2019 Aa2/NR 1,486,969 Hood River County School District (AMBAC Indemnity Corporation Insured) 2,000,000 5.650%, 06/01/2008 Aaa/AAA 2,060,000 Jackson County School District #5, Ashland (Financial Security Assurance Insured) 1,400,000 5.100%, 06/01/2005 Aaa/AAA 1,435,000 Jackson County School District #549C, (Financial Security Assurance Insured) 1,000,000 5.300%, 06/01/2008 Aaa/AAA 1,017,500 Jefferson County School District #509J (Financial Security Assurance Insured) 1,750,000 5.500%, 06/15/2013 Aaa/AAA 1,771,875 Josephine County School District #7 (Grants Pass) (Financial Guaranty Insurance Corporation) 2,700,000 5.700%, 06/01/2013 Aaa/AAA 2,770,875 Lane County School District #4J 2,000,000 5.375%, 07/01/2009 Aa3/NR 2,020,000 1,000,000 5.375%, 07/01/2013 Aa3/NR 993,750 Lane County School District #52J (Financial Guaranty Insurance Corporation Insured) 750,000 6.400%, 12/01/2009 Aaa/AAA 810,936 Lane and Douglas County School District 97J (Siuslaw) (State & School Bond Guarantee) 1,000,000 5.400%, 06/15/2019 Aa2/NR 973,750 Lincoln County Oregon School District (Financial Guaranty Insurance Corporation) 1,245,000 5.250%, 06/15/2012 Aaa/AAA 1,238,775 Lincoln County (MBIA Corporation Insured) 1,000,000 5.375%, 02/01/2010 Aaa/AAA 1,007,500 Malheur County Jail Bonds (MBIA Corporation Insured) 1,345,000 6.300%, 12/01/2012 Aaa/AAA 1,435,788 Marion and Clackamas County Union High School District #7J (Financial Security Assurance Insured) 1,000,000 7.000%, 06/01/2010 Aaa/AAA 1,111,250 1,340,000 6.000%, 06/01/2013 Aaa/AAA 1,433,800 Metropolitan Service District Refunding (Oregon Convention Center) 4,320,000 6.250%, 01/01/2013 Aa2/AA+ 4,422,600 Multnomah County 1,000,000 5.200%, 10/01/2008 Aa1/NR 1,030,000 Multnomah County Drainage District #1 Assessment Bond (MBIA Corporation Insured) 1,000,000 5.250%, 07/01/2017 Aaa/AAA 957,500 Multnomah County School District #4 1,330,000 5.900%, 01/01/2005 A1/A+ 1,373,225 Multnomah County School District #40 5,100,000 5.625%, 06/01/2012 NR/AA- 5,189,250 Northern Oregon Correctional (AMBAC Indemnity Corporation Insured) 2,000,000 5.400%, 09/15/2016 Aaa/AAA 1,980,000 Oak Lodge Water District (AMBAC Indemnity Corporation Insured) 215,000 7.300%, 12/01/2005 Aaa/AAA 241,069 215,000 7.300%, 12/01/2006 Aaa/AAA 240,532 215,000 7.400%, 12/01/2007 Aaa/AAA 239,994 Puerto Rico Commonwealth Infrastructure (MBIA Corporation Insured) 1,500,000 4.875% , 07/01/2023 Aaa/AAA 1,320,000 State of Oregon Board of Higher Education 900,000 6.200%, 10/15/2007 Aa2/AA 940,500 3,195,000 6.400%, 10/01/2011 Aa2/AA 3,290,850 2,000,000 6.250%, 10/15/2012 Aa2/AA 2,072,500 2,150,000 6.500%, 10/01/2017 Aa2/AA 2,211,812 2,890,000 6.000%, 10/15/2018 Aa2/AA 2,951,413 5,000,000 4.875%, 08/01/2019 Aa2/AA 4,425,000 8,000,000 5.000%, 08/01/2022 Aa2/AA 7,200,000 1,500,000 5.000%, 08/01/2022 Aa2/AA 1,350,000 1,655,000 5.600%, 08/01/2023 Aa2/AA 1,628,106 1,500,000 5.600%, 08/01/2023 Aa2/AA 1,475,625 6,300,000 6.000%, 08/01/2026 Aa2/AA 6,811,875 State of Oregon Elderly & Disabled Housing 725,000 6.250%, 08/01/2013 Aa2/AA 760,344 State of Oregon Veterans' Welfare 505,000 9.000%, 04/01/2008 Aa2/AA 575,069 700,000 9.200%, 10/01/2008 Aa2/AA 915,250 1,200,000 5.200%, 10/01/2018 Aa2/AA 1,156,500 Polk County School District #2 (Financial Security Assurance Insured) 1,000,000 5.400%, 06/01/2012 Aaa/AAA 1,012,500 Polk, Marion, and Benton County School District #13J (Financial Guaranty Insurance Corporation Insured) 1,000,000 5.500%, 12/01/2008 Aaa/AAA 1,033,750 City of Portland 1,000,000 4.500%, 11/01/2004 Aaa/NR 1,001,250 1,480,000 5.100%, 10/01/2009 Aaa/NR 1,487,400 2,790,000 5.750%, 06/01/2013 Aaa/NR 2,849,287 2,000,000 5.600%, 06/01/2015 Aa2/NR 2,010,000 1,440,000 5.250%, 06/01/2015 Aa2/NR 1,402,200 Portland Oregon Emergency Facilities 1,120,000 5.125%, 06/01/2018 Aaa/NR 1,064,000 Portland Community College District 3,500,000 6.000%, 07/01/2012 Aa3/AA 3,648,750 Port of Portland 1,000,000 4.500%, 03/01/2006 Aa2/AA+ 987,500 City of Salem 1,000,000 5.875%, 01/01/2007 A1/AA- 1,030,000 Salem-Keizer Oregon School District #24, (Financial Security Assurance Insured) 2,000,000 4.875%, 06/01/2014 Aaa/AAA 1,875,000 Tri-County Metropolitan Transportation District 6,100,000 6.000%, 07/01/2012 Aaa/AAA 6,420,250 Tualatin Hills Park and Recreation District (MBIA Corporation Insured) 2,970,000 5.750%, 03/01/2012 Aaa/AAA 3,118,500 2,000,000 5.750%, 03/01/2015 Aaa/AAA 2,100,000 Umatilla County Oregon (Financial Guaranty Insurance Corporation Insured) 2,000,000 5.600%, 10/01/2015 Aaa/AAA 2,027,500 Umatilla County School District #8R (AMBAC Indemnity Corporation Insured) 700,000 6.100%, 12/01/2012 Aaa/AAA 750,750 Umatilla County School District #6R (AMBAC Indemnity Corporation Insured) 2,675,000 5.050%, 06/15/2022 Aaa/AAA 2,434,250 Washington County 2,500,000 6.200%, 12/01/2007 Aa1/AA 2,590,625 1,625,000 5.000%, 12/01/2011 Aa1/AA 1,598,594 3,110,000 6.000%, 12/01/2013 Aa1/AA 3,312,150 Washington County School District #88JT (Financial Security Assurance Insured) 2,900,000 6.100%, 06/01/2012 Aaa/AAA 3,099,281 2,055,000 5.125%, 06/15/2012 Aaa/NR 2,021,606 Washington and Clackamas County School District #23J 720,000 6.625%, 01/01/2008 NR/NR* 724,752 2,000,000 5.400%, 01/01/2010 A1/NR 2,020,000 1,000,000 5.650%, 06/01/2015 A1/NR 1,005,000 Washington & Multnomah County School District #48J 1,175,000 5.500%, 06/01/2006 Aa2/AA- 1,213,188 1,130,000 5.600%, 06/01/2007 Aa2/AA- 1,168,137 1,000,000 6.150%, 06/01/2008 Aa2/AA- 1,013,450 1,415,000 5.700%, 06/01/2008 Aa2/AA- 1,464,525 525,000 6.300%, 09/01/2009 Aaa/AAA 545,344 1,440,000 6.000%, 06/01/2011 Aa2/AA- 1,503,000 2,010,000 6.500%, 09/01/2011 Aaa/AAA 2,095,425 Washington & Yamhill County School District #58J (AMBAC Indemnity Corporation Insured) 70,000 6.600%, 11/01/2004 Aaa/AAA 70,111 80,000 6.600%, 11/01/2005 Aaa/AAA 80,120 90,000 6.600%, 11/01/2006 Aaa/AAA 90,127 Yamhill County School District #29J (Financial Security Assurance Insured) 2,000,000 5.350%, 06/01/2006 Aaa/AAA 2,052,500 500,000 6.100%, 06/01/2011 Aaa/AAA 536,250 Total State of Oregon General Obligation Bonds 162,099,030 STATE OF OREGON REVENUE BONDS - 48.3% AIRPORT REVENUE BONDS - 3.2% Port of Portland Airport (Financial Guaranty Insurance Corporation Insured) 500,000 5.500%, 07/01/2006 Aaa/AAA 515,625 Port of Portland Airport (MBIA Corporation Insured) 600,000 6.400%, 07/01/2003 NR/AAA 628,500 3,530,000 6.750%, 07/01/2009 NR/AAA 3,715,325 2,425,000 6.750%, 07/01/2015 NR/AAA 2,552,313 2,000,000 5.500%, 07/01/2024 Aaa/AAA 1,937,500 1,295,000 5.000%, 07/01/2028 Aaa/AAA 1,131,506 Total Airport Revenue Bonds 10,480,769 CERTIFICATE OF PARTICIPATION REVENUE BONDS - 11.5% Marion County Certificate of Participation (MBIA Corporation Insured) 1,000,000 5.000%, 06/01/2023 Aaa/AAA 897,500 Multnomah County Certificate of Participation 1,000,000 5.200%, 07/01/2005 Aa3/NR 1,022,500 3,100,000 6.000%, 08/01/2012 Aa/A 3,262,750 State of Oregon Certificate of Participation (AMBAC Indemnity Corporation Insured) 2,100,000 7.500%, 09/01/2015 Aaa/AAA 2,210,565 Oregon State Department Of Administration Services (AMBAC Indemnity Corporation Insured) 2,000,000 4.875%, 05/01/2018 Aaa/AAA 1,777,500 950,000 5.000%, 11/01/2019 Aaa/AAA 860,937 1,500,000 5.800%, 05/01/2024 Aaa/AAA 1,601,250 2,500,000 5.000%, 05/01/2024 Aaa/AAA 2,234,375 Oregon State Department Of Administration Services (MBIA Corporation Insured) 1,450,000 5.375%, 11/01/2016 Aaa/AAA 1,431,875 1,000,000 5.750%, 05/01/2017 Aaa/AAA 1,015,000 5,805,000 5.500%, 11/01/2020 Aaa/AAA 5,725,181 State of Oregon Certificate of Participation (MBIA Corporation Insured) 2,150,000 7.050%, 01/15/2006 Aaa/AAA 2,211,899 1,250,000 5.700%, 01/15/2010 Aaa/AAA 1,279,687 2,750,000 6.200%, 11/01/2012 Aaa/AAA 2,925,313 1,150,000 7.200%, 01/15/2015 Aaa/AAA 1,183,580 1,000,000 5.500%, 01/15/2015 Aaa/AAA 1,011,250 550,000 5.500%, 01/15/2015 Aaa/AAA 556,187 500,000 5.800%, 03/01/2015 Aaa/AAA 510,625 600,000 7.200%, 03/01/2015 Aaa/AAA 614,190 1,000,000 5.800%, 03/01/2015 Aaa/AAA 1,021,250 2,000,000 6.250%, 11/01/2019 Aaa/AAA 2,130,000 Southwestern Oregon Community College District (AMBAC Indemnity Corporation Insured) 1,000,000 5.600%, 06/01/2016 Aaa/AAA 1,005,000 Washington County Educational Services, Certificates of Participation 645,000 5.625%, 06/01/2016 A1/NR 645,000 Washington County Educational Services, Certificates of Participation, (MBIA Corporation Insured) 830,000 5.750%, 06/01/2025 Aaa/AAA 833,112 Total Certificate of Participation Revenue Bonds 37,966,526 HOSPITAL REVENUE BONDS - 6.4% Clackamas Hospital Facilities Authority (Adventist Health System/West) (MBIA Corporation Insured) 2,000,000 6.350%, 03/01/2009 Aaa/AAA 2,105,000 Clackamas Hospital Facilites Authority (Sisters of Providence Hospital) 500,000 6.375%, 10/01/2004 A1/AA- 528,750 Clackamas Hospital Facilites Authority (Legacy Health System) 1,000,000 5.250%, 02/15/2017 NR/AA 955,000 1,000,000 5.250%, 02/15/2018 NR/AA 947,500 Clackamas Hospital Facilites Authority (Legacy Health System) (MBIA Corporation Insured) 2,650,000 4.750%, 02/15/2011 Aaa/AAA 2,537,375 Clackamas County Oregon Hospital Facilites Authority (Mary's Woods) 3,250,000 6.625%, 05/15/2029 NR/NR* 3,172,812 Douglas County Hospital Facilities Authority (Catholic Health) (MBIA Corporation Insured) 535,000 5.600%, 11/15/2005 Aaa/AAA 559,744 Medford Hospital Authority (Asante Health Systems) (MBIA Corporation Insured) 1,000,000 5.000%, 08/15/2018 Aaa/AAA 917,500 500,000 5.000%, 08/15/2024 Aaa/AAA 446,250 3,000,000 5.125%, 08/15/2028 Aaa/AAA 2,696,250 Salem Oregon Hospital Facilites Authority 1,500,000 5.000%, 08/15/2018 NR/AA- 1,350,000 Western Lane County Hospital Facilities Authority (Sisters of St. Joseph Hospital) (MBIA Corporation Insured) 1,000,000 5.625%, 08/01/2007 Aaa/AAA 1,048,750 3,765,000 5.750%, 08/01/2019 Aaa/AAA 3,802,650 Total Hospital Revenue Bonds 21,067,581 HOUSING, EDUCATIONAL, AND CULTURAL REVENUE BONDS - 9.1% Clackamas Community College District Revenue (MBIA Corporation Insured) 1,865,000 5.700%, 06/01/2016 Aaa/AAA 1,967,575 Portland Oregon Housing Authority 4,140,000 5.100%, 01/01/2027 NR/A 3,715,650 State of Oregon Housing Finance Agency, 1,000,000 6.800%, 07/01/2013 Aa2/A+ 1,038,750 State of Oregon Housing and Community Services, 1,670,000 5.200%, 07/01/2009 Aa2/NR 1,672,088 695,000 5.900%, 07/01/2012 Aa2/NR 711,506 30,000 6.750%, 07/01/2012 Aa2/NR 31,387 500,000 6.700%, 07/01/2013 Aa2/NR 514,375 420,000 6.350%, 07/01/2014 Aa2/NR 433,650 60,000 6.800%, 07/01/2016 Aa2/NR 62,925 2,000,000 5.400%, 07/01/2027 Aa2/NR 1,915,000 3,500,000 6.875%, 07/01/2028 Aa2/NR 3,666,250 State of Oregon Housing and Community Services, (MBIA Corporation Insured) 1,500,000 5.450%, 07/01/2024 Aaa/AAA 1,470,000 State of Oregon Housing, Educational and Cultural Facilities Authority (George Fox University) (LOC: Bank of America) 1,000,000 5.700%, 03/01/2017 NR/AA- 1,008,750 State of Oregon Housing, Educational and Cultural Facilities Authority (Lewis & Clark College) (MBIA Corporation Insured) 1,130,000 7.125%, 07/01/2020 Aaa/AAA 1,179,686 State of Oregon Housing, Educational and Cultural Facilities Authority (Reed College), 2,145,000 6.750%, 07/01/2021 NR/A+ 2,273,700 Oregon Health Sciences University Revenue (MBIA Corporation Insured) 4,500,000 5.250%, 07/01/2015 Aaa/AAA 4,415,625 City of Salem Educational Facilities (Willamette University), 1,000,000 6.000%, 04/01/2010 A2/NR 1,035,000 1,740,000 6.750%, 04/01/2011 NR/NR* 1,805,250 Yamhill County Educational Services (AMBAC Indemnity Corporation Insurance) 1,000,000 5.150%, 07/01/2019 NR/AAA 933,750 Total Housing, Educational, and Cultural Revenue Bonds 29,850,917 TRANSPORTATION REVENUE BONDS - 3.9% Port of Morrow, 2,600,000 6.375%, 04/01/2008 Aaa/NR 2,720,250 State of Oregon Department of Transportation (Light Rail) (MBIA Corporation Insured), 2,000,000 6.000%, 06/01/2005 Aaa/AAA 2,130,000 1,500,000 6.100%, 06/01/2007 Aaa/AAA 1,599,375 Port St. Helens, Oregon Pollution 80,000 7.750%, 02/01/2006 A3/NR 85,600 Tri-County Metropolitan Transportation District 3,680,000 5.700%, 08/01/2013 Aa3/AA+ 3,749,000 2,500,000 5.400%, 06/01/2019 NR/AA+ 2,403,125 Total Transportation Revenue Bonds 12,687,350 URBAN RENEWAL REVENUE BONDS - 0.1% City of Portland Urban Renewal, 300,000 9.000%, 12/01/2002 A/NR 302,310 Total Urban Renewal Revenue Bonds 302,310 UTILITY REVENUE BONDS - 4.8% Emerald Peoples Utility District (AMBAC Indemnity Corporation Insured), 700,000 6.700%, 11/01/2005 Aaa/AAA 728,434 Emerald Peoples Utility District Electic Systems (Financial Security Assurance Insured) 1,000,000 6.750%, 11/01/2016 Aaa/AAA 1,051,250 City of Eugene Electric Utility (Financial Security Assurance Insured) 640,000 4.850%, 08/01/2013 Aaa/AAA 589,600 1,700,000 5.000%, 08/01/2018 Aaa/AAA 1,553,375 1,340,000 5.050%, 08/01/2022 Aaa/AAA 1,221,075 1,200,000 5.000%, 08/01/2023 Aaa/AAA 1,075,500 City of Eugene Electric Utility 610,000 6.650%, 08/01/2009 A1/AA 635,925 660,000 6.650%, 08/01/2010 A1/AA 688,050 1,000,000 6.000%, 08/01/2011 A1/AA 1,022,500 700,000 6.700%, 08/01/2011 A1/AA 730,625 500,000 5.000%, 08/01/2017 A1/AA 455,625 1,400,000 5.800%, 08/01/2019 A1/AA 1,485,750 City of Eugene Trojan Nuclear Project 3,600,000 5.900%, 09/01/2009 Aa1/AA- 3,622,140 Northern Wasco County Public Utility Development (AMBAC Indemnity Corporation Insured), 1,000,000 5.625%, 12/01/2022 Aaa/AAA 1,001,250 Total Utility Revenue Bonds 15,861,099 WATER AND SEWER REVENUE BONDS - 8.3% City of Canby Sewer (Financial Security Assurance Insured), 500,000 6.250%, 12/01/2017 Aaa/AAA 528,125 City of Klamath Falls Water (Financial Security Assurance Insured), 1,100,000 6.100%, 06/01/2014 Aaa/AAA 1,157,750 City of Oregon City Sewer, 750,000 6.875%, 10/01/2019 NR/NR* 839,063 City of Portland Sewer 1,500,000 6.050%, 06/01/2009 A1/A+ 1,605,000 City of Portland Sewer, (MBIA Corporation Insured) 2,000,000 4.500%, 06/01/2015 Aaa/AAA 1,752,500 2,500,000 5.250%, 06/01/2016 Aaa/AAA 2,428,125 City of Portland Sewer (Financial Guaranty Insurance Corporation Insured), 2,725,000 6.000%, 10/01/2008 Aaa/AAA 2,902,125 500,000 6.000%, 10/01/2012 Aaa/AAA 532,500 1,185,000 5.000%, 06/01/2015 Aaa/AAA 1,112,419 2,855,000 6.250%, 06/01/2015 Aaa/AAA 3,083,400 Portland Water System Revenue 3,000,000 5.500%, 08/01/2014 Aa1/NR 3,018,750 1,440,000 5.500%, 08/01/2015 Aa1/NR 1,445,400 Washington County Unified Sewer Agency (AMBAC Indemnity Corporation Insured), 2,120,000 5.900%, 10/01/2006 Aaa/AAA 2,249,850 800,000 5.900%, 10/01/2006 Aaa/AAA 849,000 315,000 5.900%, 10/01/2006 Aaa/AAA 330,750 2,500,000 6.125%, 10/01/2012 Aaa/AAA 2,678,125 750,000 6.125%, 10/01/2012 Aaa/AAA 803,437 Total Water and Sewer Revenue Bonds 27,316,319 OTHER REVENUE BONDS - 1.0% Baker County Pollution Control (Ash Grove Cement West Project) (Small Business Administration Insured), 355,000 6.200%, 07/01/2004 Aaa/NR 356,658 380,000 6.300%, 07/01/2005 Aaa/NR 381,862 Oregon Economic Development Commission (Consolidated Freightways) 1,500,000 7.000%, 04/01/2004 A2/A- 1,519,920 Multnomah County School District #1J, Special Obligations 1,000,000 5.000%, 03/01/2007 A1/A+ 1,006,250 Total Other Revenue Bonds 3,264,690 Total State of Oregon Revenue Bonds 158,797,561 PUERTO RICO - 0.6% Puerto Rico Commonwealth Infrastructure, (AMBAC Indemnity Corp. Insured) 2,100,000 5.000% , 07/01/2028 Aaa/AAA 1,876,875 Total Puerto Rico 1,876,875 Total Municipal Bonds (cost $ 319,147,493**) 98.2% 322,773,466 Other assets in excess of liabilities 1.8 5,972,999 Net Assets 100.0% $ 328,746,465
RATING FACE MOODY'S/ AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS - 49.3% S&P VALUE
(*) Any security not rated has been determined by the Investment Sub-Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a rating service. (**) Cost for Federal tax purposes is identical. PORTFOLIO ABBREVIATIONS: AMBAC - American Municipal Bond Assurance Corp. MBIA - Municipal Bond Investors Assurance Corp. See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1999 ASSETS Investments at value (cost $319,147,493) $ 322,773,466 Cash 1,625,493 Interest receivable 5,402,082 Receivable for investment securities sold 401,664 Receivable for Trust shares sold 305,530 Other assets 3,363 Total assets 330,511,598 LIABILITIES Payable for Trust shares redeemed 1,103,836 Dividends payable 355,803 Distribution fees payable 125,528 Management fees payable 108,630 Accrued expenses 71,336 Total liabilities 1,765,133 NET ASSETS $ 328,746,465 Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $.01 per share 320,020 Additional paid-in capital 324,615,258 Net unrealized appreciation on investments 3,625,973 Undistributed net investment income 220,108 Accumulated net realized loss on investments (34,894) $ 328,746,465 CLASS A Net Assets $ 308,700,996 Capital shares outstanding 30,049,573 Net asset value and redemption price per share $ 10.27 Offering price per share (100/96 of $10.27 adjusted to nearest cent) $ 10.70 CLASS C Net Assets $ 3,001,439 Capital shares outstanding 292,376 Net asset value and offering price per share $ 10.27 Redemption price per share (* a charge of 1% is imposed on the redemption proceeds of the shares, or on the original price, whichever is lower, if redeemed during the first 12 months after purchase) $ 10.27* CLASS Y Net Assets $ 17,044,030 Capital shares outstanding 1,660,072 Net asset value, offering and redemption price per share $ 10.27
See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1999 INVESTMENT INCOME: Interest income $ 18,188,315 Expenses: Management fees (note 3) $ 1,345,097 Distribution and service fees (note 3) 503,887 Transfer and shareholder servicing agent fees 197,897 Trustees' fees and expenses (note 8) 81,359 Legal fees 70,584 Shareholders' reports and proxy statements 68,533 Custodian fees 27,156 Audit and accounting fees 24,750 Registration fees and dues 20,548 Insurance 14,450 Miscellaneous 38,700 2,392,961 Expenses paid indirectly (note 7) (92,798) Net expenses 2,300,163 Net investment income 15,888,152 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from securities transactions 389,398 Change in unrealized appreciation on investments (18,253,687) Net realized and unrealized loss on investments (17,864,289) Net decrease in net assets resulting from operations $ (1,976,137)
See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON STATEMENTS OF CHANGES IN NET ASSETS OPERATIONS: Net investment income $ 15,888,152 $ 15,855,970 Net realized gain from securities transactions 389,398 898,940 Change in unrealized appreciation on investments (18,253,687) 5,060,852 Change in net assets resulting from operations (1,976,137) 21,815,762 DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6): Class A Shares: Net investment income (15,357,860) (15,702,552) Net realized gain on investments (603,490) (222,521) Class C Shares: Net investment income (82,349) (40,552) Net realized gain on investments (2,451) (571) Class Y Shares: Net investment income (607,653) (409,309) Net realized gain on investments (20,435) (4,740) Change in net assets from distributions (16,674,238) (16,380,245) CAPITAL SHARE TRANSACTIONS (NOTE 9): Proceeds from shares sold 42,624,580 34,355,105 Reinvested dividends and distributions 9,912,125 9,925,195 Cost of shares redeemed (39,440,132) (32,251,564) Change in net assets from capital share transactions 13,096,573 12,028,736 Change in net assets (5,553,802) 17,464,253 NET ASSETS: Beginning of period 334,300,267 316,836,014 End of period (including undistributed net investment income of $220,108 and $374,665, respectively) $ 328,746,465 $ 334,300,267
YEAR ENDED SEPTEMBER 30, 1999 1998
See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION Tax-Free Trust of Oregon (the "Trust") is a separate portfolio of The Cascades Trust. The Cascades Trust (the "Business Trust") is an open-end investment company, which was organized on October 17, 1985, as a Massachusetts business trust and is authorized to issue an unlimited number of shares. The Trust is a non-diversified portfolio which commenced operations on June 16, 1986 and until April 5, 1996, offered only one class of shares. On that date, the Trust began offering two additional classes of shares, Class C and Class Y shares. All shares outstanding prior to that date were designated as Class A shares and are sold with a front-payment sales charge and bear an annual service fee. Class C shares are sold with a level-payment sales charge with no payment at time of purchase but level service and distribution fees from date of purchase through a period of six years thereafter. A contingent deferred sales charge of 1% is assessed to any Class C shareholder who redeems shares of this Class within one year from the date of purchase. The Class Y shares are only offered to institutions acting for an investor in a fiduciary, advisory, agency, custodian or similar capacity and are not offered directly to retail investors. Class Y shares are sold at net asset value without any sales charge, redemption fees, contingent deferred sales charge or distribution or service fees. On January 31, 1998 the Trust established Class I shares, which are offered and sold only through financial intermediaries and are not offered directly to retail investors. At September 30, 1999 there were no Class I shares outstanding. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities of more than 60 days are valued at fair value each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services; in the case of securities for which market quotations are readily available, securities are valued at the mean of bid and asked quotations and, in the case of other securities, at fair value determined under procedures established by and under the general supervision of the Board of Trustees. Securities which mature in 60 days or less are valued at amortized cost if their term to maturity at purchase was 60 days or less, or by amortizing their unrealized appreciation or depreciation on the 61st day prior to maturity, if their term to maturity at purchase exceeded 60 days. b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue discount. Market discount is recognized upon disposition of the security. c) FEDERAL INCOME TAXES: It is the policy of the Trust to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Trust intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are charged directly to such class. e) USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 3. FEES AND RELATED PARTY TRANSACTIONS (a) MANAGEMENT ARRANGEMENTS: Aquila Management Corporation (the "Manager"), the Trust's founder and sponsor, serves as the Manager for the Trust under an Advisory and Administration Agreement with the Trust. The portfolio management of the Trust has been delegated to a sub-adviser as described below. Under the Advisory and Administrative Agreement, the Manager provides all administrative services to the Trust, other than those relating to the day-to-day portfolio management. The Manager's services include providing the office of the Trust and all related services as well as overseeing the activities of the sub-adviser and all the various support organizations to the Trust such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor and additionally maintaining the Trust's accounting books and records. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.40 of 1% on the Trust's net assets. U.S. Bank National Association (the "Sub-Adviser"), serves as the Investment Sub-Adviser for the Trust under a Sub-Advisory Agreement between the Manager and the Sub-Adviser. Under this agreement, the Sub-Adviser continuously provides, subject to oversight of the Manager and the Board of Trustees of the Trust, the investment program of the Trust and the composition of its portfolio, arranges for the purchases and sales of portfolio securities, and provides for daily pricing of the Trust's portfolio. For its services, the Sub-Adviser is entitled to receive a fee from the Manager which is payable monthly and computed as of the close of business each day at the annual rate of 0.18 of 1% on the Trust's net assets. For the year ended September 30, 1999, the Trust incurred fees for advisory and administrative services of $1,345,097. Specific details as to the nature and extent of the services provided by the Manager and the Sub-Adviser are more fully defined in the Trust's Prospectus and Statement of Additional Information. b) DISTRIBUTION AND SERVICE FEES: The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Trust is authorized to make service fee payments to broker-dealers or others ("Qualified Recipients") selected by Aquila Distributors, Inc. (the "Distributor"), including, but not limited to, any principal underwriter of the Trust, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Trust's shares or servicing of shareholder accounts. The Trust makes payment of this service fee at the annual rate of 0.15% of the Trust's average net assets represented by Class A Shares. For the year ended September 30, 1999, service fees on Class A Shares amounted to $482,779, of which the Distributor received $14,550. Under another part of the Plan, the Trust is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Trust's Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Trust's net assets represented by Class C Shares and for the year ended September 30, 1999, amounted to $15,831. In addition, under a Shareholder Services Plan, the Trust is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Trust's net assets represented by Class C Shares and for the year ended September 30, 1999, amounted to $5,277. The total of these payments made with respect to Class C Shares amounted to $21,108, of which the Distributor received $15,187. Specific details about the Plans are more fully defined in the Trust's Prospectus and Statement of Additional Information. Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Trust's shares. Through agreements between the Distributor and various broker-dealer firms ("dealers"), the Trust's shares are sold primarily through the facilities of these dealers having offices within Oregon, with the bulk of sales commissions inuring to such dealers. For the year ended September 30, 1999, the Distributor received commissions of $164,339 on sales of Class A Shares. 4. PURCHASES AND SALES OF SECURITIES During the year ended September 30, 1999, purchases of securities and proceeds from the sales of securities aggregated $62,550,676 and $54,008,675, respectively. At September 30, 1999, aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost amounted to $8,972,737, and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $5,346,764, for a net unrealized appreciation of $3,625,973. 5. PORTFOLIO ORIENTATION Since the Trust invests principally and may invest entirely in double tax-free municipal obligations of issuers within Oregon, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Oregon and whatever effects these may have upon Oregon issuers' ability to meet their obligations. Two such developments, Measure 5, a 1990 amendment to the Oregon Constitution, as well as Measures 47 and 50, limit the taxing and spending authority of certain Oregon governmental entities. Although these amendments could have an adverse effect on the general financial condition of certain municipal entities that would impair the ability of certain Oregon issuer's to pay interest and principal on their obligations, experience over the history of such amendments would indicate a low probability of this happening. 6. DISTRIBUTIONS The Trust declares dividends daily from net investment income and makes payments monthly in additional shares at the net asset value per share, in cash, or in a combination of both, at the shareholder's option. Net realized capital gains, if any, are distributed annually and are taxable. The Trust intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Oregon income taxes. However, due to differences between financial statement reporting and Federal income tax reporting requirements, distributions made by the Trust may not be the same as the Trust's net investment income, and/or net realized securities gains. Further, a small portion of the dividends may, under some circumstances, be subject to taxes at ordinary income and/or capital gain rates. 7. EXPENSES The Trust has negotiated an expense offset arrangement with its custodian, wherein it receives credit toward the reduction of custodian fees and other Trust expenses whenever there are uninvested cash balances.The Statement of Operations reflects the total expenses before any offset, the amount of offset and the net expenses. It is the general intention of the Trust to invest, to the extent practicable, some or all of cash balances in income-producing assets rather than leave cash on deposit. 8. TRUSTEES' FEES AND EXPENSES During the fiscal year there were nine Trustees, two of whom are affiliated with the Manager and are not paid any trustee fees. Trustees' fees paid during the year were at the average annual rate of $6,800 for carrying out their responsibilities and attendance at regularly scheduled Board Meetings. If additional or special meetings are scheduled for the Trust, separate meeting fees are paid for each such meeting to those Trustees in attendance. The Trust also reimburses Trustees for expenses such as travel, accommodations, and meals incurred in connection with attendance at regularly scheduled or special Board Meetings and at the Annual Meeting and outreach meetings of Shareholders. For the fiscal year ended September 30, 1999 such reimbursements averaged approximately $3,500 per Trustee. 9. CAPITAL SHARE TRANSACTIONS Transactions in Capital Shares of the Trust were as follows: CLASS A SHARES: Proceeds from shares sold 3,077,787 $ 32,804,150 2,478,110 $ 26,612,757 Reinvested dividends and distributions 912,832 9,714,231 907,937 9,756,708 Cost of shares redeemed (3,633,583) (38,503,659) (2,903,272) (31,179,164) Net change 357,036 4,014,722 482,775 5,190,301 CLASS C SHARES: Proceeds from shares sold 211,679 2,254,086 50,665 544,808 Reinvested dividends and distributions 4,179 44,213 1,209 12,994 Cost of shares redeemed (30,354) (317,699) (19,993) (213,501) Net change 185,504 1,980,600 31,881 344,301 CLASS Y SHARES: Proceeds from shares sold 721,432 7,566,344 670,706 7,197,540 Reinvested dividends and distributions 14,352 153,681 14,468 155,493 Cost of shares redeemed (58,206) (618,774) (80,210) (858,899) Net change 677,578 7,101,251 604,964 6,494,134 Total transactions in Trust shares 1,220,118 $ 13,096,573 1,119,620 $ 12,028,736
YEAR ENDED YEAR ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SHARES AMOUNT SHARES AMOUNT
TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Net Asset Value, Beginning of Period $10.86 $10.68 $10.49 $10.55 $10.20 Income from Investment Operations: Net investment income 0.50 0.53 0.53 0.54 0.55 Net gain (loss) on securities (both realized and unrealized) (0.56) 0.19 0.21 (0.05) 0.39 Total from Investment Operations (0.06) 0.72 0.74 0.49 0.94 Less Distributions (note 6): Dividends from net investment income (0.51) (0.53) (0.54) (0.54) (0.55) Distributions from capital gains (0.02) (0.01) (0.01) (0.01) (0.04) Total Distributions (0.53) (0.54) (0.55) (0.55) (0.59) Net Asset Value, End of Period $10.27 $10.86 $10.68 $10.49 $10.55 Total Return (not reflecting sales charge)(%) (0.62) 6.90 7.21 4.76 9.52 Ratios/Supplemental Data Net Assets, End of Period ($ millions) 309 322 312 305 311 Ratio of Expenses to Average Net Assets (%) 0.71 0.71 0.73 0.73 0.73 Ratio of Net Investment Income to Average Net Assets (%) 4.70 4.83 5.01 5.15 5.37 Portfolio Turnover Rate (%) 16 7 5 10 13 The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of Expenses to Average Net Assets (%) 0.68 0.69 0.72 0.72 0.71
CLASS A(1) YEAR ENDED SEPTEMBER 30, 1999 1998 1997 1996 1995
(1) Designated as Class A Shares on April 5, 1996. See accompanying notes to financial statements. TAX-FREE TRUST OF OREGON FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Net Asset Value, Beginning of Period $10.85 $10.67 $10.49 $10.34 $10.85 $10.68 $10.49 $10.34 Income from Investment Operations: Net investment income 0.41 0.43 0.43 0.22 0.52 0.54 0.54 0.27 Net gain (loss) on securities (both realized and unrealized) (0.55) 0.20 0.21 0.15 (0.56) 0.19 0.21 0.15 Total from Investment Operations (0.14) 0.63 0.64 0.37 (0.04) 0.73 0.75 0.42 Less Distributions (note 6): Dividends from net investment income (0.42) (0.44) (0.45) (0.22) (0.52) (0.55) (0.55) (0.27) Distributions from capital gains (0.02) (0.01) (0.01) - (0.02) (0.01) (0.01) - Total Distributions (0.44) (0.45) (0.46) (0.56) (0.54) (0.56) (0.56) (0.27) Net Asset Value, End of Period $10.27 $10.85 $10.67 $10.49 $10.27 $10.85 $10.68 $10.49 Total Return (not reflecting sales charge) (%) (1.38) 6.00 6.20 3.61+ (0.39) 6.96 7.37 4.14+ Ratios/Supplemental Data Net Assets, End of Period ($ millions) 3.0 1.2 .8 .3 17.0 10.7 4.0 .2 Ratio of Expenses to Average Net Assets (%) 1.56 1.56 1.58 1.56* 0.56 0.55 0.58 0.58* Ratio of Net Investment Income to Average Net Assets (%) 3.84 3.98 4.14 4.17* 4.86 4.95 5.21 5.35* Portfolio Turnover Rate (%) 16 7 5 10+ 16 7 5 10+ The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of Expenses to Average Net Assets (%) 1.53 1.54 1.57 1.56* 0.53 0.53 0.57 0.57*
CLASS C(1) CLASS Y(1) PERIOD(2) PERIOD(2) YEAR ENDED SEPTEMBER 30, ENDED YEAR ENDED SEPTEMBER 30, ENDED 1999 1998 1997 9/30/96 1999 1998 1997 9/30/96
(1) New Class of Shares established on April 5, 1996. (2) From April 5, 1996 to September 30, 1996. + Not annualized. * Annualized. See accompanying notes to financial statements. FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED) This information is presented in order to comply with a requirement of the Internal Revenue Code AND NO ACTION ON THE PART OF SHAREHOLDERS IS REQUIRED. For the fiscal year ended September 30, 1999, $16,018,411 of dividends paid by Tax-Free Trust of Oregon, constituting 96.24% of total dividends paid during fiscal 1999, were exempt-interest dividends; $626,376 of dividends paid, constituting 3.76% of total dividends paid during fiscal 1999, were capital gain dividends; and the balance was ordinary dividend income. Prior to January 31, 2000, shareholders will be mailed IRS Form 1099-DIV which will contain information on the status of distributions paid for the 1999 CALENDAR YEAR. PREPARING FOR YEAR 2000 (UNAUDITED) The Trustees and officers of the Trust have been monitoring issues involving preparedness for the turn of the century for some time in an effort to minimize or eliminate any potential impact upon the Trust and its shareholders. Our officers have focussed significant time and effort in order that the various computerized functions that could affect the Trust are ready by the beginning of the year 2000. The Trust is highly reliant on certain mission-critical suppliers' services. Each supplier of these services has provided the Trust's officers with assurances that it is actively addressing potential problems relating to the year 2000. The officers, in turn, are monitoring and will continue to monitor the progress of its suppliers. The Trust has NOT incurred, nor is anticipated to incur, any costs related to Y2K. All such costs are being incurred by the respective vendors. As you can well understand, we cannot directly control our supplier operations. We assure you, however, that we recognize a responsibility to inform our shareholders if in the future we become aware of any developments which would lead us to believe that the Trust will be significantly affected by year 2000 problems. We will continue to keep you up-to-date through future communications. SHAREHOLDER MEETING RESULTS (UNAUDITED) The Annual Meeting of Shareholders of Tax-Free Trust of Oregon (the "Trust") was held on May 3, 1999. The holders of shares representing 69% of the total net asset value of the shares entitled to vote were present in person or by proxy. At the meeting, the following matters were voted upon and approved by the shareholders (the resulting votes for each matter are presented below). 1. To elect Trustees. Number of Votes: TRUSTEE FOR WITHHELD Lacy B. Herrmann 230,894,921 3,636,585 Vernon R. Alden 231,019,204 3,512,302 Warren C. Coloney 231,117,615 3,413,892 David B. Frohnmayer 231,121,288 3,410,219 James A. Gardner 231,237,216 3,294,291 Diana P. Herrmann 231,237,216 3,294,291 Raymond H. Lung 231,237,216 3,294,291 John W. Mitchell 231,237,216 3,294,291 Richard C. Ross 231,237,216 3,294,291 2. To ratify the selection of KPMG LLP as the Fund's independent auditors. Number of Votes: FOR AGAINST ABSTAIN 227,059,510 1,149,298 6,322,688 -----END PRIVACY-ENHANCED MESSAGE-----