UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4626
THE CASCADES TRUST
(Exact name of Registrant as specified in charter)
380 Madison Avenue
New York, New York 10017
(Address of principal executive offices) (Zip code)
Joseph P. DiMaggio
380 Madison Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 697-6666
Date of fiscal year end: 3/31/13
Date of reporting period: 9/30/13
FORM N-CSR
ITEM 1. | REPORTS TO STOCKHOLDERS |
Semi-Annual Report September 30, 2013 | ||||||||||||||||||||||||||
Aquila Tax-Free Trust of Oregon “Asset Allocation - A Strategy For All Seasons” Serving Oregon investors for over 25 years |
November, 2013
Dear Fellow Shareholder:
As many of our shareholders are aware, interest rates and the price of bonds (and, in turn, the share price of bond funds) are inversely related. Hence, as interest rates decline, the share price of the bond funds in the Aquila Group generally increases. And, as interest rates increase, the funds’ share price declines. This is an almost inevitable dynamic of the economic cycle. And, since your investment in one of the Aquila bond funds should be viewed as long-term in nature, you are likely to experience both the ups and downs of investing.
While we cannot control the direction in which interest rates will move, or the resulting effect such changes will have on your Trust’s share price, we do take steps that attempt to minimize the volatility of such movement. We believe that having your Trust’s portfolio constructed of high-quality securities, together with both short and long-term maturities (to gain stability from the shorter-term maturities and higher yields from the longer-term maturities), will hopefully help to lessen the fluctuations in the overall performance of your investment in the Trust. Thus, we seek to minimize the volatility of share price movements over the life of your investment – making the ups and downs less dramatic than with other types of investments.
While fluctuation in share price over the life of your investment is inevitable, we believe you will be in a better overall position to weather any particular economic situation if your portfolio is built with a strong foundation. In short, is your portfolio properly allocated based on your specific needs?
As you may know, asset allocation is an investment strategy that strives to balance risk and reward by diversifying assets according to your specific desires. These include:
• | investment time horizon (specifically your age and retirement objectives); |
• | risk threshold (how much of your investment capital you are willing to potentially lose during a given time frame); |
• | financial situation (your wealth, income, expenses, tax bracket, liquidity needs, etc.); and |
• | goals (the financial goals you and your family want to achieve). |
Since the three main asset classes - equities, fixed-income, and cash/cash equivalents - have different levels of risk and return, each is expected to behave differently over time. The objective of asset allocation is to create a diversified portfolio with an acceptable level of risk and the highest possible return given that level of risk.
NOT A PART OF THE SEMI- ANNUAL REPORT
Although there is no simple formula that can identify the right asset allocation for every individual, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make.
The way you allocate your investment portfolio across exposure to stocks, fixed-income, and cash/cash equivalents will be the principal determinants of your investment results – secondary to your selection of individual securities.
Once you and your financial professional have developed an appropriate asset allocation for your portfolio, we believe that changes should be made based on need, not on headlines.
A properly constructed portfolio with sound asset allocation should be in a good position to weather all seasons.
Sincerely, Diana P. Herrmann, President |
Consideration should be given to the risks of investing, including potential loss of value, market risk, interest rate risk, credit risk, and geographic concentration. Past performance does not guarantee future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. For certain investors, some dividends may be subject to Federal and state taxes.
NOT A PART OF THE SEMI-ANNUAL REPORT
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | General Obligation Bonds (49.1%) | and Fitch | Value | ||||||
City & County (5.0%) | |||||||||
Bend, Oregon | |||||||||
$ | 2,435,000 | 4.000%, 06/01/24 | Aa2/NR/NR | $ | 2,629,094 | ||||
Canby, Oregon | |||||||||
1,405,000 | 4.000%, 12/01/24 AGMC Insured | A2/NR/NR | 1,483,947 | ||||||
1,060,000 | 5.000%, 06/01/27 | A2/NR/NR | 1,135,069 | ||||||
Clackamas County, Oregon Refunding | |||||||||
1,135,000 | 4.000%, 06/01/24 | Aa2/NR/NR | 1,216,493 | ||||||
Clackamas County, Oregon Tax | |||||||||
Allocation | |||||||||
705,000 | 6.500%, 05/01/20 | NR/NR/NR* | 706,107 | ||||||
Hillsboro, Oregon | |||||||||
380,000 | 3.500%, 06/01/15 Series B | Aa3/NR/NR | 396,184 | ||||||
390,000 | 3.500%, 06/01/16 Series B | Aa3/NR/NR | 413,419 | ||||||
345,000 | 3.500%, 06/01/17 Series B | Aa3/NR/NR | 366,945 | ||||||
Lebannon, Oregon Refunding | |||||||||
1,050,000 | 5.000%, 06/01/24 | A2/NR/NR | 1,191,939 | ||||||
Portland, Oregon | |||||||||
5,385,000 | 4.350%, 06/01/23 | Aa1/NR/NR | 5,392,593 | ||||||
Portland, Oregon Public Safety | |||||||||
2,130,000 | 4.125%, 06/01/26 Series A | Aaa/NR/NR | 2,239,099 | ||||||
Portland, Oregon Revenue Limited Tax, | |||||||||
Improvement | |||||||||
1,045,000 | 4.000%, 06/01/22 Series A | Aa1/NR/NR | 1,087,876 | ||||||
Redmond, Oregon Refunding | |||||||||
735,000 | 5.000%, 06/01/23 Series A | A1/NR/NR | 832,571 | ||||||
City of Salem, Oregon | |||||||||
1,585,000 | 4.000%, 06/01/17 | Aa2/AA-/NR | 1,743,484 | ||||||
1,750,000 | 5.000%, 06/01/29 | Aa2/AA-/NR | 1,885,538 | ||||||
Washington County, Oregon | |||||||||
2,465,000 | 5.000%, 06/01/23 | Aa1/NR/NR | 2,696,316 | ||||||
Total City & County | 25,416,674 | ||||||||
Community College (5.8%) | |||||||||
Central Oregon Community College | |||||||||
District | |||||||||
1,850,000 | 4.750%, 06/15/22 | NR/AA+/NR | 2,108,926 | ||||||
2,195,000 | 4.750%, 06/15/23 | NR/AA+/NR | 2,477,628 | ||||||
2,175,000 | 4.750%, 06/15/26 | NR/AA+/NR | 2,393,283 |
1 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
Community College (continued) | |||||||||
Chemeketa, Oregon Community | |||||||||
College District | |||||||||
$ | 1,385,000 | 5.500%, 06/01/14 ETM FGIC Insured | NR/NR/NR* | $ | 1,432,810 | ||||
Chemeketa, Oregon Community | |||||||||
College District | |||||||||
1,010,000 | 5.500%, 06/15/24 | NR/AA+/NR | 1,129,271 | ||||||
1,235,000 | 5.000%, 06/15/25 | NR/AA+/NR | 1,339,086 | ||||||
1,540,000 | 5.000%, 06/15/26 | NR/AA+/NR | 1,654,437 | ||||||
Clackamas, Oregon Community | |||||||||
College District | |||||||||
1,535,000 | 5.000%, 05/01/25 NPFG Insured | Aa3/AA/NR | 1,623,892 | ||||||
Columbia Gorge, Oregon Community | |||||||||
College District, Refunding | |||||||||
1,000,000 | 4.000%, 06/15/24 | Aa1/NR/NR | 1,076,040 | ||||||
Lane, Oregon Community College | |||||||||
1,840,000 | 5.000%, 06/15/24 | NR/AA+/NR | 2,135,154 | ||||||
Oregon Coast Community College | |||||||||
District State | |||||||||
1,590,000 | 5.250%, 06/15/17 NPFG Insured | ||||||||
(pre-refunded) | Aa1/NR/NR | 1,645,904 | |||||||
1,770,000 | 5.000%, 06/15/25 | Aa1/NR/NR | 2,023,198 | ||||||
Portland, Oregon Community College | |||||||||
District | |||||||||
7,915,000 | 5.000%, 06/15/28 | Aa1/AA/NR | 8,673,178 | ||||||
Total Community College | 29,712,807 | ||||||||
Higher Education (2.2%) | |||||||||
Oregon State, Oregon University System | |||||||||
1,170,000 | 4.000%, 08/01/25 Series B | Aa1/AA+/AA+ | 1,259,166 | ||||||
1,745,000 | 4.000%, 08/01/26 Series C | Aa1/AA+/AA+ | 1,842,249 | ||||||
Oregon State, Oregon University | |||||||||
System Projects | |||||||||
2,365,000 | 4.000%, 08/01/26 Series H | Aa1/AA+/AA+ | 2,478,307 | ||||||
State of Oregon Board of Higher | |||||||||
Education | |||||||||
820,000 | zero coupon, 08/01/16 | Aa1/AA+/AA+ | 786,954 |
2 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
Higher Education (continued) | |||||||||
State of Oregon Board of Higher | |||||||||
Education (continued) | |||||||||
$ | 1,125,000 | 5.000%, 08/01/21 Series A | |||||||
(pre-refunded) | NR/NR/NR* | $ | 1,218,713 | ||||||
875,000 | 5.000%, 08/01/21 Series A | ||||||||
(pre-refunded) | Aa1/AA+/NR | 948,728 | |||||||
500,000 | 5.750%, 08/01/29 Series A | ||||||||
(pre-refunded) | Aa1/AA+/AA+ | 603,520 | |||||||
1,000,000 | 5.000%, 08/01/34 | Aa1/AA+/AA+ | 1,079,420 | ||||||
1,000,000 | 5.000%, 08/01/38 | Aa1/AA+/AA+ | 1,071,560 | ||||||
Total Higher Education | 11,288,617 | ||||||||
Housing (0.2%) | |||||||||
State of Oregon Veterans’ Welfare | |||||||||
550,000 | 4.800%, 12/01/22 | Aa1/AA+/AA+ | 582,104 | ||||||
400,000 | 4.900%, 12/01/26 | Aa1/AA+/AA+ | 418,648 | ||||||
Total Housing | 1,000,752 | ||||||||
School District (24.2%) | |||||||||
Clackamas County, Oregon School | |||||||||
District #12 (North Clackamas) | |||||||||
8,000,000 | 5.000%, 06/15/27 AGMC Insured | ||||||||
Series B | Aa1/AA+/NR | 8,622,960 | |||||||
9,250,000 | 5.000%, 06/15/29 AGMC Insured | Aa1/AA+/NR | 9,916,370 | ||||||
Clackamas County, Oregon School | |||||||||
District #46 (Oregon Trail) | |||||||||
1,000,000 | 5.000%, 06/15/22 | NR/AA+/NR | 1,133,710 | ||||||
1,865,000 | 5.000%, 06/15/28 Series A | NR/AA+/NR | 2,018,340 | ||||||
1,800,000 | 5.000%, 06/15/29 Series A | NR/AA+/NR | 1,935,450 | ||||||
2,000,000 | 4.500%, 06/15/30 AGMC Insured | Aa1/AA+/NR | 2,069,460 | ||||||
2,000,000 | 5.000%, 06/15/32 Series A | NR/AA+/NR | 2,112,400 | ||||||
3,780,000 | 4.750%, 06/15/32 Series A | NR/AA+/NR | 3,905,496 | ||||||
Clackamas County, Oregon School | |||||||||
District #86 (Canby) | |||||||||
1,800,000 | 5.000%, 06/15/24 | Aa1/AA+/NR | 2,096,262 | ||||||
1,110,000 | 5.000%, 06/15/25 Series A | Aa1/AA+/NR | 1,277,921 |
3 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
School District (continued) | |||||||||
Clackamas & Washington Counties, | |||||||||
Oregon School District No. 3JT | |||||||||
(West Linn-Wilsonville) | |||||||||
$ | 1,110,000 | 5.000%, 06/15/26 | Aa1/AA+/NR | $ | 1,242,134 | ||||
2,850,000 | 5.000%, 06/15/27 | Aa1/AA+/NR | 3,190,860 | ||||||
2,000,000 | 4.500%, 06/15/29 | Aa1/AA+/NR | 2,078,320 | ||||||
1,965,000 | 5.000%, 06/15/30 | Aa1/AA+/NR | 2,132,929 | ||||||
3,000,000 | 5.000%, 06/15/33 | Aa1/AA+/NR | 3,214,530 | ||||||
500,000 | 5.000%, 06/15/34 | Aa1/AA+/NR | 533,895 | ||||||
Columbia County, Oregon School | |||||||||
District #502 | |||||||||
2,070,000 | zero coupon, 06/01/15 NPFG/ FGIC | ||||||||
Insured | Aa3/NR/NR | 2,013,924 | |||||||
Columbia & Washington Counties, | |||||||||
Oregon School District #47J | |||||||||
(Vernonia) | |||||||||
3,430,000 | 5.00%, 06/15/27 | NR/AA+/NR | 3,762,641 | ||||||
Deschutes County, Oregon School | |||||||||
District #6 (Sisters) | |||||||||
1,735,000 | 5.250%, 06/15/19 AGMC Insured | A2/AA+/NR | 2,012,930 | ||||||
1,030,000 | 5.250%, 06/15/21 AGMC Insured | A2/AA+/NR | 1,205,996 | ||||||
Deschutes and Jefferson Counties, | |||||||||
Oregon School District #02J | |||||||||
(Redmond) | |||||||||
1,000,000 | 5.000%, 06/15/21 NPFG/ FGIC | ||||||||
Insured | Aa1/NR/NR | 1,024,120 | |||||||
1,025,000 | zero coupon, 06/15/23 | Aa1/NR/NR | 734,177 | ||||||
5,000,000 | 6.000%, 06/15/31 (pre-refunded) | Aa1/NR/NR | 6,065,400 | ||||||
Hood River County, Oregon School | |||||||||
District Refunding | |||||||||
365,000 | 3.000%, 06/15/14 | NR/AA+/NR | 371,625 | ||||||
385,000 | 3.000%, 06/15/15 | NR/AA+/NR | 399,203 | ||||||
250,000 | 4.000%, 06/15/16 | NR/AA+/NR | 268,955 | ||||||
Jackson County, Oregon School | |||||||||
District #9 (Eagle Point) | |||||||||
2,080,000 | 5.500%, 06/15/15 NPFG Insured | Aa1/NR/NR | 2,242,510 | ||||||
1,445,000 | 5.500%, 06/15/16 NPFG Insured | Aa1/NR/NR | 1,607,924 |
4 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
School District (continued) | |||||||||
Jackson County, Oregon School | |||||||||
District #549C (Medford) | |||||||||
$ | 1,000,000 | 4.625%, 06/15/27 | Aa1/AA+/NR | $ | 1,054,080 | ||||
2,000,000 | 4.750%, 12/15/29 AGMC Insured | Aa1/AA+/NR | 2,098,360 | ||||||
1,000,000 | 5.000%, 06/15/33 | Aa1/AA+/NR | 1,053,350 | ||||||
Jefferson County, Oregon School | |||||||||
District #509J | |||||||||
1,400,000 | 5.000%, 06/15/25 | Aa1/NR/NR | 1,607,396 | ||||||
Klamath County Oregon School District | |||||||||
1,250,000 | 5.000%, 06/15/24 | NR/AA+/NR | 1,447,600 | ||||||
Lane County, Oregon School District | |||||||||
#4J (Eugene) Refunding | |||||||||
1,000,000 | 5.000%, 07/01/15 | Aa1/NR/NR | 1,080,430 | ||||||
1,130,000 | 4.000%, 06/15/23 | Aa1/NR/NR | 1,224,118 | ||||||
2,455,000 | 4.000%, 06/15/25 | Aa1/NR/NR | 2,601,122 | ||||||
Lane County, Oregon School District | |||||||||
#19 (Springfield) | |||||||||
3,425,000 | zero coupon, 06/15/29 AGMC | ||||||||
Insured | Aa1/NR/NR | 1,683,730 | |||||||
Lincoln County, Oregon School District | |||||||||
2,370,000 | 4.000%, 06/15/24 Series A | Aa1/NR/NR | 2,531,776 | ||||||
Marion and Clackamas Counties, | |||||||||
Oregon School District #4J | |||||||||
(Silver Falls) | |||||||||
1,260,000 | 5.000%, 06/15/24 | Aa1/NR/NR | 1,464,914 | ||||||
Morrow County, Oregon School | |||||||||
District #1 | |||||||||
1,710,000 | 5.250%, 06/15/19 AGMC Insured | A2/AA+/NR | 1,983,925 | ||||||
Multnomah County, Oregon School | |||||||||
District #7 (Reynolds) Refunding | |||||||||
1,165,000 | 5.000%, 06/01/29 | Aa3/NR/NR | 1,265,807 | ||||||
Multnomah County, Oregon School | |||||||||
District #40 (David Douglas) | |||||||||
1,500,000 | 5.000%, 06/15/23 Series A | NR/AA+/NR | 1,741,875 | ||||||
1,420,000 | 4.000%, 06/15/23 Series A | NR/AA+/NR | 1,534,764 |
5 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
School District (continued) | |||||||||
Multnomah and Clackamas Counties, | |||||||||
Oregon School District #10 | |||||||||
(Gresham-Barlow) | |||||||||
$ | 4,275,000 | 5.250%, 06/15/19 AGMC Insured | Aa1/AA+/NR | $ | 5,034,967 | ||||
Multnomah and Clackamas Counties, | |||||||||
Oregon School District #28JT | |||||||||
(Centennial) | |||||||||
2,680,000 | 5.250%, 12/15/18 AGMC Insured | Aa1/NR/NR | 3,148,598 | ||||||
Polk, Marion & Benton Counties, Oregon | |||||||||
School District #13J (Central) | |||||||||
1,520,000 | 5.000%, 06/15/21 AGMC Insured | ||||||||
(pre-refunded) | A2/AA+/NR | 1,743,866 | |||||||
Salem-Keizer, Oregon School District #24J | |||||||||
1,000,000 | 5.000%, 06/15/19 AGMC Insured | ||||||||
(pre-refunded) | Aa1/AA+/NR | 1,033,410 | |||||||
Wasco County, Oregon School District | |||||||||
#12 (The Dalles) | |||||||||
1,400,000 | 5.500%, 06/15/17 AGMC Insured | A2/AA-/NR | 1,598,618 | ||||||
1,790,000 | 5.500%, 06/15/20 AGMC Insured | A2/AA-/NR | 2,120,524 | ||||||
Washington County, Oregon School | |||||||||
District #48J (Beaverton) | |||||||||
2,275,000 | 4.000%, 06/15/23 Series B | Aa1/AA+/NR | 2,467,943 | ||||||
4,000,000 | 4.000%, 06/15/25 | Aa1/AA+/NR | 5,278,150 | ||||||
1,280,000 | 5.000%, 06/01/31 AGC Insured | Aa3/AA-/NR | 1,366,246 | ||||||
1,000,000 | 5.125%, 06/01/36 AGC Insured | Aa3/AA-/NR | 1,067,920 | ||||||
Washington Multnomah & Yamhill | |||||||||
Counties, Oregon School District #1J | |||||||||
(Hillsboro) | |||||||||
1,535,000 | 4.000%, 06/15/25 | Aa1/NR/NR | 1,638,382 | ||||||
YamhillCounty, Oregon School District | |||||||||
#40 (McMinnville) | |||||||||
1,205,000 | 5.000%, 06/15/19 AGMC Insured | ||||||||
(pre-refunded) | Aa1/NR/NR | 1,382,472 | |||||||
1,375,000 | 5.000%, 06/15/22 AGMC Insured | ||||||||
(pre-refunded) | Aa1/NR/NR | 1,577,510 | |||||||
Total School District | 123,022,295 |
6 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
�� | |||||||||
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
Special District (2.3%) | |||||||||
Bend, Oregon Metropolitan Park & | |||||||||
Recreational District | |||||||||
$ | 1,430,000 | 4.000%, 06/01/27 | Aa3/NR/NR | $ | 1,444,800 | ||||
Metro, Oregon | |||||||||
1,100,000 | 5.000%, 06/01/18 | Aaa/AAA/NR | 1,242,087 | ||||||
5,140,000 | 4.000%, 06/01/26 Series A | Aaa/AAA/NR | 5,436,784 | ||||||
Tualatin Hills, Oregon Park & | |||||||||
Recreational District | |||||||||
1,000,000 | 4.250%, 06/01/24 | Aa1/AA/NR | 1,114,170 | ||||||
Tualatin Valley, Oregon Fire & Rescue | |||||||||
Rural Fire Protection District | |||||||||
1,235,000 | 4.000%, 06/01/26 | Aaa/NR/NR | 1,303,333 | ||||||
1,170,000 | 4.000%, 06/01/27 | Aaa/NR/NR | 1,223,387 | ||||||
Total Special District | 11,764,561 | ||||||||
State (8.5%) | |||||||||
Oregon State Alternative Energy Project | |||||||||
1,255,000 | 4.750%, 04/01/29 Series B | Aa1/AA+/AA+ | 1,324,439 | ||||||
500,000 | 6.000%, 10/01/29 Series B | Aa1/AA+/AA+ | 571,585 | ||||||
Oregon State Department of | |||||||||
Administrative Services | |||||||||
3,270,000 | 5.000%, 11/01/27 Series C | Aa2/AA/AA | 3,468,325 | ||||||
2,155,000 | 5.000%, 11/01/28 Series C | Aa2/AA/AA | 2,276,133 | ||||||
5,000,000 | 5.125%, 05/01/33 | Aa2/AA/AA | 5,291,400 | ||||||
Oregon State Department of | |||||||||
Administrative Services | |||||||||
2,000,000 | 5.000%, 11/01/20 NPFG/ FGIC Insured | ||||||||
(pre-refunded) | Aa2/AA/AA | 2,191,480 | |||||||
2,660,000 | 5.000%, 11/01/23 NPFG FGIC/ Insured | ||||||||
(pre-refunded) | Aa2/AA/AA | 3,011,998 | |||||||
2,945,000 | 5.000%, 11/01/24 NPFG/ FGIC Insured | ||||||||
(pre-refunded) | Aa2/AA/AA | 3,334,712 | |||||||
1,475,000 | 5.000%, 11/01/26 NPFG/ FGIC Insured | ||||||||
(pre-refunded) | Aa2/AA/AA | 1,670,187 | |||||||
3,880,000 | 5.000%, 11/01/27 NPFG/ FGIC Insured | ||||||||
(pre-refunded) | Aa2/AA/AA | 4,393,440 |
7 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
State (continued) | |||||||||
Oregon State Department of | |||||||||
Administrative Services, Oregon | |||||||||
Opportunity Refunding | |||||||||
$ | 6,210,000 | 5.000%, 12/01/19 | Aa1/AA+/AA+ | $ | 7,363,818 | ||||
Oregon State Refunding | |||||||||
3,000,000 | 5.000%, 05/01/23 Series L | Aa1/AA+/AA+ | 3,483,300 | ||||||
1,125,000 | 5.000%, 05/01/24 Series L | Aa1/AA+/AA+ | 1,295,392 | ||||||
Oregon State Refunding Various Projects | |||||||||
2,125,000 | 4.000%, 05/01/25 Series O | Aa1/AA+/AA+ | 2,256,197 | ||||||
Oregon State Various Projects | |||||||||
1,470,000 | 4.000%, 11/01/26 Series M | Aa1/AA+/AA+ | 1,539,222 | ||||||
Total State | 43,471,628 | ||||||||
Water & Sewer (0.9%) | |||||||||
Gearheart, Oregon | |||||||||
1,060,000 | 4.500%, 03/01/26 AGMC Insured | A2/NR/NR | 1,137,952 | ||||||
Pacific City, Oregon Joint Water - | |||||||||
Sanitary Authority | |||||||||
1,830,000 | 4.800%, 07/01/27 | NR/NR/NR* | 1,847,348 | ||||||
Rockwood, Oregon Water Peoples | |||||||||
Utility District Water Revenue | |||||||||
Refunding | |||||||||
1,270,000 | 4.250%, 08/15/26 | A1/NR/NR | 1,377,683 | ||||||
Total Water & Sewer | 4,362,983 | ||||||||
Total General Obligation Bonds | 250,040,317 | ||||||||
Revenue Bonds (49.2%) | |||||||||
City & County (5.1%) | |||||||||
Local Oregon Capital Assets Program | |||||||||
COP Cottage Grove | |||||||||
2,375,000 | 5.000%, 06/15/25 2013A | Baa2/NR/NR | 2,471,283 | ||||||
Newport, Oregon Urban Renewal | |||||||||
Obligations, Refunding | |||||||||
565,000 | 4.500%, 06/15/22 Series B | NR/A+/NR | 612,144 | ||||||
Portland, Oregon | |||||||||
2,975,000 | zero coupon, 06/01/15 | Aa1/NR/NR | 2,920,796 | ||||||
Portland, Oregon Revenue Refunding | |||||||||
Limited Tax, Oregon Convention | |||||||||
Center | |||||||||
2,825,000 | 5.000%, 06/01/24 | Aa1/NR/NR | 3,250,756 | ||||||
4,265,000 | 5.000%, 06/01/27 | Aa1/NR/NR | 4,746,007 |
8 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
City & County (continued) | |||||||||
Portland, Oregon Revenue Refunding | |||||||||
Limited Tax | |||||||||
$ | 1,000,000 | 4.000%, 04/01/22 Series A | Aa1/NR/NR | $ | 1,075,500 | ||||
Portland, Oregon River District Urban | |||||||||
Renewal and Redevelopment | |||||||||
1,600,000 | 5.000%, 06/15/22 Series B | A1/NR/NR | 1,821,040 | ||||||
1,830,000 | 5.000%, 06/15/23 Series B | A1/NR/NR | 2,042,994 | ||||||
Portland, Oregon Urban Renewal and | |||||||||
Redevelopment, Refunding, North | |||||||||
Macadam | |||||||||
1,000,000 | 4.000%, 06/15/25 Series B | A1/NR/NR | 999,030 | ||||||
Portland, Oregon Urban Renewal Tax | |||||||||
Allocation (Interstate Corridor) | |||||||||
1,890,000 | 5.250%, 06/15/20 NPFG/ FGIC | ||||||||
Insured | A1/NR/NR | 1,957,019 | |||||||
1,810,000 | 5.250%, 06/15/21 NPFG/ FGIC | ||||||||
Insured | A1/NR/NR | 1,865,965 | |||||||
2,030,000 | 5.000%, 06/15/23 NPFG/ FGIC | ||||||||
Insured | A1/NR/NR | 2,080,405 | |||||||
Total City & County | 25,842,939 | ||||||||
Electric (2.2%) | |||||||||
Emerald Peoples Utility District, Oregon | |||||||||
1,455,000 | 5.250%, 11/01/22 AGMC Insured | A1/NR/NR | 1,460,733 | ||||||
Eugene, Oregon Electric Utility | |||||||||
5,635,000 | 5.000%, 08/01/30 | Aa3/AA-/AA- | 5,932,922 | ||||||
Eugene, Oregon Electric Utility | |||||||||
Refunding System | |||||||||
2,000,000 | 5.000%, 08/01/27 Series A | Aa3/AA-/AA- | 2,215,320 | ||||||
Northern Wasco County, Oregon | |||||||||
Peoples Utility District, McNary | |||||||||
Dam Fishway Hydroelectric Project, | |||||||||
Refunding | |||||||||
1,585,000 | 5.000%, 12/01/21 Series A | NR/AA-/NR | 1,841,532 | ||||||
Total Electric | 11,450,507 |
9 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Higher Education (6.9%) | |||||||||
Forest Grove, Oregon Campus | |||||||||
Improvement (Pacific University | |||||||||
Project) | |||||||||
$ | 1,500,000 | 6.000%, 05/01/30 | NR/BBB/NR | $ | 1,510,830 | ||||
Forest Grove, Oregon (Pacific University) | |||||||||
4,000,000 | 5.000%, 05/01/22 Radian Insured | NR/BBB/NR | 4,078,880 | ||||||
Forest Grove, Oregon Student Housing | |||||||||
(Oak Tree Foundation) | |||||||||
5,750,000 | 5.500%, 03/01/37 | NR/NR/NR* | 5,383,725 | ||||||
Oregon State Facilities Authority | |||||||||
(Lewis & Clark College Project) | |||||||||
1,000,000 | 5.250%, 10/01/24 Series A | A3/A-/NR | 1,121,120 | ||||||
3,000,000 | 5.000%, 10/01/27 Series A | A3/A-/NR | 3,178,260 | ||||||
Oregon State Facilities Authority | |||||||||
(Linfield College Project) | |||||||||
2,830,000 | 5.000%, 10/01/20 Series A 2005 | Baa1/NR/NR | 2,910,542 | ||||||
2,115,000 | 5.000%, 10/01/25 Series A 2005 | Baa1/NR/NR | 2,145,435 | ||||||
1,220,000 | 5.000%, 10/01/31 Series A 2010 | Baa1/NR/NR | 1,232,188 | ||||||
Oregon State Facilities Authority | |||||||||
Revenue Refunding (Reed College | |||||||||
Project) | |||||||||
1,500,000 | 5.000%, 07/01/29 Series A | Aa2/AA-/NR | 1,617,225 | ||||||
Oregon State Facilities Authority | |||||||||
(University of Portland) | |||||||||
3,000,000 | 5.000%, 04/01/32 | NR/BBB+/NR | 2,925,780 | ||||||
Oregon State Facilities Authority | |||||||||
(Willamette University) | |||||||||
1,000,000 | 4.000%, 10/01/24 | NR/A/NR | �� | 1,015,440 | |||||
2,500,000 | 5.000%, 10/01/32 | NR/A/NR | 2,571,000 | ||||||
Portland, Oregon Economic | |||||||||
Development (Broadway Project) | |||||||||
5,000,000 | 6.500%, 04/01/35 | A1/A+/NR | 5,587,950 | ||||||
Total Higher Education | 35,278,375 |
10 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Hospital (11.6%) | |||||||||
Deschutes County, Oregon Hospital | |||||||||
Facilities Authority (Cascade Health) | |||||||||
$ | 3,500,000 | 8.000%, 01/01/28 | A2/NR/NR | $ | 4,252,115 | ||||
3,250,000 | 5.375%, 01/01/35 AMBAC Insured | A2/NR/NR | 3,400,670 | ||||||
Medford, Oregon Hospital Facilities | |||||||||
Authority Revenue Refunding, | |||||||||
Asante Health Systems | |||||||||
9,000,000 | 5.500%, 08/15/28 AGMC Insured | NR/AA-/NR | 9,663,390 | ||||||
Multnomah County, Oregon Hospital | |||||||||
Facilities Authority (Adventist | |||||||||
Health/West) | |||||||||
500,000 | 5.000%, 09/01/21 | NR/A/A | 552,930 | ||||||
Multnomah County, Oregon Hospital | |||||||||
Facilities Authority (Providence | |||||||||
Health System) | |||||||||
1,390,000 | 5.250%, 10/01/22 (pre-refunded) | Aa2/AA/AA | 1,460,125 | ||||||
Oregon Health Sciences University | |||||||||
11,550,000 | zero coupon, 07/01/21 NPFG | ||||||||
Insured | A1/A+/A+ | 8,984,052 | |||||||
2,000,000 | 5.000%, 07/01/23 Series A | A1/A+/A+ | 2,274,240 | ||||||
4,500,000 | 5.750%, 07/01/39 Series A | A1/A+/A+ | 4,805,055 | ||||||
Oregon State Facilities Authority Revenue | |||||||||
Refunding, Legacy Health Systems | |||||||||
2,000,000 | 4.250%, 03/15/17 | A2/A+/NR | 2,170,180 | ||||||
3,000,000 | 4.500%, 03/15/18 | A2/A+/NR | 3,301,650 | ||||||
1,000,000 | 4.750%, 03/15/24 | A2/A+/NR | 1,056,220 | ||||||
1,000,000 | 5.000%, 03/15/30 | A2/A+/NR | 1,023,760 | ||||||
Oregon State Facilities Authority | |||||||||
Revenue Refunding, Samaritan | |||||||||
Health Services | |||||||||
1,500,000 | 4.375%, 10/01/20 | NR/A-/NR | 1,612,590 | ||||||
2,000,000 | 4.500%, 10/01/21 | NR/A-/NR | 2,130,800 | ||||||
1,520,000 | 5.000%, 10/01/23 | NR/A-/NR | 1,649,565 | ||||||
1,795,000 | 4.875%, 10/01/25 | NR/A-/NR | 1,857,879 | ||||||
2,000,000 | 5.000%, 10/01/30 | NR/A-/NR | 2,074,000 |
11 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Hospital (continued) | |||||||||
Salem, Oregon Hospital Facility | |||||||||
Authority (Salem Hospital) | |||||||||
$ | 2,000,000 | 5.750%, 08/15/23 | NR/A/A | $ | 2,181,900 | ||||
1,075,000 | 5.000%, 08/15/27 Series A | NR/A/A | 1,106,433 | ||||||
State of Oregon Health Housing | |||||||||
Educational and Cultural Facilities | |||||||||
Authority (Peacehealth) | |||||||||
1,835,000 | 5.250%, 11/15/17 AMBAC Insured | NR/A+/AA- | 1,840,652 | ||||||
1,430,000 | 5.000%, 11/15/32 AMBAC Insured | NR/A+/AA- | 1,430,929 | ||||||
Total Hospital | 58,829,135 | ||||||||
Housing (1.1%) | |||||||||
Clackamas County, Oregon Housing | |||||||||
Authority Multifamily Housing | |||||||||
Revenue (Easton Ridge Apartments | |||||||||
Project) | |||||||||
1,310,000 | 4.000%, 09/01/27 Series A | Aa3/NR/NR | 1,279,870 | ||||||
Portland, Oregon Urban Renewal and | |||||||||
Redevelopment, Interstate Corridor | |||||||||
1,390,000 | 5.000%, 06/15/27 Series B | A2/NR/NR | 1,442,042 | ||||||
State of Oregon Housing and | |||||||||
Community Services | |||||||||
1,620,000 | 4.650%, 07/01/25 | Aa2/NR/NR | 1,647,329 | ||||||
1,170,000 | 5.350%, 07/01/30 | Aa2/NR/NR | 1,206,586 | ||||||
Total Housing | 5,575,827 | ||||||||
Lottery (3.7%) | |||||||||
Oregon State Department of | |||||||||
Administration Services (Lottery | |||||||||
Revenue) | |||||||||
2,700,000 | 5.000%, 04/01/19 AGMC Insured | ||||||||
(pre-refunded) | Aa2/AAA/AA- | 2,764,692 | |||||||
1,500,000 | 5.000%, 04/01/25 Series B | Aa2/AAA/NR | 1,716,225 | ||||||
7,300,000 | 5.250%, 04/01/26 | Aa2/AAA/NR | 8,379,232 | ||||||
3,000,000 | 5.000%, 04/01/27 AGMC Insured | Aa2/AAA/AA- | 3,263,100 | ||||||
2,500,000 | 5.000%, 04/01/29 | Aa2/AAA/NR | 2,754,200 | ||||||
Total Lottery | 18,877,449 |
12 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Transportation (4.9%) | |||||||||
Jackson County, Oregon Airport Revenue | |||||||||
$ | 750,000 | 5.250%, 12/01/32 Syncora Guarantee, | |||||||
Inc. Insured | Baa1/NR/NR | $ | 770,797 | ||||||
Oregon State Department Transportation | |||||||||
Highway Usertax | |||||||||
1,200,000 | 5.000%, 11/15/22 Series A | ||||||||
(pre-refunded) | Aa1/AAA/AA+ | 1,263,936 | |||||||
1,260,000 | 5.000%, 11/15/23 Series A | ||||||||
(pre-refunded) | Aa1/AAA/AA+ | 1,327,133 | |||||||
1,000,000 | 5.000%, 11/15/29 Series A | ||||||||
(pre-refunded) | Aa1/AAA/AA+ | 1,053,280 | |||||||
Oregon State Department Transportation | |||||||||
Highway Usertax, Senior Lien | |||||||||
1,865,000 | 5.000%, 11/15/23 Series A | Aa1/AAA/AA+ | 2,093,313 | ||||||
2,000,000 | 4.625%, 11/15/25 Series A | Aa1/AAA/AA+ | 2,176,500 | ||||||
3,540,000 | 4.625%, 11/15/26 Series A | Aa1/AAA/AA+ | 3,749,922 | ||||||
2,155,000 | 5.000%, 11/15/28 Series A | Aa1/AAA/AA+ | 2,318,866 | ||||||
Tri-County Metropolitan Transportation | |||||||||
District, Oregon | |||||||||
1,010,000 | 5.000%, 09/01/24 | Aa1/AAA/NR | 1,179,801 | ||||||
Tri-County Metropolitan Transportation | |||||||||
District, Oregon Capital Grant Receipt | |||||||||
1,685,000 | 5.000%, 10/01/24 Series A | A2/A/NR | 1,897,445 | ||||||
3,480,000 | 5.000%, 10/01/26 Series A | A2/A/NR | 3,818,360 | ||||||
3,000,000 | 5.000%, 10/01/27 Series A | A2/A/NR | 3,263,430 | ||||||
Total Transportation | 24,912,783 | ||||||||
Water and Sewer (13.7%) | |||||||||
Ashland, Oregon Refunding | |||||||||
1,025,000 | 4.000%, 05/01/17 AGMC Insured | NR/AA-/NR | 1,127,480 | ||||||
Grants Pass, Oregon | |||||||||
1,000,000 | 4.000%, 12/01/23 | NR/AA-/NR | 1,084,560 | ||||||
Klamath Falls, Oregon Water | |||||||||
1,575,000 | 5.500%, 07/01/16 AGMC Insured | A2/AA-/NR | 1,671,201 | ||||||
Lane County, Oregon Metropolitan | |||||||||
Wastewater | |||||||||
2,500,000 | 5.250%, 11/01/28 | Aa2/AA/NR | 2,671,850 | ||||||
Madras, Oregon | |||||||||
725,000 | 4.500%, 02/15/27 | Baa1/NR/NR | 724,964 |
13 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | |||||||||
Principal | Moody’s/S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Water and Sewer (continued) | |||||||||
Portland, Oregon Sewer System, | |||||||||
Second Lien | |||||||||
$ | 3,005,000 | 5.000%, 03/01/28 Series A | Aa3/AA/NR | $ | 3,316,198 | ||||
Portland Oregon Sewer System Revenue | |||||||||
Refunding Second Lien | |||||||||
5,000,000 | 5.000%, 06/15/33 Series B | Aa3/AA-/NR | 5,255,750 | ||||||
Portland, Oregon Sewer System | |||||||||
2,760,000 | 5.250%, 06/01/17 AGMC Insured | Aa3/AA/NR | 2,767,452 | ||||||
4,595,000 | 5.000%, 06/01/17 AGMC Insured | Aa2/AA/NR | 4,900,935 | ||||||
3,470,000 | 5.000%, 06/01/21 AGMC Insured | Aa3/AA/NR | 3,478,918 | ||||||
4,410,000 | 5.000%, 06/15/25 NPFG Insured | Aa3/AA/NR | 4,724,609 | ||||||
4,630,000 | 5.000%, 06/15/26 NPFG Insured | Aa3/AA/NR | 4,932,709 | ||||||
1,610,000 | 5.000%, 06/15/27 NPFG Insured | Aa3/AA/NR | 1,711,366 | ||||||
Portland, Oregon Water System | |||||||||
Revenue Refunding | |||||||||
1,275,000 | 4.000%, 05/01/25 Series A | Aaa/NR/NR | 1,349,792 | ||||||
Prineville, Oregon Refunding | |||||||||
1,255,000 | 4.400%, 06/01/29 AGMC Insured | NR/AA-/NR | 1,306,279 | ||||||
Salem, Oregon Water & Sewer | |||||||||
1,000,000 | 5.375%, 06/01/15 AGMC Insured | ||||||||
ETM | Aa3/AA-/NR | 1,082,800 | |||||||
Seaside, Oregon Wastewater System | |||||||||
1,000,000 | 4.250%, 07/01/26 | A3/NR/NR | 1,025,170 | ||||||
Sunrise Water Authority, Oregon | |||||||||
2,630,000 | 5.000%, 03/01/19 AGMC Insured | A2/AA-/NR | 2,662,191 | ||||||
1,350,000 | 5.250%, 03/01/24 AGMC Insured | A2/AA-/NR | 1,363,649 | ||||||
1,000,000 | 5.000%, 09/01/25 Syncora Guarantee, | ||||||||
Inc | NR/NR/NR* | 1,017,080 | |||||||
Tigard, Oregon Water System Revenue | |||||||||
Refunding | |||||||||
2,025,000 | 4.000%, 08/01/21 | A1/AA-/NR | 2,199,150 | ||||||
2,565,000 | 5.000%, 08/01/24 | A1/AA-/NR | 2,928,101 | ||||||
Washington County, Oregon Clean | |||||||||
Water Services | |||||||||
2,235,000 | 5.250%, 10/01/15 NPFG Insured | Aa2/AA/NR | 2,448,241 | ||||||
4,000,000 | 5.000%, 10/01/28 | Aa2/AA/NR | 4,367,080 |
14 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Rating | ||||||||||
Principal | Moody’s/S&P | |||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | |||||||
Water and Sewer (continued) | ||||||||||
Washington County, Oregon Clean | ||||||||||
Water Services Sewer Revenue | ||||||||||
Senior Lien | ||||||||||
$ | 1,010,000 | 4.000%, 10/01/22 Series B | Aa2/AA/NR | $ | 1,098,537 | |||||
1,500,000 | 4.000%, 10/01/23 Series B | Aa2/AA/NR | 1,612,545 | |||||||
2,850,000 | 4.000%, 10/01/26 Series B | Aa2/AA/NR | 2,962,746 | |||||||
2,745,000 | 4.000%, 10/01/28 Series B | Aa2/AA/NR | 2,801,547 | |||||||
Woodburn, Oregon Wastewater | ||||||||||
Revenue Refunding | ||||||||||
1,090,000 | 5.000%, 03/01/21 Series A | A2/NR/NR | 1,220,800 | |||||||
Total Water and Sewer | 69,813,700 | |||||||||
Total Revenue Bonds | 250,580,715 | |||||||||
Total Investments (cost $481,451,899- | ||||||||||
note 4) | 98.3 | % | 500,621,032 | |||||||
Other assets less liabilities | 1.7 | 8,822,124 | ||||||||
Net Assets | 100.0 | % | $ | 509,443,156 | ||||||
* | Any security not rated (“NR”) by any of the Nationally Recognized Statistical Rating Organizations (“NRSRO” or “Credit Rating Agency”) 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 NRSRO. |
15 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Percent of | ||||
Portfolio Distribution by Quality Rating | Portfolio† | |||
Aaa of Moody’s or AAA of S&P | 8.1 | % | ||
Pre-refunded bonds †† / Escrowed to Maturity bonds | 8.5 | |||
Aa of Moody’s, AA of S&P or Fitch | 60.2 | |||
A of Moody’s, S&P or Fitch | 17.7 | |||
Baa of Moody’s or BBB of S&P | 3.7 | |||
Not rated* | 1.8 | |||
100.0 | % |
† | Where applicable, calculated using the highest rating of the three NRSROs. |
†† | Pre-refunded bonds are bonds for which U.S. Government Obligations usually have been placed in escrow to retire the bonds at their earliest call date. |
PORTFOLIO ABBREVIATIONS: AGC Assured Guaranty Insurance AGMC Assured Guaranty Municipal Corp. AMBAC American Municipal Bond Assurance Corporation COP Certificates of Participation ETM Escrowed to Maturity FGIC Financial Guaranty Insurance Co. NPFG National Public Finance Guarantee NR Not Rated |
See accompanying notes to financial statements.
16 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2013 (unaudited) 2012
ASSETS | ||||
Investments at value (cost $481,451,899) | $ | 500,621,032 | ||
Cash | 2,205,931 | |||
Interest receivable | 7,074,489 | |||
Receivable for Trust shares sold | 445,870 | |||
Other assets | 11,534 | |||
Total assets | 510,358,856 | |||
LIABILITIES | ||||
Dividends payable | 375,494 | |||
Payable for Trust shares redeemed | 291,574 | |||
Management fees payable | 164,612 | |||
Distribution and service fees payable | 12,412 | |||
Accrued expenses | 71,608 | |||
Total liabilities | 915,700 | |||
NET ASSETS | $ | 509,443,156 | ||
Net Assets consist of: | ||||
Capital Stock - Authorized an unlimited number of shares, par | ||||
value $0.01 per share | $ | 466,444 | ||
Additional paid-in capital | 490,341,097 | |||
Net unrealized appreciation on investments (note 4) | 19,169,133 | |||
Undistributed net investment income | 256,182 | |||
Accumulated net realized loss on investments | (789,700 | ) | ||
$ | 509,443,156 | |||
CLASS A | ||||
Net Assets | $ | 393,226,901 | ||
Capital shares outstanding | 35,997,255 | |||
Net asset value and redemption price per share | $ | 10.92 | ||
Maximum offering price per share (100/96 of $10.92) | $ | 11.38 | ||
CLASS C | ||||
Net Assets | $ | 31,718,774 | ||
Capital shares outstanding | 2,906,287 | |||
Net asset value and offering price per share | $ | 10.91 | ||
Redemption price per share (* a charge of 1% is imposed on the | ||||
redemption proceeds, or on the original price, whichever is | ||||
lower, if redeemed during the first 12 months after purchase) | $ | 10.91 | * | |
CLASS Y | ||||
Net Assets | $ | 84,497,481 | ||
Capital shares outstanding | 7,740,854 | |||
Net asset value, offering and redemption price per share | $ | 10.92 |
See accompanying notes to financial statements.
17 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 2013 (unaudited)
Investment Income: | ||||||||
Interest income | $ | 10,279,804 | ||||||
Expenses: | ||||||||
Management fees (note 3) | $ | 1,067,448 | ||||||
Distribution and service fees (note 3) | 487,200 | |||||||
Trustees’ fees and expenses (note 7) | 128,697 | |||||||
Transfer and shareholder servicing agent fees | 126,854 | |||||||
Legal fees | 93,922 | |||||||
Shareholders’ reports and proxy statements | 31,280 | |||||||
Custodian fees (note 6) | 19,694 | |||||||
Registration fees and dues | 17,983 | |||||||
Insurance | 13,473 | |||||||
Auditing and tax fees | 11,431 | |||||||
Chief compliance officer services (note 3) | 2,771 | |||||||
Miscellaneous | 27,210 | |||||||
Total expenses | 2,027,963 | |||||||
Management fees waived (note 3) | (13,262 | ) | ||||||
Expenses paid indirectly (note 6) | (28 | ) | ||||||
Net expenses | 2,014,673 | |||||||
Net investment income | 8,265,131 | |||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||
Net realized gain (loss) from securities | ||||||||
transactions | (871,325 | ) | ||||||
Change in unrealized appreciation on | ||||||||
investments | (21,131,860 | ) | ||||||
Net realized and unrealized gain (loss) on | ||||||||
investments | (22,003,185 | ) | ||||||
Net change in net assets resulting from | ||||||||
operations | $ | (13,738,054 | ) |
See accompanying notes to financial statements.
18 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended | ||||||||||||
September 30, 2013 | Six Months Ended | Year Ended | ||||||||||
(unaudited) | March 31, 2013† | September 30, 2012 | ||||||||||
OPERATIONS: | ||||||||||||
Net investment income | $ | 8,265,131 | $ | 8,321,790 | $ | 16,522,680 | ||||||
Net realized gain (loss) from | ||||||||||||
securities transactions | (871,325 | ) | 82,033 | 2,522,836 | ||||||||
Change in unrealized appreciation | ||||||||||||
on investments | (21,131,860 | ) | (5,674,924 | ) | 16,001,761 | |||||||
Change in net assets resulting | ||||||||||||
from operations | (13,738,054 | ) | 2,728,899 | 35,047,277 | ||||||||
DISTRIBUTIONS TO SHAREHOLDERS (note 10): | ||||||||||||
Class A Shares: | ||||||||||||
Net investment income | (6,423,273 | ) | (6,503,519 | ) | (13,021,908 | ) | ||||||
Net realized gain on | ||||||||||||
investments | – | (1,699,647 | ) | – | ||||||||
Class C Shares: | ||||||||||||
Net investment income | (406,737 | ) | (431,433 | ) | (778,958 | ) | ||||||
Net realized gain on | ||||||||||||
investments | – | (156,809 | ) | – | ||||||||
Class Y Shares: | ||||||||||||
Net investment income | (1,421,816 | ) | (1,374,077 | ) | (2,679,809 | ) | ||||||
Net realized gain on | ||||||||||||
investments | – | (336,740 | ) | – | ||||||||
Change in net assets from | ||||||||||||
distributions | (8,251,826 | ) | (10,502,225 | ) | (16,480,675 | ) | ||||||
CAPITAL SHARE TRANSACTIONS (note 8): | ||||||||||||
Proceeds from shares sold | 33,521,615 | 44,481,773 | 84,694,490 | |||||||||
Reinvested dividends and | ||||||||||||
distributions | 5,694,280 | 7,473,829 | 10,296,809 | |||||||||
Cost of shares redeemed | (60,737,365 | ) | (31,722,298 | ) | (52,022,893 | ) | ||||||
Change in net assets from | ||||||||||||
capital share transactions | (21,521,470 | ) | 20,233,304 | 42,968,406 | ||||||||
Change in net assets | (43,511,350 | ) | 12,459,978 | 61,535,008 | ||||||||
NET ASSETS: | ||||||||||||
Beginning of period | 552,954,506 | 540,494,528 | 478,959,520 | |||||||||
End of period* | $ | 509,443,156 | $ | 552,954,506 | $ | 540,494,528 | ||||||
* Includes undistributed net | ||||||||||||
investment income of: | $ | 256,182 | $ | 242,877 | $ | 230,091 |
† | Effective December 1, 2012, the Trust changed its fiscal year end from September 30 to March 31.The information presented is for the period October 1, 2012 to March 31, 2013. |
See accompanying notes to financial statements.
19 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2013 (unaudited)
1. Organization
Aquila Tax-Free Trust of Oregon (the “Trust”) (from inception until the close of business on October 11, 2013, the Trust operated under the name Tax-Free Trust of Oregon) is the sole 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. Class A Shares are sold at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold 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 thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through authorized financial 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 sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. Class I Shares are offered and sold only through financial intermediaries and are not offered directly to retail customers. Class I Shares are sold at net asset value with no sales charge and no redemption fee or CDSC, although a financial intermediary may charge a fee for effecting a purchase or other transaction on behalf of its customers. Class I Shares carry a distribution and a service fee. As of the report date, 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. On December 1, 2012, the Board of Trustees approved a change in the Trust’s fiscal and tax year end from September to March.
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 accounting principles generally accepted in the United States of America for investment companies.
a) | Portfolio valuation: Municipal securities which have remaining maturities of more than 60 days are valued each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services. In the case of securities for which market quotations are readily available, securities are valued by the pricing service at the mean of bid and asked quotations. If a market quotation or a valuation from the pricing service is not readily available, the security is valued at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees. Securities which mature in 60 days or less are generally valued at amortized cost if their term to maturity at purchase is 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 exceeds 60 days. |
20 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
b) | Fair value measurements: The Trust follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Trust’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Trust’s investments and are summarized in the following fair value hierarchy: |
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access.
Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Trust’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, based on the best information available.
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the valuation inputs, representing 100% of the Trust’s investments, used to value the Trust’s net assets as of September 30, 2013:
Valuation Inputs | Investments in Securities | ||||
Level 1 – Quoted Prices | $ | – | |||
Level 2 – Other Significant Observable | |||||
Inputs –Municipal Bonds* | 500,621,032 | ||||
Level 3 – Significant Unobservable Inputs | – | ||||
Total | $ | 500,621,032 |
*See schedule of investments for a detailed listing of securities.
c) | Subsequent events: In preparing these financial statements, the Trust has evaluated events and transactions for potential recognition or disclosure through the date these financial statements were issued. |
d) | 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 and market discount. |
e) | Federal income taxes: It is the policy of the Trust to continue 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. |
21 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Management has reviewed the tax positions for each of the open tax years (2010-2012) or expected to be taken in the Trust’s 2013 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements.
f) | Multiple class allocations: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses 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 also charged directly to such class on a daily basis. |
g) | Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. |
h) | Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On March 31, 2013, the Trust increased undistributed net investment income by $25 and decreased paid-in capital by $25 due primarily to differing book/tax treatment of distributions and bond amortization. These reclassifications had no effect on net assets or net asset value per share. |
3. Fees and Related Party Transactions
a) Management Arrangements:
Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, 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-today 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 managing relationships with 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% of net assets of the Trust. The Manager determined to contractually waive its fees to the extent necessary in order to pass savings through to the shareholders recognized under the Sub-Advisory Agreement (as described below) such that its fees are as follows: the annual rate shall be equivalent to 0.40 of 1% of net assets of the Trust up to $400 million; 0.38 of 1% of the Trust’s net assets above that amount to $1 billion and 0.36 of 1% of the Trust’s net assets above $1 billion. For the six months ended September 30, 2013, the Trust incurred management fees of $1,067,448, of which $13,262 was waived.
22 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
Kirkpatrick Pettis Capital Management (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% of net assets of the Trust up to $400 million; 0.16 of 1% of net assets above $400 million up to $1 billion; and 0.14 of 1% of net assets above $1 billlion.
Under a Compliance Agreement with the Manager, the Manager is compensated by the Trust for Chief Compliance Officer related services provided to enable the Trust to comply with Rule 38a-1 of the Investment Company Act of 1940.
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 distribution 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 distribution fee at the annual rate of 0.15% of the Trust’s average net assets represented by Class A Shares. For the six months ended September 30, 2013, distribution fees on Class A Shares amounted to $308,324 of which the Distributor retained $11,998.
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 average net assets represented by Class C Shares and for the six months ended September 30, 2013, amounted to $134,157. 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 average net assets represented by Class C Shares and for the six months ended September 30, 2013, amounted to $44,719. The total of these payments made with respect to Class C Shares amounted to $178,876 of which the Distributor retained $38,041.
23 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
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 brokerage and advisory firms (“intermediaries”), the Trust’s shares are sold primarily through the facilities of these intermediaries having offices within Oregon, with the bulk of any sales commissions inuring to such intermediaries. For the six months ended September 30, 2013, total commissions on sales of Class A Shares amounted to $383,246 of which the Distributor received $67,222.
4. Purchases and Sales of Securities
During the six months ended September 30, 2013, purchases of securities and proceeds from the sales of securities aggregated $16,688,345 and $36,053,739, respectively.
At September 30, 2013, the aggregate tax cost for all securities was $481,195,749. At September 30, 2013, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $23,767,633 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $4,342,350 for a net unrealized appreciation of $19,425,283.
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. These amendments could have an adverse effect on the general financial condition of certain municipal entities that would impair the ability of certain Oregon issuers to pay interest and principal on their obligations.
6. 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.
24 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
7. Trustees’ Fees and Expenses
At September 30, 2013 there were 7 Trustees, one of whom is affiliated with the Manager and is not paid any fees. The total amount of Trustees’ service fees (for carrying out their responsibilities) and attendance fees paid during the six months ended September 30, 2013 was $109,333. Attendance fees are paid to those in attendance at regularly scheduled quarterly Board Meetings and meetings of the Independent Trustees held prior to each quarterly Board Meeting, as well as additional meetings (such as Audit, Nominating, Shareholder and special meetings). Trustees are reimbursed for their expenses such as travel, accommodations, and meals incurred in connection with attendance at Board Meetings and at the Annual Meeting of Shareholders. For the six months ended September 30, 2013, such meeting-related expenses amounted to $19,364.
25 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
8. Capital Share Transactions
Transactions in Capital Shares of the Trust were as follows:
Six Months Ended | Six Months | |||||||||||
September 30, 2013 | Ended | Year Ended | ||||||||||
(unaudited) | March 31, 2013† | September 30, 2012 | ||||||||||
SHARES | ||||||||||||
Class A Shares: | ||||||||||||
Shares sold | 1,652,704 | 2,403,021 | 4,298,384 | |||||||||
Reinvested dividends and | ||||||||||||
distributions | 420,811 | 517,684 | 733,155 | |||||||||
Shares redeemed | (3,432,956 | ) | (1,916,583 | ) | (2,893,087 | ) | ||||||
Net change | (1,359,441 | ) | 1,004,122 | 2,138,452 | ||||||||
Class C Shares: | ||||||||||||
Shares sold | 196,191 | 418,499 | 1,283,173 | |||||||||
Reinvested dividends and | ||||||||||||
distributions | 30,045 | 40,490 | 49,403 | |||||||||
Shares redeemed | (764,885 | ) | (286,525 | ) | (517,711 | ) | ||||||
Net change | (538,649 | ) | 172,464 | 814,865 | ||||||||
Class Y Shares: | ||||||||||||
Shares sold | 1,154,829 | 1,048,609 | 1,888,049 | |||||||||
Reinvested dividends and | ||||||||||||
distributions | 66,041 | 92,977 | 125,029 | |||||||||
Shares redeemed | (1,313,764 | ) | (557,959 | ) | (1,186,848 | ) | ||||||
Net change | (92,894 | ) | 583,627 | 826,230 | ||||||||
Total transactions in | ||||||||||||
Trust shares | (1,990,984 | ) | 1,760,213 | 3,779,547 | ||||||||
DOLLARS | ||||||||||||
Class A Shares: | ||||||||||||
Proceeds from shares sold | $ | 18,498,641 | $ | 27,641,772 | $ | 48,821,795 | ||||||
Reinvested dividends and | ||||||||||||
distributions | 4,633,730 | 5,942,752 | 8,316,442 | |||||||||
Cost of shares redeemed | (37,822,839 | ) | (22,009,651 | ) | (32,761,551 | ) | ||||||
Net change | (14,690,468 | ) | 11,574,873 | 24,376,686 | ||||||||
Class C Shares: | ||||||||||||
Proceeds from shares sold | 2,189,445 | 4,818,034 | 14,532,028 | |||||||||
Reinvested dividends and | ||||||||||||
distributions | 330,661 | 464,411 | 560,212 | |||||||||
Cost of shares redeemed | (8,448,689 | ) | (3,287,373 | ) | (5,849,065 | ) | ||||||
Net change | (5,928,583 | ) | 1,995,072 | 9,243,175 | ||||||||
Class Y Shares: | ||||||||||||
Proceeds from shares sold | 12,833,529 | 12,021,967 | 21,340,667 | |||||||||
Reinvested dividends and | ||||||||||||
distributions | 729,889 | 1,066,666 | 1,420,155 | |||||||||
Cost of shares redeemed | (14,465,837 | ) | (6,425,274 | ) | (13,412,277 | ) | ||||||
Net change | (902,419 | ) | 6,663,359 | 9,348,545 | ||||||||
Total transactions in | ||||||||||||
Trust shares | $ | (21,521,470 | ) | $ | 20,233,304 | $ | 42,968,406 |
† | Effective December 1, 2012, the Trust changed its fiscal year end from September 30 to March 31.The information presented is for the period October 1, 2012 to March 31, 2013. |
26 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
9. Securities Traded on a When-Issued Basis
The Trust may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Trust with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Trust at the time of entering into the transaction. Beginning on the date the Trust enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the value of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.
10. Income Tax Information and Distributions
The Trust declares dividends daily from net investment income and makes payments monthly. Net realized capital gains, if any, are distributed annually and are taxable. These distributions are paid in additional shares at the net asset value per share, in cash, or in a combination of both, at the shareholder’s option.
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. 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 portion of the dividends may, under some circumstances, be subject to taxes at ordinary income and/or capital gain rates. As a result of the passage of the Regulated Investment Company Act of 2010 (“the Act”), losses incurred in this fiscal year and beyond retain their character as short-term or long-term, have no expiration date and are utilized before capital losses incurred prior to the enactment of the Act.
As of March 31, 2013, there were no post October capital loss deferrals.
The tax character of distributions was as follows:
Six Months | ||||||||||||
Ended | Year Ended September 30, | |||||||||||
March 31, 2013 | 2012 | 2011 | ||||||||||
Net tax-exempt income | $ | 8,309,029 | $ | 16,425,024 | $ | 16,826,664 | ||||||
Ordinary income | – | 55,651 | – | |||||||||
Capital gain | 2,193,196 | – | – | |||||||||
$ | 10,502,225 | $ | 16,480,675 | $ | 16,826,444 |
As of March 31, 2013, the components of distributable earnings on a tax basis were as follows:
Unrealized appreciation | $ | 40,543,870 | ||
Undistributed tax-exempt income | 248,863 | |||
Accumulated net gain on investments | 81,625 | |||
Other temporary differences | (248,863 | ) | ||
$ | 40,625,495 |
27 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 2013 (unaudited)
The difference between book basis and tax basis undistributed income is due to the timing difference in recognizing dividends paid and the tax treatment of discount amortization.
11. Ongoing Development
Beginning in December 2007, the three major rating agencies (Standard & Poor’s, Moody’s and Fitch) downgraded or eliminated ratings of the municipal bond insurance companies due to loss of capital from investments in subprime mortgages. Only a few insurers are now deemed to be investment grade. Thus, while certain bonds have insurance, some are no longer rated based upon the ratings of their insurers. Furthermore, because the ability of many of the Trust’s insurers to pay claims has been downgraded, the protection of such insurance has been diminished, and there is no assurance that some of them may be relied upon for payment.
28 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
Class A | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Six Months | Year Ended September 30, | ||||||||||||||||||||||||||
9/30/13 (unaudited) | Ended 3/31/13† | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.37 | $ | 11.53 | $ | 11.12 | $ | 11.18 | $ | 11.05 | $ | 10.11 | $ | 10.68 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.17 | 0.18 | 0.37 | 0.38 | 0.40 | 0.42 | 0.42 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.44 | ) | (0.11 | ) | 0.41 | (0.06 | ) | 0.13 | 0.94 | (0.58 | ) | |||||||||||||||||
Total from investment operations | (0.27 | ) | 0.07 | 0.78 | 0.32 | 0.53 | 1.36 | (0.16 | ) | |||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.18 | ) | (0.18 | ) | (0.37 | ) | (0.38 | ) | (0.40 | ) | (0.42 | ) | (0.41 | ) | ||||||||||||||
Distributions from capital gains | – | (0.05 | ) | – | – | – | – | – | ||||||||||||||||||||
Total distributions | (0.18 | ) | (0.23 | ) | (0.37 | ) | (0.38 | ) | (0.40 | ) | (0.42 | ) | (0.41 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.92 | $ | 11.37 | $ | 11.53 | $ | 11.12 | $ | 11.18 | $ | 11.05 | $ | 10.11 | ||||||||||||||
Total return(not reflecting sales charge) | (2.43 | )%(2) | 0.54 | %(2) | 7.14 | % | 3.05 | % | 4.95 | % | 13.74 | % | (1.58 | )% | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 393 | $ | 425 | $ | 419 | $ | 380 | $ | 400 | $ | 370 | $ | 324 | ||||||||||||||
Ratio of expenses to average net assets | 0.72 | %(3) | 0.71 | %(3) | 0.74 | % | 0.76 | % | 0.72 | % | 0.73 | % | 0.76 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.13 | %(3) | 3.08 | %(3) | 3.29 | % | 3.55 | % | 3.65 | % | 4.02 | % | 3.89 | % | ||||||||||||||
Portfolio turnover rate | 3 | %(2)(2) | 3 | %(2) | 8 | % | 15 | % | 9 | % | 15 | % | 15 | % | ||||||||||||||
The expense and net investment income ratios without the effect of the contractual waiver of management fees were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.73 | %(3) | 0.72 | %(3) | 0.75 | % | 0.76 | % | – | – | – | |||||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.12 | %(3)(3) | 3.07 | %(3) | 3.28 | % | 3.55 | % | – | – | – | |||||||||||||||||
The expense ratios after giving effect to the contractual waiver of management fees and expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.72 | %(3) (3) | 0.71 | %(3) | 0.74 | % | 0.76 | % | 0.72 | % | 0.73 | % | 0.74 | % |
___________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
† | Effective December 1, 2012, the Trust changed its fiscal year end from September 30 to March 31. The information presented is for the period October 1, 2012 to March 31, 2013. |
Note: | On January 1, 2011, Kirkpatrick Pettis Capital Management became the Trust’s Investment Sub-Adviser, replacing FAF Advisors, Inc. |
See accompanying notes to financial statements.
29 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS (continued)
For a share outstanding throughout each period
Class C | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Six Months | Year Ended September 30, | ||||||||||||||||||||||||||
9/30/13 (unaudited) | Ended 3/31/13† | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||||||
Net asset value, beginning of period . | $ | 11.36 | $ | 11.52 | $ | 11.11 | $ | 11.17 | $ | 11.04 | $ | 10.10 | $ | 10.68 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.13 | 0.13 | 0.27 | 0.29 | 0.30 | 0.33 | 0.33 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.45 | ) | (0.11 | ) | 0.42 | (0.06 | ) | 0.14 | 0.94 | (0.59 | ) | |||||||||||||||||
Total from investment operations | (0.32 | ) | 0.02 | 0.69 | 0.23 | 0.44 | 1.27 | (0.26 | ) | |||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.13 | ) | (0.13 | ) | (0.28 | ) | (0.29 | ) | (0.31 | ) | (0.33 | ) | (0.32 | ) | ||||||||||||||
Distributions from capital gains | – | (0.05 | ) | – | – | – | – | – | ||||||||||||||||||||
Total distributions | (0.13 | ) | (0.18 | ) | (0.28 | ) | (0.29 | ) | (0.31 | ) | (0.33 | ) | (0.32 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.91 | $ | 11.36 | $ | 11.52 | $ | 11.11 | $ | 11.17 | $ | 11.04 | $ | 10.10 | ||||||||||||||
Total return(not reflecting CDSC) | (2.85 | )%(2) | 0.11 | %(2) | 6.24 | % | 2.18 | % | 4.07 | % | 12.79 | % | (2.51 | )% | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 32 | $ | 39 | $ | 39 | $ | 27 | $ | 29 | $ | 22 | $ | 18 | ||||||||||||||
Ratio of expenses to average net assets | 1.57 | %(3) | 1.56 | %(3) | 1.59 | % | 1.61 | % | 1.57 | % | 1.58 | % | 1.61 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.28 | %(3) | 2.23 | %(3) | 2.42 | % | 2.70 | % | 2.78 | % | 3.15 | % | 3.04 | % | ||||||||||||||
Portfolio turnover rate | 0.0 3 | %(2) | 3 | %(2) | 8 | % | 15 | % | 9 | % | 15 | % | 15 | % | ||||||||||||||
The expense and net investment income ratios without the effect of the contractual waiver of management fees were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.58 | %(3) | 1.57 | %(3) | 1.59 | % | 1.61 | % | – | – | – | |||||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 2.27 | %(3) | 2.22 | %(3) | 2.42 | % | 2.70 | % | – | – | – | |||||||||||||||||
The expense ratios after giving effect to the contractual waiver of management fees and expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.57 | %(3) | 1.56 | %(3) | 1.59 | % | 1.61 | % | 1.57 | % | 1.58 | % | 1.59 | % |
___________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
† | Effective December 1, 2012, the Trust changed its fiscal year end from September 30 to March 31. The information presented is for the period October 1, 2012 to March 31, 2013. |
Note: | On January 1, 2011, Kirkpatrick Pettis Capital Management became the Trust’s Investment Sub-Adviser, replacing FAF Advisors, Inc. |
See accompanying notes to financial statements.
30 | Aquila Tax-Free Trust of Oregon
AQUILA TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS (continued)
For a share outstanding throughout each period
Class Y | ||||||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||||||
Ended | Six Months | Year Ended September 30, | ||||||||||||||||||||||||||
9/30/13 (unaudited) | Ended 3/31/13† | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||||||
Net asset value, beginning of period . | $ | 11.36 | $ | 11.52 | $ | 11.11 | $ | 11.18 | $ | 11.04 | $ | 10.10 | $ | 10.68 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||
Net investment income(1) | 0.18 | 0.18 | 0.39 | 0.40 | 0.42 | 0.44 | 0.43 | |||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||
realized and unrealized) | (0.44 | ) | (0.11 | ) | 0.41 | (0.07 | ) | 0.14 | 0.93 | (0.58 | ) | |||||||||||||||||
Total from investment operations | (0.26 | ) | 0.07 | 0.80 | 0.33 | 0.56 | 1.37 | (0.15 | ) | |||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||
Dividends from net investment income | (0.18 | ) | (0.18 | ) | (0.39 | ) | (0.40 | ) | (0.42 | ) | (0.43 | ) | (0.43 | ) | ||||||||||||||
Distributions from capital gains | – | (0.05 | ) | – | – | – | – | – | ||||||||||||||||||||
Total distributions | (0.18 | ) | (0.23 | ) | (0.39 | ) | (0.40 | ) | (0.42 | ) | (0.43 | ) | (0.43 | ) | ||||||||||||||
Net asset value, end of period | $ | 10.92 | $ | 11.36 | $ | 11.52 | $ | 11.11 | $ | 11.18 | $ | 11.04 | $ | 10.10 | ||||||||||||||
Total return | (2.28 | )%(2) | 0.61 | %(2) | 7.30 | % | 3.11 | % | 5.21 | % | 13.92 | % | (1.52 | )% | ||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 84 | $ | 89 | $ | 84 | $ | 71 | $ | 95 | $ | 85 | $ | 58 | ||||||||||||||
Ratio of expenses to average net assets | 0.57 | %(3) | 0.56 | %(3) | 0.59 | % | 0.61 | % | 0.57 | % | 0.58 | % | 0.61 | % | ||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.28 | %(3) | 3.23 | %(3) | 3.44 | % | 3.70 | % | 3.80 | % | 4.16 | % | 4.04 | % | ||||||||||||||
Portfolio turnover rate | 0.0 3 | %(2) | 3 | %(2) | 8 | % | 15 | % | 9 | % | 15 | % | 15 | % | ||||||||||||||
The expense and net investment income ratios without the effect of the contractual waiver of management fees were (note 3): | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.58 | %(3) | 0.57 | %(3) | 0.60 | % | 0.61 | % | – | – | – | |||||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||
average net assets | 3.27 | %(3) | 3.22 | %(3) | 3.43 | % | 3.70 | % | – | – | – | |||||||||||||||||
The expense ratios after giving effect to the contractual waiver of management fees and expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.57 | %(3) | 0.56 | %(3) | 0.59 | % | 0.61 | % | 0.57 | % | 0.58 | % | 0.59 | % |
___________________
(1) | Per share amounts have been calculated using the daily average shares method. |
(2) | Not annualized. |
(3) | Annualized. |
† | Effective December 1, 2012, the Trust changed its fiscal year end from September 30 to March 31. The information presented is for the period October 1, 2012 to March 31, 2013. |
Note: | On January 1, 2011, Kirkpatrick Pettis Capital Management became the Trust’s Investment Sub-Adviser, replacing FAF Advisors, Inc. |
See accompanying notes to financial statements.
31 | Aquila Tax-Free Trust of Oregon
Analysis of Expenses (unaudited)
As a shareholder of the Trust, you may incur two types of costs: (1) transaction costs, including front-end sales charges with respect to Class A shares or contingent deferred sales charges (“CDSC”) with respect to Class C shares; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Trust expenses. The table below is intended to help you understand your ongoing costs (in dollars) of investing in the Trust and to compare these costs with the ongoing costs of investing in other mutual funds.
The table below is based on an investment of $1,000 invested on April 1, 2013 and held for the six months ended September 30, 2013.
Actual Expenses
This table provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading “Expenses Paid During the Period”.
Six months ended September 30, 2013
Actual | ||||
Total Return | Beginning | Ending | Expenses | |
Without | Account | Account | Paid During | |
Sales Charges(1) | Value | Value | the Period(2) | |
Class A | (2.43)% | $1,000.00 | $975.70 | $3.57 |
Class C | (2.85)% | $1,000.00 | $971.50 | $7.76 |
Class Y | (2.28)% | $1,000.00 | $977.20 | $2.83 |
(1) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable CDSC with respect to Class C shares. Total return is not annualized, as it may not be representative of the total return for the year. |
(2) | Expenses are equal to the annualized expense ratio of 0.72%, 1.57% and 0.57% for the Trust’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
32 | Aquila Tax-Free Trust of Oregon
Analysis of Expenses (unaudited) (continued)
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Trust’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Trust and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Trust with the 5.00% hypothetical examples that appear in the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, with respect to Class A shares. The example does not reflect the deduction of CDSC with respect to Class C shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transaction costs were included, your costs would have been higher.
Six months ended September 30, 2013
Hypothetical | ||||
Annualized | Beginning | Ending | Expenses | |
Total | Account | Account | Paid During | |
Return | Value | Value | the Period(1) | |
Class A | 5.00% | $1,000.00 | $1,021.46 | $3.65 |
Class C | 5.00% | $1,000.00 | $1,017.20 | $7.94 |
Class Y | 5.00% | $1,000.00 | $1,022.21 | $2.89 |
(1) | Expenses are equal to the annualized expense ratio of 0.72%, 1.57% and 0.57% for the Trust’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period) |
33 | Aquila Tax-Free Trust of Oregon
Information Available (unaudited)
Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent your Trust’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Trust policies, the Manager publicly discloses the complete schedule of the Trust’s portfolio holdings, as of each calendar quarter, generally by the 15th day after the end of each calendar quarter. Such information remains accessible until the next schedule is made publicly available. You may obtain a copy of the Trust’s portfolio holdings schedule for the most recently completed period by visiting the Trust’s website at www.aquilafunds.com. The Trust may also disclose other portfolio holdings as of a specified date (currently the Trust discloses its five largest holdings and/or sector holdings by value as of the close of the last business day of each calendar month in a posting to its website on approximately the 5th business day following the month end). This information remains on the website until the next such posting. Whenever you wish to see a listing of your Trust’s portfolio other than in your shareholder reports, please check our website at www. aquilafunds.com or call us at 1-800-437-1020.
The Trust additionally files a complete list of its portfolio holdings with the SEC for the first and third quarter ends of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at www.sec.gov. You may also review or, for a fee, copy the forms at the SEC’s Public Reference Room in Washington, D.C. or by calling 1-800-SEC-0330.
Proxy Voting Record (unaudited)
During the 12 month period ended June 30, 2013, the Trust did not hold any portfolio securities for which the Trust was entitled to participate in proxy voting. Applicable regulations require us to inform you that the Trust’s proxy voting information is available on the SEC website at www.sec.gov.
Federal Tax Status of Distributions (unaudited)
This information is presented in order to comply with a requirement of the Internal Revenue Code. No action on the part of shareholders is required.
For the fiscal year ended March 31, 2013, $8,309,029 of dividends paid by Tax-Free Trust of Oregon, constituting 79.12% of total dividends paid during fiscal 2013, were exempt-interest dividends; $2,193,196 of dividends paid by the Trust, constituting 20.88% of total dividends paid during the fiscal year, were capital gain distributions.
Prior to February 15, 2014, shareholders will be mailed the appropriate tax form(s) which will contain information on the status of distributions paid for the 2013 calendar year.
34 | Aquila Tax-Free Trust of Oregon
Additional Information (unaudited)
Renewal of the Advisory and Administration Agreement and the Sub-Advisory Agreement
Aquila Investment Management LLC (the “Manager”) serves as the investment adviser to the Trust pursuant to an Advisory and Administration Agreement (the “Advisory Agreement”). The Manager has retained Davidson Fixed Income Management, Inc., doing business as Kirkpatrick Pettis Capital Management, Inc. (the “Sub-Adviser”), to serve as the sub-adviser to the Trust pursuant to a Sub-Advisory Agreement between the Manager and the Sub-Adviser (the “Sub-Advisory Agreement”). In order for the Manager and the Sub-Adviser to continue to serve in their respective roles, the Trustees of the Trust must determine annually whether to renew the Advisory Agreement and the Sub-Advisory Agreement for the Trust.
In considering whether to approve the renewal of the Advisory Agreement and the Sub-Advisory Agreement, the Trustees requested and obtained such information as they deemed reasonably necessary. Contract review materials were provided to the Trustees in August, 2013. The independent Trustees met in person in September, 2013 to review and discuss the contract review materials. The Trustees considered, among other things, information presented by the Manager and Sub-Adviser with respect to the Trust’s fees, expenses and investment performance, which included comparisons of the Trust’s investment performance against peers and the Trust’s benchmark and comparisons of the advisory fee payable by the Trust under the Advisory Agreement against the advisory fees paid by the Trust’s peers. In addition, the Trustees took into account the information related to the Trust provided to the Trustees at each regularly scheduled meeting. The Trustees considered the Advisory Agreement and the Sub-Advisory Agreement separately as well as in conjunction with each other to determine their combined effects on the Trust.
At a meeting held in September, 2013, based on their evaluation of the information provided by the Manager and the Sub-Adviser, the Trustees of the Trust, including the independent Trustees voting separately, unanimously approved the renewal of each of the Advisory Agreement and the Sub-Advisory Agreement until September 30, 2014. In considering the renewal of the Advisory Agreement and the Sub-Advisory Agreement, the Trustees considered various factors that they determined were relevant, including the factors described below. The Trustees did not identify any single factor as the controlling factor in determining to approve the renewal of the Advisory Agreement or the Sub-Advisory Agreement.
The nature, extent, and quality of the services provided by the Manager and the Sub-Adviser.
The Trustees considered the nature, extent and quality of the services that had been provided by the Manager and the Sub-Adviser to the Trust, taking into account the investment objectives and strategies of the Trust. The Trustees reviewed the terms of the Advisory Agreement and the Sub-Advisory Agreement.
The Manager has retained the Sub-Adviser to provide investment management of the Trust’s portfolio. The Trustees reviewed the Sub-Adviser’s investment approach for the Trust. The Trustees considered the personnel of the Sub-Adviser who provide investment management services to the Trust. The Trustees noted the extensive experience of the Sub-Adviser’s portfolio manager, Mr. Christopher Johns, and his comprehensive understanding regarding the economy of the State of Oregon and the securities in which the Trust invests, including those securities with less than the highest ratings from the rating agencies. The Trustees noted that, compared to other Oregon state-specific municipal bond-funds, the portfolio of the Trust generally was of higher quality, and that the Trust did not hold any securities subject to the alternative minimum tax.
35 | Aquila Tax-Free Trust of Oregon
The Trustees considered that the Manager supervised and monitored the performance of the Trust’s service providers (including the Sub-Adviser). The Manager has additionally provided all administrative services to the Trust and provided the Trust with personnel (including Trust officers) and other resources that are necessary for the Trust’s business management and operations.
The Trustees considered that the Manager and the Sub-Adviser had provided all administrative and advisory services to the Trust that the Trustees deemed necessary or appropriate, including the specific services that the Trustees have determined are required for the Trust, given that it seeks to provide shareholders with as high a level of current income exempt from Oregon state and regular Federal income taxes as is consistent with preservation of capital. Based on these considerations, the Trustees concluded that the nature, extent and quality of services that had been provided by the Manager and the Sub-Adviser to the Trust were satisfactory and consistent with the terms of the Advisory Agreement and Sub-Advisory Agreement, as applicable.
The investment performance of the Trust.
The Trustees reviewed the Trust’s performance and compared its performance with that of its local competitors (as identified by the Manager), its peer group (Morningstar Single-State Intermediate Municipal Bond Funds) and its benchmark index, the Barclays Capital Quality Intermediate Municipal Bond Index.
The Trustees noted that the Trust had average annual total returns for the 1, 3, 5 and 10 year periods ended June 30, 2013 that exceeded the average annual returns of Morningstar Single-State Intermediate Municipal Bond Funds for each of those periods. It was noted that the materials provided by the Manager indicated that the Trust had investment performance measured by average annual total returns that outperformed its benchmark index and its local competition for the 1-year period; while generally lagging the benchmark and local competition for the 3, 5 and 10-year periods ended June 30, 2013. The Trustees observed that the Trust’s Sharpe and Treynor ratios, which measure risk adjusted return, generally were more favorable than those of the Trust’s local competitors.
The Trustees discussed the Trust’s performance record with the Manager and the Sub-Adviser and considered the Manager’s and Sub-Adviser’s view that the Trust’s performance, as compared to its local competitors and peer group, was explained in part by the Trust’s generally higher-quality portfolio and its current intermediate maturity structure. They also considered that, unlike the Trust’s returns, the performance of the benchmark index did not reflect any fees or expenses. The Trustees considered these results to be consistent with the investment objectives of the Trust.
The Trustees concluded that the performance of the Trust was explained in part by market conditions, the Trust’s portfolio quality, its investment objectives and the longstanding efforts of the Sub-Adviser to minimize risk. Evaluation of this factor indicated to the Trustees that renewal of the Advisory Agreement would be appropriate.
36 | Aquila Tax-Free Trust of Oregon
Advisory and Sub-Advisory Fees and Trust Expenses.
The information provided by the Manager in connection with renewal contained advisory fee and expense data for the Trust and its peer group. The Trustees considered that the Manager, not the Trust, paid the Sub-Adviser pursuant to the Sub-Advisory Agreement. The Trustees evaluated both the fee under the Sub-Advisory Agreement and the portion of the fee under the Advisory Agreement retained by the Manager.
The Trustees compared the advisory fee and expense data with respect to the Trust to similar data about other funds that they found to be relevant. The Trustees considered that the advisory fee and expenses of the Trust were generally lower than the average and median advisory fees and expenses as compared to those advisory fees and expenses being paid by the Trust’s peer group.
The Trustees reviewed management fees charged by each of the Manager and the Sub-Adviser to its other clients. It was noted that the Manager does not have any other clients except for other funds in the Aquila Group of Funds. The Trustees noted that, in most instances, the fee rates for those clients were comparable to the fees paid to the Manager or Sub-Adviser with respect to the Trust. In evaluating the fees associated with the client accounts, the Trustees took into account the respective demands, resources and complexity associated with the Trust and those client accounts.
The Trustees concluded that the advisory and sub-advisory fees were reasonable in relation to the nature and quality of the services provided to the Trust by the Manager and the Sub-Adviser.
Profitability
The materials also showed the profitability to the Manager and the Sub-Adviser of their services to the Trust, as well as the profitability to Aquila Distributors, Inc. (the “Distributor”) of distribution services provided to the Trust.
The Trustees considered information provided by the Manager regarding the profitability of the Manager with respect to the services provided by the Manager to the Trust, including the methodology used by the Manager in allocating certain of its costs to the services provided to the Trust. The Trustees noted that the Distributor did not derive profits from its relationship with the Trust. The Trustees had retained an independent consultant to provide data on profitability. The Trustees considered that, based on the data provided by the independent consultant, the returns to the Manager were below the range and average identified by the consultant but were suitable for ongoing financial viability. The Trustees concluded that profitability to the Manager with respect to advisory services provided to the Trust was not unreasonable in light of the nature, extent and quality of the services provided to the Fund by the Manager.
The Trustees also considered information provided by the Sub-Adviser regarding the profitability of the Sub-Adviser with respect to the sub-advisory services provided by the Sub-Adviser to the Trust. They considered that, based on the data provided by the independent consultant, the returns to the Sub-Adviser were within the range and below the average identified by the consultant, but were suitable for ongoing financial viability. The Trustees concluded that the profitability of the Sub-Adviser with respect to sub-advisory services provided to the Trust was not unreasonable in light of the nature, extent and quality of the services provided to the Fund by the Sub-Adviser.
37 | Aquila Tax-Free Trust of Oregon
The extent to which economies of scale would be realized as the Trust grows.
The Trust has in place breakpoints in the sub-advisory fee which would be realized as the Trust grows. Under the Sub-Advisory Agreement the Manager will compensate the Sub-Adviser at the annual rate of 0.18% on the Trust’s net assets up to $400 million; 0.16% on assets above that amount to $1 billion in net assets and 0.14% on net assets thereafter. In addition, the Manager has contractually agreed to waive fees to the extent necessary so that the annual rate payable under the Advisory Agreement shall be equivalent to 0.40% on the Trust’s net assets up to $400 million; 0.38% on assets above that amount to $1 billion in net assets and 0.36% on net assets thereafter. Accordingly, the Trustees concluded that economies of scale, if any, were being appropriately shared with the Fund.
Benefits derived or to be derived by the Manager and the Sub-Adviser and their affiliates from their relationships with the Trust.
The Trustees observed that, as is generally true of most fund complexes, the Manager and Sub-Adviser and their affiliates, by providing services to a number of funds or other investment clients including the Trust, were able to spread costs as they would otherwise be unable to do. The Trustees noted that while that could produce efficiencies and increased profitability for the Manager and Sub-Adviser and their affiliates, it also makes their services available to the Trust at favorable levels of quality and cost which are more advantageous to the Trust than would otherwise have been possible.
38 | Aquila Tax-Free Trust of Oregon
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Founders
Lacy B. Herrmann (1929-2012)
Aquila Management Corporation, Sponsor
Manager
AQUILA INVESTMENT MANAGEMENT LLC
380 Madison Avenue, Suite 2300
New York, New York 10017
Investment Sub-Adviser
KIRKPATRICK PETTIS CAPITAL MANAGEMENT
2 Centerpointe Drive, Suite 500
Lake Oswego, Oregon 97035
Board of Trustees
James A. Gardner, Chair
Diana P. Herrmann, Vice Chair
Gary C. Cornia
Edmund P. Jensen
John W. Mitchell
Ralph R. Shaw
Nancy Wilgenbusch
Officers
Diana P. Herrmann, President
Charles E. Childs, III, Executive Vice President and Secretary
Marie E. Aro, Senior Vice President
Paul G. O’Brien, Senior Vice President
Christine L. Neimeth, Vice President
Randall S. Fillmore, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and Treasurer
Distributor
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
Transfer and Shareholder Servicing Agent
BNY MELLON
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
JPMORGAN CHASE BANK, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
Further information is contained in the Prospectus, which must precede or accompany this report.
ITEM 2. | CODE OF ETHICS. |
Not applicable.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Included in Item 1 above
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
The Board of Directors of the Registrant has adopted a Nominating Committee Charter which provides that the Nominating Committee (the 'Committee') may consider and evaluate nominee candidates properly submitted by shareholders if a vacancy among the Independent Trustees of the Registrant occurs and if, based on the Board's then current size, composition and structure, the Committee determines that the vacancy should be filled. The Committee will consider candidates submitted by shareholders on the same basis as it considers and evaluates candidates recommended by other sources. A copy of the qualifications and procedures that must be met or followed by shareholders to properly submit a nominee candidate to the Committee may be obtained by submitting a request in writing to the Secretary of the Registrant.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing of this report, the registrant's chief financial and executive officers have concluded that the disclosure controls and procedures of the registrant are appropriately designed to ensure that information required to be disclosed in the registrant's reports that are filed under the Securities Exchange Act of 1934 are accumulated and communicated to registrant's management, including its principal executive officer(s) and principal financial officer(s), to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the Securities and Exchange Commission.
(b) There have been no significant changes in registrant's internal controls or in other factors that could significantly affect registrant's internal controls subsequent to the date of the most recent evaluation, including no significant deficiencies or material weaknesses that required corrective action.
ITEM 12. | EXHIBITS. |
(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE CASCADES TRUST
By: | /s/ Diana P. Herrmann | |
Vice Chair, President and Trustee December , 2013 | ||
By: | /s/ Joseph P. DiMaggio | |
Chief Financial Officer December , 2013 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Diana P. Herrmann | |
Diana P. Herrmann Vice Chair, President and Trustee December , 2013 | ||
By: | /s/ Joseph P. DiMaggio | |
Joseph P. DiMaggio Chief Financial Officer and Treasurer December , 2013 |
THE CASCADES TRUST
EXHIBIT INDEX
(a) (2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial officer as required by Rule 30a-2(b) of the Investment Company Act of 1940.