UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4626
Tax-Free Trust or Oregon
(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: 9/30
Date of reporting period: 9/30/08
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS
ANNUAL
REPORT
SEPTEMBER 30, 2008
TAX-FREE TRUST OF
OREGON
A tax-free income investment
[LOGO OF TAX-FREE TRUST OF OREGON:
A SQUARE WITH TWO PINE TREES
IN FRONT OF A MOUNTAIN]
[LOGO OF THE AQUILA
GROUP OF FUNDS: ONE OF THE
AN EAGLE'S HEAD] AQUILA GROUP OF FUNDS(R)
[LOGO OF Serving Oregon Investors For More Than Two Decades
TAX-FREE
TRUST OF Tax-Free Trust of Oregon
OREGON:
A SQUARE "Proper Asset Allocation -
WITH TWO A Strategy For All Seasons"
PINE TREES
IN FRONT OF
A MOUNTAIN]
November, 2008
The market has definitely been volatile enough recently to cause even the
most seasoned investor to ask, "What should I do now?"
We believe you will be in a better position to weather this, or any,
economic storm, if your portfolio is built with a strong foundation. In short,
is your portfolio properly allocated based on your specific needs?
As you hopefully already know, asset allocation is an investment strategy
that strives to balance risk and reward by diversifying assets according to your
specific desires. These include:
o investment time horizon (specifically your age and retirement
objectives);
o risk threshold (how much of your investment capital you are willing
to lose during a given time frame);
o financial situation (your wealth, income, expenses, tax bracket,
liquidity needs, etc.); and
o 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.
Although there is no simple formula that can find 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.
NOT A PART OF THE ANNUAL REPORT
The way you allocate your investment among stocks, bonds, 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 scary headlines.
A properly constructed portfolio with sound asset allocation should be in
a good position to weather all seasons.
Sincerely,
/s/ Lacy B. Herrmann /s/ Diana P. Herrmann
Lacy B. Herrmann Diana P. Herrmann
Founder and Chairman Emeritus Vice Chair and President
[LOGO OF
TAX-FREE SERVING OREGON INVESTORS FOR MORE THAN TWO DECADES
TRUST OF
OREGON: TAX-FREE TRUST OF OREGON
A SQUARE
WITH TWO ANNUAL REPORT
PINE TREES
IN FRONT OF MANAGEMENT DISCUSSION
A MOUNTAIN]
Over the last twelve months, the financial markets have been subjected to
some of the most tumultuous events seen in recent memory. The U.S financial
system has resembled a patient in intensive care. The body is trying to fight
off a disease that is spreading, and as it does so, the body convulses, settles
for a time and then convulses again. Prolonged weakness in home prices exposed
sloppy mortgage loan underwriting standards and deficiencies in rating agency
methodologies. At the same time lending terms for loan-dependent, fixed-income
players became onerous, leading to large-scale debt reduction by hedge funds,
investment managers, and broker-dealers. As this vicious circle of debt
reduction, basically deleveraging our society, evolved into a full-blown credit
crunch, policymakers unveiled financing programs designed to provide liquidity
and financing to brokers and banks. Unfortunately, these efforts provided only
temporary relief as credit conditions have continued to deteriorate to the
extent that high-quality borrowers are having difficulty financing.
Investors, particularly those who were risk-adverse, turned to municipal
bonds as a haven for their investments. However, the municipal bond market
endured one of the more tumultuous years ever as fallout from the housing
debacle rocked market participants. Deterioration within their relatively new
mortgage-backed book of business ultimately led to downgrades for several of the
major insurers of municipal bonds. The impaired credit quality and loss of
confidence in many of the insurers affected much of the municipal market.
Insurance had become so pervasive that in recent years close to 50% of all new
issuance came with insurance coverage. The market was buffeted by irregular
bouts of volatility and selling pressure as a number of participants unwound
positions. For example, tax-exempt money funds were forced to exit insured
holdings en masse due to minimum ratings and liquidity requirements. To reduce
debt, many municipal market investors were pressured to sell longer-maturity
bonds when the floating rate component of their borrowing programs was no longer
money-fund eligible (the municipal market had in recent years developed its own
form of "carry" trade in which investors borrow in the short-term money markets
and invest in longer maturities, trying to take advantage of the relative
steepness of the municipal yield curve in comparison to other fixed-income
markets).
Credit spreads, (the differences in yield between higher and lower quality
debt) were the first to widen as the market anticipated that lower quality debt
would struggle in a slowing economy. Ultimately, however, the municipal bond
insurer debacle cut an even wider swath through the market. Many insured bonds
now trade solely based on the creditworthiness of underlying obligors, with
little or no value attributed to the insurance coverage. Not surprisingly, in
this environment natural stand alone AAA and AA rated bonds were generally the
best performers for the year. This is the area that Tax-Free Trust of Oregon
seeks for its portfolio. The credit spread between higher and lower quality debt
is considerably above historical norms.
MANAGEMENT DISCUSSION (CONTINUED)
In general, the municipal yield curve dramatically steepened over the past
12 months as yields on shorter maturities fell and longer maturities rose
considerably. At the end of the last fiscal year the yield differential between
a AAA rated municipal with two years to maturity and one with 20 years to
maturity was 103 basis points vs. 276 basis points at the end of this fiscal
year. In terms of total return, intermediate maturities, which is the maturity
area sought by the Trust, generally produced the best returns and
longer-maturity bonds were the weakest-performing part of the curve.
This fiscal year had two of the worst months for municipal bond
performance in the past 30 years, February and September. As a result, the
municipal bond market has reached compelling relative and absolute value levels.
The entire municipal bond curve now trades at 100% of comparable-maturity U.S.
Treasuries. While this would usually attract investors not normally investing in
the municipal bond market, the natural flow of capital seeking attractive risk
adjusted returns across asset classes has ground to a virtual halt. Once the
short term rate pressures alleviate we expect a snap back to lower ratios. The
volatility was primarily technical in nature, related to an increase in supply
on the secondary market and the turbulence in the subprime market. It does not
reflect a broad credit quality deterioration in the municipal bond market.
However, a slowing economy or recession resulting from the problems in the
housing and financial markets could have a negative impact on the tax revenues
of municipal issuers. In some instances, a prolonged slowdown could in turn have
a negative impact upon some of these issuers' credit quality and possibly their
ability to make timely interest and principal payments on their bonds. Our
research staff is committed to monitoring the credit quality of the Trust's
portfolio holdings. We continue to actively manage the portfolio to seek to
ensure that it possesses a minimum level of risk.
The total net assets of Tax-Free Trust of Oregon were $399,746,684 as of
the end of the fiscal year on September 30, 2008. This compared with
$410,614,961 on September 30, 2007. This change in overall size of the Trust was
basically due to market changes rather than redemptions.
PERFORMANCE REPORT
The following graph illustrates the value of $10,000 invested in the Class
A shares of Tax-Free Trust of Oregon for the 10-year period ended September 30,
2008 as compared with the Barclays Capital Quality Intermediate Municipal Bond
Index (formerly known as the Lehman Brothers Quality Intermediate Municipal Bond
Index) and the Consumer Price Index (a cost of living index). The performance of
each of the other classes is not shown in the graph but is included in the table
below. It should be noted that the Barclays Capital Quality Intermediate
Municipal Bond Index does not include any operating expenses nor sales charges
and being nationally oriented, does not reflect state specific bond market
performance.
[Graphic of a line chart with the following information:]
TFTO TFTO Barclays Capital
Cost of Trusts Class A Shares Trust Class A Shares Quality Intermediate
Living Index no sales charge with sales charge Municipal Bond Index
9/98 10,000 10,000 9,600 10,000
9/99 10,263 9,938 9,543 10,106
9/00 10,617 10,464 10,048 10,644
9/01 10,899 11,413 10,959 11,657
9/02 11,064 12,370 11,878 12,621
9/03 11,320 12,706 12,200 13,150
9/04 11,608 13,428 12,894 13,550
9/05 12,152 13,816 13,267 13,799
9/06 12,402 14,261 13,694 14,288
9/07 12,744 14,532 13,954 14,819
9/08 13,373 14,338 13,767 15,241
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED SEPTEMBER 30, 2008
------------------------------------------------
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
--------- --------- --------- ---------
Class A (commenced operations on 6/16/86)
With Sales Charge .......................... (5.56)% 1.38% 3.25% 5.40%
Without Sales Charge ....................... (1.58) 2.21 3.67 5.59
Class C (commenced operations on 4/5/96)
With CDSC .................................. (3.49) 1.34 2.79 3.49
Without CDSC ............................... (2.51) 1.34 2.79 3.49
Class Y (commenced operations on 4/5/96)
No Sales Charge ............................ (1.52) 2.36 3.82 4.53
Barclays Capital Quality
Intermediate Municipal Bond Index ............ 2.85 3.00 4.30 5.75* (Class A)
4.81 (Class C&Y)
* From commencement of the index on 1/1/87.
Total return figures shown for the Trust reflect any change in price and assume
all distributions within the period were invested in additional shares. Returns
for Class A shares are calculated with and without the effect of the initial 4%
maximum sales charge. Returns for Class C shares are calculated with and without
the effect of the 1% contingent deferred sales charge (CDSC), imposed on
redemptions made within the first 12 months after purchase. Class Y shares are
sold without any sales charge. The rates of return will vary and the principal
value of an investment will fluctuate with market conditions. Shares, if
redeemed, may be worth more or less than their original cost. A portion of each
class's income may be subject to Federal and state income taxes. Past
performance is not predictive of future investment results.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Tax-Free Trust of Oregon:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Tax-Free Trust of Oregon as of
September 30, 2008 and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the year ended September 30, 2004 were
audited by other auditors, whose report dated November 17, 2004 expressed an
unqualified opinion on such financial highlights.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
the Trust's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Trust's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 2008, by correspondence
with the custodian and brokers, or by other appropiate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Tax-Free Trust of Oregon as of September 30, 2008, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the four
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
November 25, 2008
- --------------------------------------------------------------------------------
TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2008
Rating
Principal Moody's/
Amount State of Oregon General Obligation Bonds (38.7%) S&P Value
- ---------------- ------------------------------------------------------------------ ---------- -------------
Bend, Oregon Transportation Highway System
(MBIA Corporation Insured)
$ 1,135,000 5.300%, 09/01/17 ................................................. A1/NR $ 1,162,058
Benton and Linn Counties, Oregon School District
#509J (Financial Security Assurance Insured)
4,670,000 5.000%, 06/01/21 pre-refunded .................................... Aaa/NR 5,010,209
Chemeketa, Oregon Community College District
(Financial Guaranty Insurance Corporation Insured)
1,385,000 5.500%, 06/01/14 Escrowed to Maturity ............................ NR/NR* 1,517,129
Clackamas, Oregon Community College District
(Financial Guaranty Insurance Corporation Insured)
3,955,000 5.250%, 06/15/17 pre-refunded .................................... Aa2/AA- 4,207,250
Clackamas, Oregon Community College District
(MBIA Corporation Insured)
1,535,000 5.000%, 05/01/25 ................................................. A1/AA 1,420,213
Clackamas, Oregon School District #12 (North
Clackamas) Convertible Capital Appreciation
Bonds (Financial Security Assurance Insured)
(converts to a 5% coupon on 06/15/11)
4,250,000 zero coupon, 06/15/29 ............................................ Aaa/AAA 3,356,778
Clackamas County, Oregon School District #12 (North
Clackamas) (Financial Security Assurance Insured)
2,000,000 4.500%, 06/15/30 ................................................. Aaa/AAA 1,700,440
3,115,000 4.750%, 06/15/31 ................................................. Aaa/AAA 2,755,373
Clackamas County, Oregon School District #62
(Oregon City) (State School Bond Guaranty Program)
1,055,000 5.500%, 06/15/20 pre-refunded .................................... Aa2/AAA 1,108,763
Clackamas County, Oregon School District #86
(Canby) (Financial Security Assurance Insured)
2,240,000 5.000%, 06/15/19 ................................................. Aaa/AAA 2,287,130
Clackamas County, Oregon School District #108
(Estacada) (Financial Security Assurance Insured)
1,295,000 5.375%, 06/15/17 pre-refunded .................................... Aaa/AAA 1,381,778
2,000,000 5.000%, 06/15/25 pre-refunded .................................... Aaa/AAA 2,114,640
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
Clackamas County, Oregon School District #115
(Gladstone) (MBIA Corporation Insured) (State
School Bond Guaranty Program)
$ 5,000,000 zero coupon, 06/15/27 ............................................ A2/AA $ 1,573,700
Clackamas County, Oregon Tax Allocation
705,000 6.500%, 05/01/20 ................................................. NR/NR* 704,944
Columbia County, Oregon School District #502
(Financial Guaranty Insurance Corporation Insured)
2,070,000 zero coupon, 06/01/15 ............................................ A2/NR 1,534,967
Deschutes County, Oregon (Financial Security
Assurance Insured)
2,260,000 5.000%, 12/01/16 ................................................. Aaa/NR 2,354,513
Deschutes County, Oregon Administrative School
District #1 (Bend-LaPine) (Financial Security
Assurance Insured)
1,145,000 5.500%, 06/15/14 pre-refunded .................................... Aaa/NR 1,225,425
1,300,000 5.500%, 06/15/16 pre-refunded .................................... Aaa/NR 1,391,312
1,355,000 5.500%, 06/15/18 pre-refunded .................................... Aaa/NR 1,450,175
3,000,000 5.125%, 06/15/21 pre-refunded .................................... Aaa/NR 3,181,650
Deschutes County, Oregon School District #6 (Sisters)
(Financial Security Assurance Insured)
1,735,000 5.250%, 06/15/19 ................................................. Aaa/AAA 1,844,426
1,030,000 5.250%, 06/15/21 ................................................. Aaa/AAA 1,065,679
Deschutes and Jefferson Counties, Oregon School
District #02J (Redmond) (Financial Guaranty
Insurance Corporation Insured)
1,000,000 5.000%, 06/15/21 ................................................. Aa2/NR 979,680
2,330,000 zero coupon, 06/15/22 ............................................ Aa2/NR 1,046,310
Douglas County, Oregon School District #116
(Winston-Dillard) (State School Bond
Guaranty Program)
1,020,000 5.625%, 06/15/20 pre-refunded .................................... NR/AA 1,074,080
Gresham, Oregon (Financial Security Assurance Insured)
1,155,000 5.375%, 06/01/18 ................................................. Aaa/NR 1,199,745
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
Jackson County, Oregon School District #4 (Phoenix-
Talent) (Financial Security Assurance Insured)
$ 1,395,000 5.500%, 06/15/18 pre-refunded .................................... Aaa/AAA $ 1,492,985
Jackson County, Oregon School District #9 (Eagle
Point) (MBIA Corporation Insured)
2,080,000 5.500%, 06/15/15 ................................................. Aa2/NR 2,268,032
1,445,000 5.500%, 06/15/16 ................................................. Aa2/NR 1,575,339
Jackson County, Oregon School District #9 (Eagle
Point) (State School Bond Guaranty Program)
1,120,000 5.625%, 06/15/17 pre-refunded .................................... Aa2/NR 1,202,286
1,880,000 5.000%, 06/15/21 pre-refunded .................................... Aa2/NR 1,987,762
Jackson County, Oregon School District #549
(Medford) (State School Bond Guaranty Program)
1,750,000 5.000%, 06/15/12 ................................................. Aa2/NR 1,857,747
Jackson County, Oregon School District #549C
(Medford) (Financial Security Assurance Insured)
2,000,000 4.750%, 12/15/29 ................................................. Aaa/AAA 1,760,760
3,000,000 5.000%, 12/15/32 ................................................. Aaa/AAA 2,766,330
Jackson County, Oregon School District #549C
(Medford) (School Board Guaranty)
1,000,000 4.625%, 06/15/27 ................................................. Aa2/AA 917,280
1,000,000 4.625%, 06/15/30 ................................................. Aa2/AA 894,730
1,000,000 5.000%, 06/15/33 ................................................. Aa2/AA 950,940
Jefferson County, Oregon School District #509J
(Financial Guaranty Insurance Corporation Insured)
1,215,000 5.250%, 06/15/14 ................................................. NR/AA 1,258,643
1,025,000 5.250%, 06/15/17 ................................................. NR/AA 1,046,658
Josephine County, Oregon Three Rivers School
District (Financial Security Assurance Insured)
1,780,000 5.250%, 06/15/18 pre-refunded .................................... Aaa/NR 1,893,528
Keizer, Oregon
2,500,000 5.200%, 06/01/31 ................................................. A3/NR 2,276,000
Lane County, Oregon School District #19 (Springfield)
(Financial Security Assurance Insured)
3,425,000 zero coupon, 06/15/29 ............................................ Aaa/NR 926,976
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
Lane County, Oregon School District #40 (Creswell)
(State School Bond Guaranty Program)
$ 1,430,000 5.375%, 06/15/20 pre-refunded .................................... NR/AA $ 1,499,913
Lincoln County, Oregon School District (Financial
Guaranty Insurance Corporation Insured)
1,245,000 5.250%, 06/15/12 ................................................. A2/NR 1,270,311
Linn County, Oregon School District #7 (Harrisburg)
(State School Bond Guaranty Program)
1,660,000 5.500%, 06/15/19 pre-refunded .................................... NR/AA 1,744,594
Linn County, Oregon School District #9 (Lebanon)
(Financial Guaranty Insurance Corporation Insured)
(State School Bond Guaranty Program)
3,000,000 5.600%, 06/15/30 pre-refunded .................................... NR/AA 3,277,470
Linn County, Oregon School District #9 (Lebanon)
(MBIA Corporation Insured) (State School Bond
Guaranty Program)
2,500,000 5.000%, 06/15/30 ................................................. A2/AA 2,346,325
Metro, Oregon
1,100,000 5.000%, 06/01/18 ................................................. Aaa/AAA 1,155,132
Morrow County, Oregon School District #1 (Financial
Security Assurance Insured)
1,710,000 5.250%, 06/15/19 ................................................. Aaa/AAA 1,817,850
Multnomah County, Oregon School District #7
(Reynolds) (MBIA Corporation Insured)
2,625,000 5.000%, 06/01/25 ................................................. A2/NR 2,500,706
Multnomah County, Oregon School District #7
(Reynolds) (State School Bond Guaranty Program)
500,000 5.625%, 06/15/17 pre-refunded .................................... Aa2/AA 536,060
2,375,000 5.125%, 06/15/19 pre-refunded .................................... Aa2/AA 2,515,624
Multnomah and Clackamas Counties, Oregon School
District #10 (Gresham-Barlow) (Financial Security
Assurance Insured)
1,500,000 5.500%, 06/15/18 pre-refunded .................................... Aaa/AAA 1,605,360
4,275,000 5.250%, 06/15/19 ................................................. Aaa/AAA 4,544,624
2,650,000 5.000%, 06/15/21 pre-refunded .................................... Aaa/AAA 2,801,898
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
Multnomah and Clackamas Counties, Oregon School
District #28JT (Centennial) (Financial Security
Assurance Insured)
$ 2,680,000 5.250%, 12/15/18 ................................................. Aaa/NR $ 2,876,819
Oregon Coast Community College District (MBIA
Corporation Insured) (State School Bond
Guaranty Program)
1,590,000 5.250%, 06/15/17 ................................................. Aa2/NR 1,650,070
Pacific City, Oregon Joint Water - Sanitary Authority
1,830,000 4.800%, 07/01/27 ................................................. NR/NR* 1,629,469
Polk, Marion & Benton Counties, Oregon School
District #13J (Central) (Financial Security
Assurance Insured)
1,520,000 5.000%, 06/15/21 ................................................. Aaa/AAA 1,529,485
Portland, Oregon
1,000,000 4.600%, 06/01/14 ................................................. Aaa/NR 1,018,530
2,975,000 zero coupon, 06/01/15 ............................................ Aa2/NR 2,207,510
1,120,000 5.125%, 06/01/18 ................................................. Aaa/NR 1,127,347
10,070,000 4.350%, 06/01/23 ................................................. Aa1/NR 9,221,905
Portland, Oregon Community College District
`2,350,000 5.000%, 06/01/21 pre-refunded .................................... Aa2/AA 2,479,744
Portland, Oregon Community College District
(Financial Guaranty Insurance Corporation Insured)
1,395,000 5.000%, 06/01/17 pre-refunded .................................... Aa2/AA 1,472,018
Salem-Keizer, Oregon School District #24J (Financial
Security Assurance Insured)
1,000,000 5.000%, 06/15/19 ................................................. Aaa/AAA 1,018,780
Southwestern Oregon Community College District
(MBIA Corporation Insured)
1,120,000 6.000%, 06/01/25 pre-refunded .................................... A2/AA 1,184,859
State of Oregon
2,115,000 5.250%, 10/15/14 ................................................. Aa2/AA 2,253,067
State of Oregon Board of Higher Education
820,000 zero coupon, 08/01/16 ............................................ Aa2/AA 573,951
2,560,000 5.500%, 08/01/21 pre-refunded .................................... Aa2/AA 2,651,827
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
State of Oregon Board of Higher Education (continued)
$ 2,000,000 5.000%, 08/01/21 ................................................. Aa2/AA $ 2,025,240
2,130,000 5.000%, 08/01/22 ................................................. Aa2/AA 2,152,621
State of Oregon Elderly and Disabled Housing
30,000 6.250%, 08/01/13 ................................................. Aa2/AA 30,055
State of Oregon Veterans' Welfare
700,000 9.200%, 10/01/08 ................................................. Aa2/NR 700,000
595,000 5.200%, 10/01/18 ................................................. Aa2/AA 591,745
550,000 4.800%, 12/01/22 ................................................. Aa2/AA 505,747
400,000 4.900%, 12/01/26 ................................................. Aa2/AA 358,872
The Dalles, Oregon
230,000 4.000%, 06/01/20 ................................................. NR/A 213,451
155,000 4.000%, 06/01/21 ................................................. NR/A 140,197
130,000 4.125%, 06/01/22 ................................................. NR/A 116,837
100,000 4.200%, 06/01/23 ................................................. NR/A 89,403
Wasco County, Oregon School District #12 (The
Dalles) (Financial Security Assurance Insured)
1,135,000 6.000%, 06/15/15 pre-refunded .................................... Aaa/AAA 1,202,226
1,400,000 5.500%, 06/15/17 ................................................. Aaa/AAA 1,537,816
1,790,000 5.500%, 06/15/20 ................................................. Aaa/AAA 1,917,627
Washington County, Oregon
2,465,000 5.000%, 06/01/23 ................................................. Aa2/NR 2,432,092
Washington County, Oregon School District #15
(Forest Grove) (Financial Security Assurance Insured)
1,760,000 5.375%, 06/15/16 pre-refunded .................................... Aaa/NR 1,877,938
2,000,000 5.000%, 06/15/21 pre-refunded .................................... Aaa/NR 2,114,640
Washington, Multnomah and Yamhill County, Oregon
School District #1J (Hillsboro)
1,295,000 5.250%, 06/01/13 pre-refunded .................................... Aa3/NR 1,320,317
Yamhill County, Oregon School District #40
(McMinnville) (Financial Security Assurance Insured)
1,375,000 5.000%, 06/15/22 ................................................. Aaa/NR 1,352,148
-------------
Total General Obligation Bonds ................................... 154,914,583
-------------
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (54.5%) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
AIRPORT REVENUE BONDS (0.9%)
------------------------------------------------------------------
Jackson County, Oregon Airport Revenue
(Syncora Guarantee Inc. Insured***)
$ 750,000 5.250%, 12/01/32 ................................................. Baa1/BBB- $ 680,752
Port of Portland, Oregon Airport (AMBAC Indemnity
Corporation Insured)
3,000,000 5.500%, 07/01/24 ................................................. Aa3/AA 3,023,010
-------------
Total Airport Revenue Bonds ...................................... 3,703,762
-------------
CERTIFICATES OF PARTICIPATION REVENUE BONDS (5.5%)
------------------------------------------------------------------
Oregon State Department of Administration Services
(AMBAC Indemnity Corporation Insured)
500,000 5.375%, 05/01/14 ................................................. Aa3/AA 525,830
3,500,000 6.000%, 05/01/26 pre-refunded .................................... Aaa/AA 3,723,615
Oregon State Department of Administrative Services
(Financial Guaranty Insurance Corporation Insured)
2,000,000 5.000%, 11/01/20 ................................................. Aa3/AA- 2,002,280
2,660,000 5.000%, 11/01/23 ................................................. Aa3/AA- 2,529,447
2,945,000 5.000%, 11/01/24 ................................................. Aa3/AA- 2,788,650
1,475,000 5.000%, 11/01/26 ................................................. Aa3/AA- 1,383,048
1,145,000 5.000%, 05/01/27 ................................................. Aa3/AA- 1,060,591
3,880,000 5.000%, 11/01/27 ................................................. Aa3/AA- 3,636,181
Oregon State Department of Administrative Services
(Financial Security Assurance Insured)
1,000,000 5.000%, 05/01/22 ................................................. Aaa/AAA 998,010
2,280,000 4.500%, 11/01/32 ................................................. Aaa/AAA 1,943,016
1,645,000 4.750%, 05/01/33 ................................................. Aaa/AAA 1,451,433
-------------
Total Certificates of Participation Revenue Bonds 22,042,101
-------------
HOSPITAL REVENUE BONDS (10.5%)
------------------------------------------------------------------
Clackamas County, Oregon Hospital Facilities
Authority (Legacy Health System)
2,000,000 5.250%, 02/15/17 ................................................. A1/A+ 2,024,260
2,980,000 5.250%, 02/15/18 ................................................. A1/A+ 3,006,611
4,025,000 5.250%, 05/01/21 ................................................. A1/A+ 3,999,200
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
HOSPITAL REVENUE BONDS (CONTINUED)
------------------------------------------------------------------
Clackamas County, Oregon Hospital Facilities
Authority (Legacy Health System) (MBIA
Corporation Insured)
$ 2,650,000 4.750%, 02/15/11 ................................................. A1/AA $ 2,710,738
Clackamas County, Oregon Hospital Facilities
Authority (Mary's Woods)
3,480,000 6.625%, 05/15/29 pre-refunded+ ................................... NR/NR** 3,635,730
Deschutes County, Oregon Hospital Facilities
Authority (Cascade Health)
2,000,000 5.600%, 01/01/27 pre-refunded .................................... A1/NR 2,151,820
3,000,000 5.600%, 01/01/32 pre-refunded .................................... A1/NR 3,227,730
Deschutes County, Oregon Hospital Facilities
Authority (Cascade Health) (AMBAC Insured)
3,300,000 5.375%, 01/01/35 ................................................. Aa3/AA 3,094,938
Klamath Falls, Oregon Inter Community Hospital (Merle
West) (Assured Guaranty Corporation Insured)
5,000,000 5.000%, 09/01/36 ................................................. NR/AAA 4,414,550
Medford, Oregon Hospital Facilities Authority (MBIA
Corporation Insured)
345,000 5.000%, 08/15/18 ................................................. A2/AA 345,531
Multnomah County, Oregon Hospital Facilities
Authority (Providence Health System)
1,390,000 5.250%, 10/01/22 ................................................. Aa2/AA 1,390,709
Multnomah County, Oregon Hospital Facilities
Authority (Terwilliger Plaza Project)
1,250,000 5.250%, 12/01/36 ................................................. NR/NR* 926,637
Oregon Health Sciences University Series B (MBIA
Corporation Insured)
1,400,000 5.250%, 07/01/15 ................................................. A2/AA 1,402,632
Salem, Oregon Hospital
2,000,000 5.750%, 08/15/23 ++ .............................................. NR/A+ 1,918,860
3,300,000 4.500%, 08/15/30 ................................................. NR/A+ 2,559,975
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
HOSPITAL REVENUE BONDS (CONTINUED)
------------------------------------------------------------------
State of Oregon Health Housing Educational and
Cultural Facilities Authority (Peacehealth) (AMBAC
Indemnity Corporation Insured)
$ 2,300,000 5.250%, 11/15/17 ................................................. Aa3/AA $ 2,374,520
1,850,000 5.000%, 11/15/26 ................................................. Aa3/AA 1,702,481
1,430,000 5.000%, 11/15/32 ................................................. Aa3/AA 1,277,948
-------------
Total Hospital Revenue Bonds ..................................... 42,164,870
-------------
HOUSING, EDUCATIONAL, AND CULTURAL REVENUE BONDS (8.5%)
------------------------------------------------------------------
Forest Grove, Oregon (Pacific University)
(Radian Insured)
4,000,000 5.000%, 05/01/22 ................................................. A3/BBB 3,423,800
Forest Grove, Oregon Student Housing (Oak Tree
Foundation)
5,750,000 5.500%, 03/01/37 ................................................. NR/NR* 4,852,655
Multnomah County, Oregon Educational Facility
(University of Portland)
1,000,000 6.000%, 04/01/20 pre-refunded .................................... NR/BBB+ 1,050,720
Oregon Health Sciences University, Oregon (MBIA
Corporation Insured)
11,550,000 zero coupon, 07/01/21 ............................................ A2/AA 5,672,667
3,140,000 5.250%, 07/01/22 ................................................. A2/AA 3,058,800
Oregon State Facilities Authority (Linfield College)
2,115,000 5.000%, 10/01/25 ................................................. Baa1/NR 1,872,706
Oregon State Facilities Authority Revenue (University
of Portland)
5,000,000 5.000%, 04/01/32 ................................................. NR/BBB+ 4,254,900
Oregon State Facilities Authority Revenue (Willamette
University)
5,000,000 5.000%, 10/01/32 ................................................. NR/A 4,467,300
State of Oregon Housing and Community Services
5,000 5.900%, 07/01/12 ................................................. Aa2/NR 5,017
70,000 6.700%, 07/01/13 ................................................. Aa2/NR 70,554
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
HOUSING, EDUCATIONAL, AND CULTURAL REVENUE BONDS (CONTINUED)
------------------------------------------------------------------
State of Oregon Housing and Community Services
(continued)
$ 275,000 6.000%, 07/01/20 ................................................. Aa2/NR $ 275,734
2,580,000 4.650%, 07/01/25 ................................................. Aa2/NR 2,261,422
930,000 5.400%, 07/01/27 ................................................. Aa2/NR 905,336
2,000,000 5.350%, 07/01/30 ................................................. Aa2/NR 1,848,780
-------------
Total Housing, Educational, and Cultural Revenue
Bonds ........................................................ 34,020,391
-------------
PUBLIC FACILITIES REVENUE BONDS (0.3%)
------------------------------------------------------------------
Port of Morrow, Oregon
1,250,000 5.000%, 06/01/25 ................................................. NR/NR* 1,072,175
-------------
Total Public Facilities Revenue Bonds ............................ 1,072,175
-------------
TRANSPORTATION REVENUE BONDS (6.1%)
------------------------------------------------------------------
Oregon St. Department Transportation Highway Usertax
3,025,000 5.500%, 11/15/18 pre-refunded .................................... Aa2/AAA 3,297,341
2,555,000 5.375%, 11/15/18 pre-refunded .................................... Aa2/AAA 2,703,267
1,200,000 5.000%, 11/15/22 ................................................. Aa2/AAA 1,199,928
1,260,000 5.000%, 11/15/23 ................................................. Aa2/AAA 1,245,460
4,545,000 5.125%, 11/15/26 pre-refunded .................................... Aa2/AAA 4,888,875
2,155,000 5.000%, 11/15/28 ................................................. Aa2/AAA 2,078,066
1,000,000 5.000%, 11/15/29 ................................................. Aa2/AAA 962,090
2,165,000 4.500%, 11/15/32 ................................................. Aa2/AAA 1,888,421
Tri-County Metropolitan Transportation District, Oregon
1,440,000 5.750%, 08/01/16 pre-refunded .................................... NR/AAA 1,521,994
1,775,000 5.000%, 09/01/16 ................................................. Aa3/AAA 1,849,710
Tri-County Metropolitan Transportation District,
Oregon (LOC: U.S. Bank NA)
2,500,000 5.400%, 06/01/19 pre-refunded .................................... NR/AAA 2,574,250
-------------
Total Transportation Revenue Bonds ............................... 24,209,402
-------------
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
URBAN RENEWAL REVENUE BONDS (3.6%)
------------------------------------------------------------------
Portland, Oregon Airport Way Renewal and
Redevelopment (AMBAC Indemnity Corporation
Insured)
$ 1,640,000 6.000%, 06/15/14 pre-refunded .................................... Aa3/NR $ 1,752,881
1,765,000 5.750%, 06/15/20 pre-refunded .................................... Aa3/NR 1,879,178
Portland, Oregon River District Urban Renewal and
Redevelopment (AMBAC Indemnity Corporation
Insured)
1,915,000 5.000%, 06/15/20 ................................................. Aa3/NR 1,916,455
Portland, Oregon Urban Renewal Tax Allocation
(AMBAC Indemnity Corporation Insured)
(Convention Center)
1,150,000 5.750%, 06/15/18 ................................................. Aa3/NR 1,196,713
2,000,000 5.450%, 06/15/19 ................................................. Aa3/NR 2,044,600
Portland, Oregon Urban Renewal Tax Allocation
(Interstate Corridor) (Financial Guaranty
Insurance Corporation Insured)
1,890,000 5.250%, 06/15/20 ................................................. A3/NR 1,868,719
1,990,000 5.250%, 06/15/21 ................................................. A3/NR 1,934,161
2,030,000 5.000%, 06/15/23 ................................................. A3/NR 1,835,790
-------------
Total Urban Renewal Revenue Bonds ................................ 14,428,497
-------------
UTILITY REVENUE BONDS (1.7%)
------------------------------------------------------------------
Emerald Peoples Utility District, Oregon (Financial
Security Assurance Insured)
1,455,000 5.250%, 11/01/22 ................................................. Aaa/NR 1,471,078
Eugene, Oregon Electric Utility
5,635,000 5.000%, 08/01/30 ................................................. A1/AA- 5,206,402
-------------
Total Utility Revenue Bonds ...................................... 6,677,480
-------------
WATER AND SEWER REVENUE BONDS (15.7%)
------------------------------------------------------------------
Klamath Falls, Oregon Wastewater (AMBAC Indemnity
Corporation Insured)
1,545,000 5.650%, 06/01/20 pre-refunded .................................... Aa3/AA 1,625,711
Klamath Falls, Oregon Water (Financial Security
Assurance Insured)
1,575,000 5.500%, 07/01/16 ................................................. Aaa/AAA 1,706,938
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
WATER AND SEWER REVENUE BONDS (CONTINUED)
------------------------------------------------------------------
Lebanon, Oregon Wastewater (Financial Security
Assurance Insured)
$ 1,000,000 5.700%, 03/01/20 ................................................. Aaa/AAA $ 1,023,890
Portland, Oregon Sewer System
5,000,000 5.000%, 06/15/33 ................................................. A1/AA- 4,667,150
Portland, Oregon Sewer System (Financial Guaranty
Insurance Corporation Insured)
2,500,000 5.750%, 08/01/19 pre-refunded .................................... Aa3/AA- 2,640,050
Portland, Oregon Sewer System (Financial Security
Assurance Insured)
2,760,000 5.250%, 06/01/17 ................................................. Aaa/AAA 2,881,357
4,595,000 5.000%, 06/01/17 ................................................. Aaa/AAA 4,806,416
3,470,000 5.000%, 06/01/21 ................................................. Aaa/AAA 3,469,757
Portland, Oregon Sewer System (MBIA Corporation
Insured)
4,410,000 5.000%, 06/15/25 ................................................. Aa3/AA 4,205,949
4,630,000 5.000%, 06/15/26 ................................................. Aa3/AA 4,392,712
1,610,000 5.000%, 06/15/27 ................................................. Aa3/AA 1,517,425
Portland, Oregon Water System
7,420,000 5.500%, 08/01/19 pre-refunded .................................... Aa1/NR 7,809,550
1,235,000 5.500%, 08/01/20 pre-refunded .................................... Aa1/NR 1,299,837
Portland, Oregon Water System (MBIA Corporation
Insured)
2,725,000 4.500%, 10/01/27 ................................................. Aa2/NR 2,357,588
Salem, Oregon Water & Sewer (Financial Security
Assurance Insured)
1,000,000 5.375%, 06/01/15 ................................................. Aaa/AAA 1,079,650
1,970,000 5.375%, 06/01/16 pre-refunded .................................... Aaa/AAA 2,064,146
3,025,000 5.500%, 06/01/20 pre-refunded+ ................................... Aaa/AAA 3,175,706
Sunrise Water Authority, Oregon (Financial Security
Assurance Insured)
2,630,000 5.000%, 03/01/19 ................................................. Aaa/AAA 2,694,961
1,350,000 5.250%, 03/01/24 ................................................. Aaa/AAA 1,365,768
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
WATER AND SEWER REVENUE BONDS (CONTINUED)
------------------------------------------------------------------
Sunrise Water Authority, Oregon (Syncora
Guarantee Inc. Insured***)
$ 1,000,000 5.000%, 09/01/25 ................................................. NR/BBB- $ 857,560
Washington County, Oregon Clean Water Services
(Financial Guaranty Insurance Corporation Insured)
995,000 5.000%, 10/01/13 ................................................. A1/AA- 1,029,059
3,525,000 5.125%, 10/01/17 ................................................. A1/AA- 3,584,079
Washington County, Oregon Clean Water Services
(MBIA Corporation Insured)
2,235,000 5.250%, 10/01/15 ................................................. A2/AA 2,408,235
-------------
Total Water and Sewer Revenue Bonds .............................. 62,663,494
-------------
OTHER REVENUE BONDS (1.7%)
------------------------------------------------------------------
Oregon State Department of Administration Services
(Lottery Revenue) (Financial Security Assurance
Insured)
3,040,000 5.000%, 04/01/19 ................................................. Aaa/AAA 3,110,285
3,740,000 5.000%, 04/01/27 ................................................. Aaa/AAA 3,604,462
-------------
Total Other Revenue Bonds ........................................ 6,714,747
-------------
Total Revenue Bonds .............................................. 217,696,919
-------------
U.S. TERRITORY BONDS (4.1%)
------------------------------------------------------------------
Puerto Rico Commonwealth Aqueduct & Sewer
Authority (Assured Guaranty Corporation Insured)
3,000,000 5.000%, 07/01/28 ................................................. Aaa/AAA 2,803,170
Puerto Rico Commonwealth General Obligation
1,000,000 5.500%, 07/01/32 ................................................. Baa3/BBB- 909,750
2,000,000 5.375%, 07/01/33 ................................................. Baa3/BBB- 1,777,400
Puerto Rico Commonwealth General Obligation
(MBIA Insured)
1,500,000 6.000%, 07/01/28 ................................................. A2/AA 1,508,625
Puerto Rico Electric Power Authority
1,000,000 5.250%, 07/01/33 ................................................. A3/BBB+ 902,870
Puerto Rico Municipal Finance Agency (Financial
Security Assurance Insured)
500,000 5.250%, 08/01/16 ................................................. Aaa/AAA 514,435
5,000,000 5.250%, 08/01/20 ................................................. Aaa/AAA 5,023,700
RATING
PRINCIPAL MOODY'S/
AMOUNT U.S. TERRITORY BONDS (CONTINUED) S&P VALUE
- ---------------- ------------------------------------------------------------------ ---------- -------------
Puerto Rico Public Buildings Authority Revenue
(Commonwealth Guaranteed)
$ 3,000,000 6.250%, 07/01/31 ................................................. Baa3/BBB- $ 2,988,810
-------------
Total U.S. Territory Bonds ....................................... 16,428,760
-------------
Total Municipal Bonds (cost $398,433,227-note 4) ................. 97.3% 389,040,262
Other assets less liabilities .................................... 2.7 10,706,422
----- -------------
Net Assets ....................................................... 100.0% $ 399,746,684
===== =============
(*) Any security not rated (NR) by either rating service
has been determined by the Investment Sub-Adviser to
have sufficient quality to be ranked in the top four
credit ratings if a credit rating were to be
assigned by a rating service.
(**) Fitch Rated AAA
(***) Formerly XLCA Insured
+ Security is pledged as collateral for the Trust's
when-issued commitments.
++ Security traded on a "when-issued" basis.
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED) PORTFOLIO
---------------------------------------------------- ----------
Aaa of Moody's or AAA of S&P or Fitch .............. 39.3%
Aa of Moody's or AA of S&P ......................... 43.3
A of Moody's or S&P ................................ 11.0
Baa of Moody's or BBB of S&P ....................... 3.7
Not rated* ......................................... 2.7
-----
100.0%
=====
+ Calculated using the highest rating of the three
rating services.
PORTFOLIO ABBREVIATIONS:
------------------------
AMBAC - American Municipal Bond Assurance Corp.
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance
NR - Not Rated
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2008
ASSETS
Investments at value (cost $398,433,227) .................................................................. $ 389,040,262
Cash ...................................................................................................... 6,729,089
Interest receivable ....................................................................................... 6,095,307
Receivable for investment securities sold ................................................................. 805,579
Receivable for Trust shares sold .......................................................................... 510,043
Other assets .............................................................................................. 29,093
-------------
Total assets .............................................................................................. 403,209,373
-------------
LIABILITIES
Payable for investment securities purchased ................................................................. 1,966,520
Payable for Trust shares redeemed ........................................................................... 785,282
Dividends payable ........................................................................................... 359,915
Management fees payable ..................................................................................... 136,373
Distribution and service fees payable ....................................................................... 56,661
Accrued expenses ............................................................................................ 157,938
-------------
Total liabilities ........................................................................................... 3,462,689
-------------
NET ASSETS ...................................................................................................... $ 399,746,684
=============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share ......................... $ 395,374
Additional paid-in capital .................................................................................. 408,488,387
Net unrealized depreciation on investments (note 4) ......................................................... (9,392,965)
Undistributed net investment income ......................................................................... 436,459
Accumulated net realized loss on investments ................................................................ (180,571)
-------------
$ 399,746,684
=============
CLASS A
Net Assets .................................................................................................. $ 323,691,490
=============
Capital shares outstanding .................................................................................. 32,010,344
=============
Net asset value and redemption price per share .............................................................. $ 10.11
=============
Offering price per share (100/96 of $10.11 adjusted to nearest cent) ........................................ $ 10.53
=============
CLASS C
Net Assets .................................................................................................. $ 17,668,743
=============
Capital shares outstanding .................................................................................. 1,748,901
=============
Net asset value and offering price per share ................................................................ $ 10.10
=============
Redemption price per share (* a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower, if redeemed
during the first 12 months after purchase) .............................................................. $ 10.10*
=============
CLASS Y
Net Assets .................................................................................................. $ 58,386,451
=============
Capital shares outstanding .................................................................................. 5,778,113
=============
Net asset value, offering and redemption price per share .................................................... $ 10.10
=============
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2008
INVESTMENT INCOME:
Interest income ............................................................................ $ 19,162,496
Management fees (note 3) ................................................................... $ 1,648,873
Distribution and service fees (note 3) ..................................................... 717,401
Transfer and shareholder servicing agent fees .............................................. 330,493
Trustees' fees and expenses (note 8) ....................................................... 210,162
Legal fees (note 3) ........................................................................ 100,800
Shareholders' reports and proxy statements ................................................. 68,385
Registration fees and dues ................................................................. 32,698
Custodian fees (note 6) .................................................................... 31,225
Auditing and tax fees ...................................................................... 22,500
Insurance .................................................................................. 18,665
Chief compliance officer (note 3) .......................................................... 4,293
Miscellaneous .............................................................................. 42,017
------------
3,227,512
Expenses paid indirectly (note 6) .......................................................... (91,704)
------------
Net expenses ............................................................................... 3,135,808
------------
Net investment income ...................................................................... 16,026,688
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ...................................... (70,279)
Change in unrealized appreciation on investments ........................................... (22,601,723)
------------
Net realized and unrealized gain (loss) on investments ..................................... (22,672,002)
------------
Net change in net assets resulting from operations ......................................... $ (6,645,314)
============
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2008 SEPTEMBER 30, 2007
------------------ ------------------
OPERATIONS:
Net investment income ............................................................. $ 16,026,688 $ 15,845,050
Net realized gain (loss) from securities transactions ............................. (70,279) (102,920)
Change in unrealized appreciation on investments .................................. (22,601,723) (6,101,166)
------------- -------------
Change in net assets resulting from operations ................................ (6,645,314) 9,640,964
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (note 10):
Class A Shares:
Net investment income ............................................................. (12,994,601) (13,291,389)
Net realized gain on investments .................................................. -- (61,027)
Class C Shares:
Net investment income ............................................................. (648,973) (867,841)
Net realized gain on investments .................................................. -- (5,383)
Class Y Shares:
Net investment income ............................................................. (2,237,833) (1,796,786)
Net realized gain on investments .................................................. -- (7,679)
------------- -------------
Change in net assets from distributions ....................................... (15,881,407) (16,030,105)
------------- -------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold ......................................................... 59,920,079 41,102,987
Reinvested dividends and distributions ............................................ 9,104,476 9,282,150
Cost of shares redeemed ........................................................... (57,366,111) (68,844,718)
------------- -------------
Change in net assets from capital share transactions .......................... 11,658,444 (18,459,581)
------------- -------------
Change in net assets .......................................................... (10,868,277) (24,848,722)
NET ASSETS:
Beginning of period ............................................................... 410,614,961 435,463,683
------------- -------------
End of period* .................................................................... $ 399,746,684 $ 410,614,961
============= =============
* Includes undistributed net investment income of: ................................ $ 436,459 $ 291,178
============= =============
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2008
1. ORGANIZATION
Tax-Free Trust of Oregon (the "Trust") is a separate portfolio of The
Cascades Trust. The Cascades Trust (the "Business Trust") is an open-end
investment company, which was organized on October 17, 1985, as a Massachusetts
business trust and is authorized to issue an unlimited number of shares. The
Trust is a non-diversified portfolio which commenced operations on June 16, 1986
and until April 5, 1996, offered only one class of shares. On that date, the
Trust began offering two additional classes of shares, Class C and Class Y
shares. All shares outstanding prior to that date were designated as Class A
shares and are sold with a front-payment sales charge and bear an annual
distribution fee. Class C shares are sold with a level-payment sales charge with
no payment at time of purchase but level service and distribution fees from date
of purchase through a period of six years thereafter. A contingent deferred
sales charge of 1% is assessed to any Class C shareholder who redeems shares of
this Class within one year from the date of purchase. Class C Shares, together
with a pro-rata portion of all Class C Shares acquired through reinvestment of
dividends and other distributions paid in additional Class C Shares,
automatically convert to Class A Shares after 6 years. The Class Y shares are
only offered to institutions acting for an investor in a fiduciary, advisory,
agency, custodian or similar capacity and are not offered directly to retail
investors. Class Y shares are sold at net asset value without any sales charge,
redemption fees, contingent deferred sales charge or distribution or service
fees. On January 31, 1998 the Trust established Class I shares, which are
offered and sold only through financial intermediaries and are not offered
directly to retail investors. 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.
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 sevice at the mean of bid and asked quotations.
If market quotations 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
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.
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses
from securities transactions are reported on the identified cost basis.
Interest income is recorded daily on the accrual basis and is adjusted for
amortization of premium and accretion of original issue and market
discount.
c) FEDERAL INCOME TAXES: It is the policy of the Trust to qualify as a
regulated investment company by complying with the provisions of the
Internal Revenue Code applicable to certain investment companies. The
Trust intends to make distributions of income and securities profits
sufficient to relieve it from all, or substantially all, Federal income
and excise taxes.
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes"
("FIN 48") was adopted on March 31, 2008. Management has reviewed the tax
positions for each of the open tax years (2004-2008) and has determined
that the implementation of FIN 48 did not have a material impact on the
Trust's financial statements.
d) 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 charged directly to such class.
e) 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.
f) 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. These reclassifications have no effect on net
assets or net asset value per share. On September 30, 2008, there were no
permanent items identified that have been reclassified among components of
net assets.
g) ACCOUNTING PRONOUNCEMENT: In September 2006, FASB issued FASB Statement
No. 157, "Fair Value Measurement" ("SFAS 157"), which defines fair value,
establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. Management believes adoption of SFAS 157 will have no material
impact on the Trust's financial statements.
In March 2008, Statement of Financial Accounting Standards No. 161,
"Disclosures about Derivative Instruments and Hedging Activities" ("SFAS
161") was issued and is effective for fiscal years beginning after
November 15, 2008. SFAS 161 is intended to improve financial reporting for
derivative instruments by requiring enhanced disclosure that enables
investors to understand how and why an entity uses derivatives, how
derivatives are accounted for, and how derivatives instruments affect an
entity's results of operations and financial position. Management is
currently
evaluating the implications of SFAS 161. The impact on the Trust's
financial statement disclosures, if any, is currently being assessed.
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-to-day portfolio management. The
Manager's services include providing the office of the Trust and all related
services as well as overseeing the activities of the Sub-Adviser and 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 the Trust's net assets.
FAF Advisors, Inc. (formerly known as U.S. Bancorp Asset Management, Inc.
until March 31, 2006) (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 the Trust's net
assets.
Under a Compliance Agreement with the Manager, the Manager is compensated
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
service fee payments to broker-dealers or others ("Qualified Recipients")
selected by Aquila Distributors, Inc. (the "Distributor"), including, but not
limited to, any principal underwriter of the Trust, with which the Distributor
has entered into written agreements contemplated by the Rule and which have
rendered assistance in the distribution and/or retention of the Trust's shares
or servicing of shareholder accounts. The Trust makes payment of this service
fee at the annual rate of 0.15% of the Trust's average net assets represented by
Class A Shares. For the year ended September 30, 2008, service fees on Class A
Shares amounted to $502,855 of which the Distributor retained $25,730.
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 year ended September 30, 2008, amounted to $160,909. 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 year ended September 30, 2008, amounted to $53,637. The
total of these payments made with respect to Class C Shares amounted to
$214,546, of which the Distributor retained $51,804.
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 sales commissions inuring to such
intermediaries. For the year ended September 30, 2008, total commissions on
sales of Class A Shares amounted to $630,700 of which the Distributor received
$122,859.
c) OTHER RELATED PARTY TRANSACTIONS
For the year ended September 30, 2008 the Trust incurred $100,660 of legal
fees allocable to Butzel Long PC, counsel to the Trust, for legal services in
conjunction with the Trust's ongoing operations. The Secretary of the Trust is a
shareholder in that firm.
4. PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 2008, purchases of securities and
proceeds from the sales of securities aggregated $66,779,401 and $61,422,961,
respectively.
At September 30, 2008, the aggregate tax cost for all securities was
$397,996,733. At September 30, 2008, the aggregate gross unrealized appreciation
for all securities in which there is an excess of value over tax cost amounted
to $8,661,051 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $17,617,522 for a
net unrealized depreciation of $8,956,471.
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 issuer's 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.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
Year Ended Year Ended
September 30, 2008 September 30, 2007
----------------------------- -----------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
CLASS A SHARES:
Proceeds from shares sold .................................... 2,708,755 $ 28,860,028 1,963,227 $ 21,071,232
Reinvested dividends and
distributions .............................................. 737,413 7,833,815 754,782 8,097,572
Cost of shares redeemed ...................................... (2,893,080) (30,811,101) (4,332,249) (46,408,926)
------------ ------------ ------------ ------------
Net change ................................................. 553,088 5,882,742 (1,614,240) (17,240,122)
------------ ------------ ------------ ------------
CLASS C SHARES:
Proceeds from shares sold .................................. 296,648 3,162,360 269,445 2,895,445
Reinvested dividends and
distributions .......................................... 36,361 386,263 51,051 547,634
Cost of shares redeemed .................................... (953,455) (10,168,628) (985,902) (10,581,284)
------------ ------------ ------------ ------------
Net change ............................................. (620,446) (6,620,005) (665,406) (7,138,205)
------------ ------------ ------------ ------------
CLASS Y SHARES:
Proceeds from shares sold .................................. 2,621,931 27,897,691 1,597,605 17,136,310
Reinvested dividends and
distributions .......................................... 83,671 884,398 59,368 636,944
Cost of shares redeemed .................................... (1,536,728) (16,386,382) (1,101,386) (11,854,508)
------------ ------------ ------------ ------------
Net change ............................................. 1,168,874 12,395,707 555,587 5,918,746
------------ ------------ ------------ ------------
Total transactions in Trust
shares ..................................................... 1,101,516 $ 11,658,444 (1,724,059) $(18,459,581)
============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES
At September 30, 2008 there were 7 Trustees, one of which is affiliated
with the Manager and is not paid any fees. The total amount of Trustees' service
and attendance fees paid during the year ended September 30, 2008 was $166,750,
to cover carrying out their responsibilities and attendance
at regularly scheduled quarterly Board Meetings and meetings of the Independent
Trustees held prior to each quarterly Board Meeting. When additional meetings
(Audit, Nominating, Shareholder and special meetings) are held, the meeting fees
are paid to those Trustees in attendance. Trustees are reimbursed for their
expenses such as travel, accommodations, and meals incurred in connection with
attendance at Board Meetings and at the Annual Meetings of Shareholders. For the
year ended September 30, 2008, such meeting-related expenses amounted to
$43,412.
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. Dividends and capital gains 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.
However, due to differences between financial statement reporting and Federal
income tax reporting requirements, distributions made by the Trust may not be
the same as the Trust's net investment income, and/or net realized securities
gains. Further, a portion of the dividends may, under some circumstances, be
subject to taxes at ordinary income and/or capital gain rates. At September 30,
2008, the Trust had a capital loss carryforward of $32,810 which expires in
2016.
As of September 30, 2008 there were post-October capital loss deferrals of
$147,761 which will be recognized in the following year.
The tax character of distributions:
Year Ended September 30,
2008 2007
------------- -------------
Net tax-exempt income $ 15,881,178 $ 15,834,173
Ordinary income 229 121,843
Capital gain -- 74,089
------------- -------------
$ 15,881,407 $ 16,030,105
============= =============
As of September 30, 2008, the components of distributable earnings on a
tax basis were as follows:
Unrealized depreciation $ (8,956,471)
Undistributed tax-exempt
income 359,880
Accumulated net loss
on investments (32,810)
Other temporary differences (507,676)
-------------
$ (9,137,077)
=============
At September 30, 2008, the difference between book basis and tax basis
unrealized appreciation is attributable primarily to premium/discount
adjustments. The difference between book basis and tax basis undistributed
income is due to the timing of distributions.
11. RECENT DEVELOPMENTS
a) THE DAVIS CASE: In May, 2007, the U.S. Supreme Court agreed to hear an
appeal in DEPARTMENT OF REVENUE OF KENTUCKY V. DAVIS, a case concerning
the constitutionality of differential tax treatment for interest from
in-state vs. out-of-state municipal securities, a practice which is common
among the majority of the states. On May 19, 2008, the U. S. Supreme Court
upheld the right of states to tax interest on out-of-state municipal bonds
while exempting their own state's bond interest from taxation. The U.S.
Supreme Court said differential tax treatment for interest from in-state
vs. out-of-state municipal securities does not discriminate against
interstate commerce, but rather promotes the financing of essential
governmental services.
b) INSURERS: Beginning in December, 2007, municipal bond insurance companies
have been under review by the three major rating agencies: Standard &
Poor's, Moody's and Fitch. The ratings of some of the insurance companies
have now either been downgraded and/or have a negative outlook. The
financial markets continue to assess the severity of the losses caused by
the subprime credit crisis and its impact on municipal bond insurance
companies and the prices of insured municipal bonds.
TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class A
-----------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------
2008 2007 2006 2005 2004
------ ------ ------ ------ ------
Net asset value, beginning of period............................... $10.68 $10.84 $10.91 $11.01 $11.04
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ......................................... 0.42++ 0.41+ 0.41+ 0.42+ 0.44+
Net gain (loss) on securities (both
realized and unrealized)................................... (0.58) (0.16) (0.05) (0.10) (0.01)
------ ------ ------ ------ ------
Total from investment operations............................... (0.16) 0.25 0.36 0.32 0.43
------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income........................... (0.41) (0.41) (0.41) (0.41) (0.44)
Distributions from capital gains............................... -- * (0.02) (0.01) (0.02)
------ ------ ------ ------ ------
Total distributions............................................ (0.41) (0.41) (0.43) (0.42) (0.46)
------ ------ ------ ------ ------
Net asset value, end of period..................................... $10.11 $10.68 $10.84 $10.91 $11.01
====== ====== ====== ====== ======
Total return (not reflecting sales charge)......................... (1.58)% 2.37% 3.42% 2.98% 3.97%
Ratios/supplemental data
Net assets, end of period (in millions)........................ $ 324 $ 336 $ 359 $ 369 $ 367
Ratio of expenses to average net assets ....................... 0.76% 0.75% 0.75% 0.77% 0.72%
Ratio of net investment income to average
net assets................................................. 3.89% 3.77% 3.82% 3.79% 4.02%
Portfolio turnover rate ....................................... 15% 22% 16% 14% 11%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets........................ 0.74% 0.74% 0.74% 0.76% 0.71%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
* Less than $0.01 per share.
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class C
-----------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------
2008 2007 2006 2005 2004
------- ------- ------- ------- -------
Net asset value, beginning of period ........................ $ 10.68 $ 10.84 $ 10.90 $ 11.00 $ 11.03
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ..................................... 0.33++ 0.32+ 0.32+ 0.32+ 0.35+
Net gain (loss) on securities (both
realized and unrealized) ................................ (0.59) (0.16) (0.04) (0.09) (0.02)
------- ------- ------- ------- -------
Total from investment operations .......................... (0.26) 0.16 0.28 0.23 0.33
------- ------- ------- ------- -------
Less distributions (note 10):
Dividends from net investment income ...................... (0.32) (0.32) (0.32) (0.32) (0.34)
Distributions from capital gains .......................... -- * (0.02) (0.01) (0.02)
------- ------- ------- ------- -------
Total distributions ....................................... (0.32) (0.32) (0.34) (0.33) (0.36)
------- ------- ------- ------- -------
Net asset value, end of period .............................. $ 10.10 $ 10.68 $ 10.84 $ 10.90 $ 11.00
======= ======= ======= ======= =======
Total return (not reflecting sales charge) .................. (2.51)% 1.51% 2.64% 2.10% 3.09%
Ratios/supplemental data
Net assets, end of period (in millions) ................... $ 17.7 $ 25.3 $ 32.9 $ 41.9 $ 41.4
Ratio of expenses to average net assets ................... 1.61% 1.60% 1.60% 1.62% 1.57%
Ratio of net investment income to
average net assets ...................................... 3.04% 2.92% 2.97% 2.94% 3.17%
Portfolio turnover rate ................................... 15% 22% 16% 14%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ................... 1.59% 1.59% 1.59% 1.61% 1.56%
Class Y
-----------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------
2008 2007 2006 2005 2004
------- ------- ------- ------- -------
Net asset value, beginning of period ........................ $ 10.68 $ 10.84 $ 10.90 $ 11.00 $ 11.03
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ..................................... 0.43++ 0.43+ 0.43+ 0.43+ 0.46+
Net gain (loss) on securities (both
realized and unrealized) ................................ (0.58) (0.16) (0.04) (0.09) (0.02)
------- ------- ------- ------- -------
Total from investment operations .......................... (0.15) 0.27 0.39 0.34 0.44
------- ------- ------- ------- -------
Less distributions (note 10):
Dividends from net investment income ...................... (0.43) (0.43) (0.43) (0.43) (0.45)
Distributions from capital gains .......................... -- * (0.02) (0.01) (0.02)
------- ------- ------- ------- -------
Total distributions ....................................... (0.43) (0.43) (0.45) (0.44) (0.47)
------- ------- ------- ------- -------
Net asset value, end of period .............................. $ 10.10 $ 10.68 $ 10.84 $ 10.90 $ 11.00
======= ======= ======= ======= =======
Total return (not reflecting sales charge) .................. (1.52)% 2.52% 3.67% 3.11% 4.13%
Ratios/supplemental data
Net assets, end of period (in millions) ................... $ 58.4 $ 49.2 $ 43.9 $ 36.0 $ 37.0
Ratio of expenses to average net assets ................... 0.61% 0.60% 0.60% 0.62% 0.57%
Ratio of net investment income to
average net assets ...................................... 4.04% 3.92% 3.97% 3.95% 4.17%
Portfolio turnover rate ................................... 11% 15% 22% 16% 14 11%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ................... 0.59% 0.59% 0.59% 0.61% 0.56%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
* Less than $0.01 per share.
See accompanying notes to financial statements.
ADDITIONAL INFORMATION (UNAUDITED)
TRUSTEES(1)
AND OFFICERS
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Diana P. Herrmann Vice Chair Vice Chair and Chief Executive Officer of 12 ICI Mutual Insurance
New York, NY of the Board Aquila Management Corporation, Founder of Company
(02/25/58) of Trustees the Aquila Group of Funds(5) and parent of
since 2003, Aquila Investment Management LLC,
President Manager since 2004, President since 1997,
since 1998 Chief Operating Officer, 1997-2008, a
and Trustee Director since 1984, Secretary since 1986
since 1994 and previously its Executive Vice President,
Senior Vice President or Vice President,
1986-1997; Chief Executive Officer and Vice
Chair since 2004, President and Manager of
the Manager since 2003, and Chief
Operating Officer of the Manager, 2003-
2008; Chair, Vice Chair, President, Executive
Vice President or Senior Vice President of
funds in the Aquila Group of Funds since
1986; Director of the Distributor since 1997;
trustee, Reserve Money-Market Funds, 1999-
2000 and Reserve Private Equity Series,
1998-2000; Governor, Investment Company
Institute (a trade organization for the U.S.
mutual fund industry dedicated to protecting
shareholder interests and educating the
public about investing) and head of its Small
Funds Committee since 2004; active in
charitable and volunteer organizations.
John W. Mitchell Trustee Principal of M & H Economic Consultants; 1 Oregon Mutual Insurance
Portland, OR since 1999 Economist, Western Region, for U.S.
(07/13/44) Bancorp 1998 - 2007; Chief Economist, U.S.
Bancorp, Portland, Oregon, 1983-1998;
member, Oregon Governor's Council of
Economic Advisors, 1984-1998; Chairman,
Oregon Governor's Technical Advisory
Committee for Tax Review in 1998.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
NON-INTERESTED TRUSTEES
- -----------------------
James A. Gardner Chair of President, Gardner Associates, an investment 1 None
Terrebonne, OR the Board and real estate firm, since 1989; Founding
(07/22/43) of Trustees Partner and Chairman, Ranch of the Canyons,
since 2005 a real estate firm, since 1991; President
and Trustee Emeritus, Lewis and Clark College and Law
since 1986 School; director, Oregon High Desert
Museum since 1989, Vice Chairman since
2002; active in civic, business, educational
and church organizations in Oregon.
Gary C. Cornia Trustee Dean, Marriott School of Management, 4 Lincoln Institute of Land
Orem, UT since 2002 Brigham Young University, since 2008; Director, Policy, Cambridge, MA
(06/24/48) Romney Institute of Public Management,
Marriott School of Management, 2004 - 2008;
Professor, Marriott School of Management,
1980 - present; Past President, the National Tax
Association; Fellow, Lincoln Institute of Land
Policy, 2002 - present; Associate Dean, Marriott
School of Management, Brigham Young
University, 1991-2000; member, Utah
Governor's Tax Review Committee since 1993.
Edmund P. Jensen Trustee President and CEO, VISA International, 1 BMG-Seltec, a software
Portland, OR since 2003 1994-1999; director: Phoenix Technologies, company; Portland
(04/13/37) a Tech/BIOS company, 2000-2005; Corillian Family of Funds, a
Corp., a banking software company, 2000- community investment
2002; Trintech, a payment software bank.
company, 1999-2002.
Ralph R. Shaw Trustee President, Shaw Management Company, an 1 Schnitzer Steel Industries,
Portland, OR since 2000 investment counseling firm, 1980 - present; Inc., Telestream, Inc.,
(08/23/38) General Partner, Shaw Venture Partners, 1983 BMG Seltec Corporation,
- 2005; Shaw Venture Partners II, 1987 - 2005; Rentrak Corporation,
and Shaw Venture Partners III, 1994 - 2005 One-to-One Interactive.
(US Bancorp, parent of the Sub-Adviser, was a
limited partner in these three ventures).
Nancy Wilgenbusch Trustee President Emerita since 2008 and President 1 West Coast Bank;
Marylhurst, OR since 2002 1984-2008, Marylhurst University; member, Cascade Corporation, a
(09/17/47) former Chair, Portland Branch of the Federal leading international
Reserve Bank of San Francisco; active board manufacturer of lift truck
member of a number of civic organizations. attachments.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
OTHER INDIVIDUALS
- -----------------
TRUSTEES EMERITUS(6)
- --------------------
Lacy B. Herrmann Founder and Founder and Chairman of the Board, Aquila N/A N/A
New York, NY Chairman Management Corporation, the sponsoring
(05/12/29) Emeritus organization and parent of the Manager or
since 2005; Administrator and/or Adviser or Sub-Adviser to
Chairman each fund of the Aquila Group of Funds;
of the Board Chairman of the Manager or Administrator
of Trustees and/or Adviser or Sub-Adviser to each since
1985-2004 2004; Founder and Chairman Emeritus of each
and Trustee, fund in the Aquila Group of Funds; previously
1985-2005 Chairman and a Trustee of each fund in the
Aquila Group of Funds since its establishment
until 2004 or 2005; Director of the Distributor
since 1981 and formerly Vice President or
Secretary, 1981-1998; Trustee Emeritus, Brown
University and the Hopkins School; active in
university, school and charitable organizations.
Vernon R. Alden Trustee Retired; former director or trustee of various N/A N/A
Boston, MA Emeritus Fortune 500 companies, including Colgate-
(04/07/23) since 2006 Palmolive and McGraw Hill; formerly President
of Ohio University and Associate Dean of the
Harvard University Graduate School of Business
Administration; Trustee, Narragansett Insured
Tax-Free Income Fund, 1992-2006 and Tax-
Free Trust of Oregon, 1988-2001; Trustee
Emeritus, Tax-Free Trust of Oregon since 2006;
member of several Japan-related advisory
councils, including Chairman of the Japan
Society of Boston; trustee of various cultural,
educational and civic organizations.
David B. Frohnmayer Trustee President, University of Oregon since 1994; N/A N/A
Eugene, OR Emeritus former Dean of the University of Oregon
(07/09/40) since 2003 Law School and former Attorney General of
the State of Oregon; Trustee, Tax-Free Trust
of Oregon, 1997-2003.
Raymond H. Lung Trustee Retired; trustee, Qualivest Group of Funds, N/A N/A
Portland, OR Emeritus 1994-1997; former Executive Vice President
(12/24/26) since 2005 and Executive Trust Officer, U.S. National
Bank of Oregon; previously active in bank
trade organizations and director of certain
Pacific Northwest companies; Trustee, Tax-
Free Trust of Oregon, 1992-2005.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Patricia L. Moss Trustee President and Chief Executive Officer, N/A N/A
Bend, OR Emeritus Cascade Bancorp and Bank of the Cascades
(07/23/53) since 2005 since 1998; Trustee, Tax-Free Trust of
Oregon, 2002-2005; active in community
and educational organizations.
OFFICERS
Charles E. Childs, III Executive Executive Vice President of all funds in the N/A N/A
New York, NY Vice President Aquila Group of Funds and the Manager and
(04/01/57) since 2003 the Manager's parent since 2003; Executive
Vice President and Chief Operating Officer of
the Manager's parent since 2008; formerly
Senior Vice President, corporate development,
Vice President, Assistant Vice President and
Associate of the Manager's parent since
1987; Senior Vice President, Vice President
or Assistant Vice President of the Aquila
Money-Market Funds, 1988-2003.
James M. McCullough Senior Vice Senior Vice President or Vice President of N/A N/A
Portland, OR President Aquila Rocky Mountain Equity Fund and Tax-
(06/11/45) since 1999 Free Trust of Oregon; Senior Vice President of
the Distributor since 2000; Director of Fixed
Income Institutional Sales, CIBC Oppenheimer
& Co. Inc., Seattle, WA, 1995-1999.
Jerry G. McGrew Senior Vice President of the Distributor since 1998, N/A N/A
New York, NY President Registered Principal since 1993, Senior Vice
(06/18/44) since 2002 President, 1997-1998 and Vice President,
1993-1997; Senior Vice President, Aquila
Three Peaks High Income Fund, Aquila
Rocky Mountain Equity Fund and five Aquila
Municipal Bond Funds; Vice President,
Churchill Cash Reserves Trust, 1995-2001.
Sally J. Church Vice President Vice President, Tax-Free Trust of Oregon N/A N/A
Portland, OR since 2002 since 2002 and 1989-1997; retired, 1997-
(10/17/48) 2002; Vice President of Aquila Cascadia
Equity Fund, 1996-1997.
Christine L. Neimeth Vice President Vice President of Aquila Rocky Mountain N/A N/A
Portland, OR since 1998 Equity Fund and Tax-Free Trust of Oregon;
(02/10/64) Management Information Systems
consultant, Hillcrest Ski and Sport, 1997;
Institutional Municipal Bond Salesperson,
Pacific Crest Securities, 1996; active in
college alumni and volunteer organizations.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Robert W. Anderson Chief Chief Compliance Officer of the Trust and N/A N/A
New York, NY Compliance each of the other funds in the Aquila Group
(08/23/40) Officer since of Funds, the Manager and the Distributor
2004 and since 2004, Compliance Officer of the
Assistant Manager or its predecessor and current
Secretary parent 1998-2004; Assistant Secretary of the
since 2000 Aquila Group of Funds since 2000.
Joseph P. DiMaggio Chief Financial Chief Financial Officer of the Aquila Group N/A N/A
New York, NY Officer since of Funds since 2003 and Treasurer since
(11/06/56) 2003 and 2000.
Treasurer
since 2000
Edward M. W. Hines Secretary since Shareholder of Butzel Long, a professional N/A N/A
New York, NY 1985 corporation, counsel to the Trust, since 2007;
(12/16/39) Partner of Hollyer Brady Barrett & Hines LLP,
its predecessor as counsel, 1989-2007;
Secretary of the Aquila Group of Funds.
John M. Herndon Assistant Assistant Secretary of the Aquila Group of N/A N/A
New York, NY Secretary Funds since 1995 and Vice President of the
(12/17/39) since 1995 three Aquila Money-Market Funds since
1990; Vice President of the Manager or its
predecessor and current parent since 1990.
Lori A. Vindigni Assistant Assistant Treasurer of the Aquila Group of N/A N/A
New York, NY Treasurer since Funds since 2000; Assistant Vice President
(11/02/66) 2000 of the Manager or its predecessor and
current parent since 1998; Fund Accountant
for the Aquila Group of Funds, 1995-1998.
- ----------
(1) The Trust's Statement of Additional Information includes additional
information about the Trustees and is available, without charge, upon request by
calling 800-437-1020 (toll-free) or by visiting www.aquilafunds.com or the EDGAR
Database at the SECinternet site at www.sec.gov.
(2) The mailing address of each Trustee and officer is c/o Tax-Free Trust of
Oregon, 380 Madison Avenue, New York, NY 10017.
(3) Each Trustee holds office until the next annual meeting of shareholders or
until his or her successor is elected and qualifies. The term of office of each
officer is one year.
(4) Ms. Herrmann is an interested person of the Trust as an officer of the
Trust, as a director, officer and shareholder of the Manager's corporate parent,
as an officer and Manager of the Manager, and as a shareholder and director of
the Distributor. Ms. Herrmann is the daughter of Lacy B. Herrmann, the Founder
and Chairman Emeritus of the Fund. Mr. Mitchell is an interested person as a
security holder of the Sub-Adviser's parent.
(5) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash Assets
Trust, each of which is a money-market fund, are called the "Aquila Money-Market
Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of
Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky,
Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of
which is a tax-free municipal bond fund, are called the "Aquila Municipal Bond
Funds"; Aquila Rocky Mountain Equity Fund is an equity fund; Aquila Three Peaks
High Income Fund is a high income corporate bond fund; considered together,
these 12 funds are called the "Aquila Group of Funds."
(6) A Trustee Emeritus may attend Board meetings but has no voting power.
- --------------------------------------------------------------------------------
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,
2008 and held for the six months ended September 30, 2008.
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 entitled "Expenses Paid
During the Period".
SIX MONTHS ENDED SEPTEMBER 30, 2008
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A (2.45)% $1,000.00 $975.50 $3.61
- --------------------------------------------------------------------------------
Class C (2.83)% $1,000.00 $971.70 $7.79
- --------------------------------------------------------------------------------
Class Y (2.38)% $1,000.00 $976.20 $2.87
- --------------------------------------------------------------------------------
(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
CONTINGENT DEFERRED SALES CHARGES ("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 0.73%, 1.58% AND
0.58% FOR THE TRUST'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
contingent deferred sales charges ("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, 2008
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.35 $3.69
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,017.10 $7.97
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,022.10 $2.93
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.73%, 1.58% AND
0.58% FOR THE TRUST'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/366 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Tax-Free Trust of Oregon (the
"Trust") was held on June 13, 2008. The holders of shares representing 81% of
the total net asset value of the shares entitled to vote were present in person
or by proxy. At the meeting, the following matters were voted upon and approved
by the shareholders (the resulting votes for are presented below).
1. To elect Trustees.
Dollar Amount of Votes:
-----------------------
Trustee For Withheld
------- --- --------
Gary C. Cornia $329,842,524 $2,727,185
James A. Gardner $329,842,524 $2,727,185
Diana P. Herrmann $329,812,012 $2,757,698
Edmund P. Jensen $329,842,524 $2,727,185
John W. Mitchell $329,772,061 $2,797,648
Ralph R. Shaw $329,772,061 $2,797,648
Nancy Wilgenbusch $329,841,530 $2,728,180
2. To ratify the selection of Tait, Weller & Baker LLP as the Trust's
independent registered public accounting firm.
Dollar Amount of Votes:
-----------------------
For Against Abstain
--- ------- -------
$326,246,626 $751,159 $5,571,925
A Special Meeting of Shareholders of Tax-Free Trust of Oregon (the
"Trust") was held on June 13, 2008. The holders of shares representing 52% of
the total net asset value of the shares entitled to vote were present in person
or by proxy. At the meeting, the following matters were voted upon and approved
by the shareholders (the resulting votes for are presented below).
Dollar Amount of Votes:
-----------------------
1. To act on an Advisory and Administration Agreement.
For Against Abstain
--- ------- -------
$198,714,597 $2,752,894 $8,840,468
2. To act on a new Sub-Advisory Agreement.
For Against Abstain
--- ------- -------
$198,198,441 $2,903,194 $9,206,335
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
RENEWAL OF THE ADVISORY AND ADMINISTRATION AGREEMENT AND THE SUB-ADVISORY
AGREEMENT
Renewal until June 30, 2009 of the Advisory and Administration Agreement
(the "Advisory Agreement") between the Trust and the Manager and the
Sub-Advisory Agreement (the "Sub-Advisory Agreement") between the Manager and
FAF Advisors, Inc. (the "Sub-Adviser") was approved by the Board of Trustees and
the independent Trustees in March, 2008. At a meeting called and held for that
purpose at which a majority of the independent Trustees were present in person,
the following materials were considered:
o Copies of the agreements to be renewed;
o A term sheet describing the material terms of the agreements;
o The Annual Report of the Trust for the year ended September 30,
2007;
o A report, prepared by the Manager and provided to the Trustees in
advance of the meeting for the Trustees review, containing data
about the performance of the Trust, data about its fees, expenses
and purchases and redemptions of capital stock together with
comparisons of such data with similar data about other comparable
funds, as well as data as to the profitability of the Manager and
the Sub-Adviser; and
o Quarterly materials reviewed at prior meetings on the Trust's
performance, operations, portfolio and compliance.
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. The Trustees reviewed materials relevant
to, and considered, the factors set forth below, and as to each agreement
reached the conclusions described.
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER AND THE
SUB-ADVISER.
The Manager has provided all administrative services to the Trust. The
Board considered the nature and extent of the Manager's supervision of
third-party service providers, including the Trust's shareholder servicing agent
and custodian. The Board considered that the Manager had established and
maintained a strong culture of ethical conduct and regulatory compliance.
The Manager has arranged for the Sub-Adviser to provide local management
of the Trust's portfolio. The Trustees noted that the Sub-Adviser employed Mr.
Michael S. Hamilton as portfolio manager for the Trust, and had provided
facilities for credit analysis of the Trust's portfolio securities. Mr.
Hamilton, based in Portland, Oregon, has provided local information regarding
specific holdings in the Trust's portfolio. The portfolio manager has also been
available to and has met with the brokerage and financial planner community and
with investors and prospective investors to provide them with information
generally about the Trust's portfolio, with which to assess the Trust as an
investment vehicle for residents of Oregon in light of prevailing interest rates
and local economic conditions.
The Board considered that the Manager and the Sub-Adviser had provided all
services the Board deemed necessary or appropriate, including the specific
services that the Board has determined are required for the Trust, given that
its purpose is 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. It noted that compared to other Oregon state-specific
municipal bond funds, the portfolio of the Trust was of significantly higher
quality and contained no securities subject to the alternative minimum tax.
The Board concluded that a commendable quality of services was provided
and that the Trust would be well served if they continued. Evaluation of this
factor weighed in favor of renewal of the Advisory Agreement and the
Sub-Advisory Agreement.
THE INVESTMENT PERFORMANCE OF THE TRUST.
The Board reviewed each aspect of the Trust's performance and compared its
performance with that of its local competitors, with national averages and with
benchmark indices. It was noted that the materials provided by the Manager
indicated that compared to the five largest competitive Oregon funds, the Trust
has had an average annual return that is comparable to that of its peers for the
one-year period, but below that of its peers for the five- and ten-year periods,
with rates of return explained in part by the Trust's generally higher-quality
portfolio and generally shorter average maturities.
The Board concluded that the performance of the Trust was acceptable in
light of market conditions, the length of its average maturities, its investment
objectives and its long-standing emphasis on minimizing risk. Evaluation of this
factor indicated to the Trustees that renewal of the Advisory Agreement and the
Sub-Advisory Agreement would be appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER AND THE SUB-ADVISER AND THEIR AFFILIATES FROM THEIR RELATIONSHIPS WITH
THE TRUST.
The information provided in connection with renewal contained expense data
for the Trust and its local competitors as well as data for all single-state
tax-free municipal bond funds nationwide, including data for all such front-end
sales charge funds of a comparable asset size. The materials also showed the
profitability to the Manager and the Sub-Adviser of their services to the Trust.
The Board compared the expense and fee data with respect to the Trust to
similar data about other funds that it found to be relevant. The Board concluded
that the expenses of the Trust and the fees paid were similar to and were
reasonable as compared to those being paid by single-state tax-free municipal
bond funds nationwide and by the Trust's local competitors.
The Board considered that the foregoing indicated the appropriateness of
the costs of the services to the Trust, which was being well managed as
indicated by the factors considered previously.
The Board further concluded that the profitability to the Manager and the
Sub-Adviser did not argue against approval of the fees to be paid under the
Advisory Agreement or the Sub-Advisory Agreement.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE TRUST GROWS.
Data provided to the Trustees showed that the Trust's average net asset
size had trended lower in recent years. The Trustees also noted that the
materials indicated that the Trust's fees were already lower than what those of
its peers would be at comparable asset levels, including those with breakpoints.
Evaluation of this factor indicated to the Board that the Advisory Agreement and
the Sub-Advisory Agreement should be renewed without addition of breakpoints at
this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND THE SUB-ADVISER AND THEIR
AFFILIATES FROM THEIR RELATIONSHIPS WITH THE TRUST.
The Board observed that, as is generally true of most fund complexes, the
Manager and the 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 Board noted that while
that produces efficiencies and increased profitability for the Manager and the
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.
CONSIDERATION OF NEW ADVISORY AND ADMINISTRATION AGREEMENT IN CONNECTION WITH
PROPOSED CHANGES IN OWNERSHIP OF THE PARENT COMPANY OF THE MANAGER
BASIS FOR THE TRUSTEES' APPROVAL OF THE NEW ADVISORY AGREEMENT
The Board of Trustees and the independent Trustees approved the renewal
until June 30, 2009 of the now-current Advisory and Administration Agreement
(the "Current Advisory Agreement") in March 2008 at a meeting called and held
for that purpose at which a majority of the independent Trustees were present in
person. They additionally approved the New Advisory Agreement at that meeting.
In connection with the renewal of the Current Advisory Agreement, the
following materials were considered:
o Copies of the agreement to be renewed;
o A term sheet describing the material terms of the agreement;
o The Annual Report of the Trust for the year ended September 30,
2007;
o A report, prepared by the Manager and provided to the Trustees,
containing data about the performance of the Trust, data about its
fees, expenses and purchases and redemptions of capital stock
together with comparisons of such data with similar data about other
comparable funds, as well as data as to the profitability of the
Manager; and
o Quarterly materials reviewed at prior meetings on the Trust's
performance, operations, portfolio and compliance.
The Trustees considered the Current Advisory Agreement separately as well
as in conjunction with the now-current Sub-Advisory Agreement (the "Current
Sub-Advisory Agreement") to determine their combined effects on the Trust. The
Trustees reviewed materials relevant to, and considered, the factors set forth
below, and as to the New Advisory Agreement reached the conclusions described.
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER.
The Manager has provided all administrative services to the Trust. The
Board considered the nature and extent of the Manager's supervision of
third-party service providers, including the Trust's shareholder servicing agent
and custodian. The Board considered that the Manager had established and
maintained a strong culture of ethical conduct and regulatory compliance.
The Manager has arranged for the Sub-Adviser to provide local management
of the Trust's portfolio.
The Board considered that the Manager had provided all services the Board
deemed necessary or appropriate, including the specific services that the Board
has determined are required for the Trust, given that its purpose is to provide
shareholders with as high a level of current income exempt from Oregon state and
regular Federal income taxes as was consistent with preservation of capital.
The Board concluded that a commendable quality of services was provided
and that the Trust would be well served if they continued. Evaluation of this
factor weighed in favor of approval of the New Advisory Agreement.
THE INVESTMENT PERFORMANCE OF THE TRUST AND THE MANAGER.
The Board reviewed each aspect of the Trust's performance and compared its
performance with that of its local competitors, with national averages and with
benchmark indices. It was noted that the materials provided by the Manager
indicated that compared to the five largest competitive Oregon funds, the Trust
has had an average annual return that is comparable to that of its peers for
the one-year period, but below that of its peers for the five- and ten-year
periods, with rates of return explained in part by the Trust's generally
higher-quality portfolio and generally shorter average maturity. The Trust
considers its local competitors to be Oregon-oriented funds that invest chiefly
in high-quality Oregon municipal obligations.
The Board concluded that the performance of the Trust was acceptable in
light of market conditions, the length of its average maturity, its investment
objectives and its long-standing emphasis on minimizing risk. Evaluation of this
factor indicated to the Trustees that approval of the New Advisory Agreement
would be appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER AND ITS AFFILIATES FROM THEIR RELATIONSHIPS WITH THE TRUST.
The information provided in connection with renewal contained expense data
for the Trust and its local competitors as well as data for all single-state
tax-free municipal bond funds nationwide, including data for all such front-end
sales charge funds of a comparable asset size. The materials also showed the
profitability to the Manager of its services to the Trust.
The Board compared the expense and fee data with respect to the Trust to
similar data about other funds that it found to be relevant. The Board concluded
that the expenses of the Trust and the fees paid were similar to and were
reasonable as compared to those being paid by single-state tax-free municipal
bond funds nationwide and by the Trust's local competitors.
The Board considered that the foregoing indicated the appropriateness of
the costs of the services to the Trust, which was being well managed as
indicated by the factors considered previously.
The Board further concluded that the profitability to the Manager did not
argue against approval of the fees to be paid under the New Advisory Agreement.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE TRUST GROWS.
Data provided to the Trustees showed that the Trust's average net asset
size had trended lower in recent years. The Trustees also noted that the
materials indicated that the Trust's fees were already lower than what those of
its peers would be at comparable asset levels, including those with breakpoints.
Evaluation of this factor indicated to the Board that the New Advisory Agreement
should be approved without addition of breakpoints at this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND ITS AFFILIATES FROM THEIR
RELATIONSHIPS WITH THE TRUST.
The Board observed that, as is generally true of most fund complexes, the
Manager and its 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 Board noted that while that produces efficiencies
and increased profitability for the Manager and its 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.
In connection with approval of the New Advisory Agreement and
recommendation that the shareholders of the Trust approve that agreement, the
Trustees noted that that agreement is substantially the same as the Current
Advisory Agreement except for its starting date and accordingly the materials
considered in connection with the Annual Review, and the reasons for renewing
the Current Advisory Agreement, apply to the New Advisory Agreement as well. In
addition, as noted above, in addressing the desirability of replacing the
Current Advisory Agreement
with the New Advisory Agreement, the Trustees considered a wide range of
information relevant to the ongoing and future continuity of management of the
Trust, including:
o Representations by representatives of Aquila Management Corporation
and the Manager that the
o Proposed change of control was not expected to result in a
change in the personnel or operations of the Manager or
Sub-Adviser; and
o Investment approach or style of the Manager and the
Sub-Adviser with respect to the Trust, or the services
provided by them to the Trust, would not change.
o The fact that the
o Transaction will not result in
Any change to the advisory fees paid by the Trust or the
Trust's total expense ratio; and
A change in the costs of the services to be provided by
the Manager.
o Trust has operated in compliance with its investment objective and
restrictions.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the independent Trustees, concluded
that the New Advisory Agreement should be approved and recommended that the
shareholders of the Trust vote to approve the New Advisory Agreement for an
initial one-year term.
CONSIDERATION OF NEW SUB-ADVISORY AGREEMENT IN CONNECTION WITH TERMINATION OF
CURRENT ADVISORY AND ADMINISTRATION AGREEMENT IN CONNECTION WITH PROPOSED
CHANGES IN OWNERSHIP OF THE PARENT COMPANY OF THE MANAGER
BASIS FOR THE TRUSTEES' APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT.
The Board of Trustees and the independent Trustees approved the renewal
until June 30, 2009 of the Current Sub-Advisory Agreement in March 2008 at a
meeting called and held for that purpose at which a majority of the independent
Trustees were present in person. They additionally approved the New Sub-Advisory
Agreement at that meeting.
In connection with the renewal of the Current Sub-Advisory Agreement, the
following materials were considered:
o Copies of the agreement to be renewed;
o A term sheet describing the material terms of the agreement;
o The Annual Report of the Trust for the year ended September 30,
2007;
o A report, prepared by the Manager and provided to the Trustees,
containing data about the performance of the Trust, data about its
fees, expenses and purchases and redemptions of capital stock
together with comparisons of such data with similar data about other
comparable funds, as well as data as to the profitability of the
Sub-Adviser; and
o Quarterly materials reviewed at prior meetings on the Trust's
performance, operations, portfolio and compliance.
The Trustees considered the Current Sub-Advisory Agreement separately as
well as in conjunction with the Current Advisory Agreement to determine their
combined effects on the Trust. The Trustees reviewed materials relevant to, and
considered, the factors set forth below, and as to the New Sub-Advisory
Agreement reached the conclusions described.
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE SUB-ADVISER.
The Manager has arranged for the Sub-Adviser to provide local management
of the Trust's portfolio. The Trustees noted that the Sub-Adviser employs Mr.
Michael S. Hamilton as portfolio manager for the Trust, and has provided
facilities for credit analysis of the Trust's portfolio securities. Mr.
Hamilton, based in Portland, Oregon, has provided local information regarding
specific holdings in the Trust's portfolio. The portfolio manager has also been
available to and has met with the brokerage and financial planner community and
with investors and prospective investors to provide them with information
generally about the Trust's portfolio, with which to assess the Trust as an
investment vehicle for residents of Oregon in light of prevailing interest rates
and local economic conditions.
The Board considered that the Sub-Adviser had provided all services the
Board deemed necessary or appropriate, including the specific services that the
Board has determined are required for the Trust, given that its purpose is to
provide shareholders with as high a level of current income exempt from Oregon
state and regular Federal income taxes as was consistent with preservation of
capital. It noted that compared to other Oregon state-specific municipal bond
funds, the portfolio of the Trust was of significantly higher quality and
contained no securities subject to the alternative minimum tax.
The Board concluded that a commendable quality of services was provided
and that the Trust would be well served if they continued. Evaluation of this
factor weighed in favor of approval of the New Sub-Advisory Agreement.
THE INVESTMENT PERFORMANCE OF THE TRUST AND THE SUB-ADVISER.
The Board reviewed each aspect of the Trust's performance and compared its
performance with that of its local competitors, with national averages and with
benchmark indices. It was noted that the materials provided by the Manager
indicated that compared to the five largest competitive Oregon funds, the Trust
has had an average annual return that is comparable to that of its peers for the
one-year period, but below that of its peers for the five- and ten-year periods,
with rates of return explained in part by the Trust's generally higher-quality
portfolio and generally shorter average maturity. The Trust considers its local
competitors to be Oregon-oriented funds that invest chiefly in high-quality
Oregon municipal obligations.
The Board concluded that the performance of the Trust was acceptable in
light of market conditions, the length of its average maturity, its investment
objectives and its long-standing emphasis on minimizing risk. Evaluation of this
factor indicated to the Trustees that approval of the New Sub-Advisory Agreement
would be appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
SUB-ADVISER AND ITS AFFILIATES FROM THEIR RELATIONSHIPS WITH THE TRUST.
The information provided in connection with renewal contained expense data
for the Trust and its local competitors as well as data for all single-state
tax-free municipal bond funds nationwide, including data for all such front-end
sales charge funds of a comparable asset size. The materials also showed the
profitability to the Sub-Adviser of its services to the Trust.
The Board compared the expense and fee data with respect to the Trust to
similar data about other funds that it found to be relevant. The Board concluded
that the expenses of the Trust and the fees paid were similar to and were
reasonable as compared to those being paid by single-state tax-free municipal
bond funds nationwide and by the Trust's local competitors.
The Board considered that the foregoing indicated the appropriateness of
the costs of the services to the Trust, which was being well managed as
indicated by the factors considered previously.
The Board further concluded that the profitability to the Sub-Adviser did
not argue against approval of the fees to be paid under the New Sub-Advisory
Agreement.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE TRUST GROWS.
Data provided to the Trustees showed that the Trust's average net asset
size had trended lower in recent years. The Trustees also noted that the
materials indicated that the Trust's fees were already lower than what those of
its peers would be at comparable asset levels, including those with breakpoints.
Evaluation of this factor indicated to the Board that the New Sub-Advisory
Agreement should be approved without addition of breakpoints at this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE SUB-ADVISER AND ITS AFFILIATES FROM
THEIR RELATIONSHIPS WITH THE TRUST.
The Board observed that, as is generally true of most fund complexes, the
Sub-Adviser and its 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 Board noted that while that produces
efficiencies and increased profitability for the Sub-Adviser and its 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.
In connection with approval of the New Sub-Advisory Agreement and
recommendation that the shareholders of the Trust approve it, the Trustees noted
that that agreement is substantially the same as the Current Sub-Advisory
Agreement except for its starting date and accordingly the materials considered
in connection with the Annual Review, and the reasons for renewing the Current
Sub-Advisory Agreement, apply to the New Sub-Advisory Agreement as well. In
addition, as noted above, in addressing the desirability of replacing the
Current Sub-Advisory Agreement with the New Sub-Advisory Agreement, the Trustees
considered a wide range of information relevant to the ongoing and future
continuity of management of the Trust, including:
o Representations by representatives of the Sub-Adviser that the
o Proposed change of control of the Manager was not expected to
result in a change in the personnel or operations of the
Sub-Adviser; and
o Investment approach or style of the Sub-Adviser with respect
to the Trust, or the services provided by it to the Trust,
would not change.
o The fact that the
o Transaction will not result in
Any change to the advisory fees paid by the Trust or the
Trust's total expense ratio; and
A change in the costs of the services to be provided by
the Sub-Adviser.
o Trust has operated in compliance with its investment objective and
restrictions.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel, the Trustees, including the independent Trustees, concluded
that the New Sub-Advisory Agreement should be approved and recommended that the
shareholders of the Trust vote to approve the New Sub-Advisory Agreement for an
initial one-year term.
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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 the entire list of portfolio securities of your Trust
twice a year in the semi-annual and annual reports you receive. Additionally, we
prepare, and have available, portfolio listings at the end of each quarter.
Whenever you may be interested in seeing a listing of your Trust's portfolio
other than in your shareholder reports, please check our website
http://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 quarters of each fiscal year on Form N-Q
which is available free of charge on the SEC website at http://www.sec.gov. You
may also review or, for a fee, copy the forms at the SEC's Public Reference Room
in Washington, DC or by calling 800-SEC-0330.
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PROXY VOTING RECORD (UNAUDITED)
The Trust does not invest in equity securities. Accordingly, there were no
matters relating to a portfolio security considered at any shareholder meeting
held during the 12 months ended June 30, 2008 with respect to which the Trust
was entitled to vote. Applicable regulations require us to inform you that the
foregoing proxy voting information is available on the SEC website at
http://www.sec.gov.
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FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement of the
Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF SHAREHOLDERS IS
REQUIRED.
For the fiscal year ended September 30, 2008, $15,881,178 of dividends
paid by Tax-Free Trust of Oregon, constituting 100.00% of total dividends paid
during fiscal year 2008, were exempt-interest dividends.
2
Prior to January 31, 2009, shareholders will be mailed the appropiate tax
form(s) which will contain information on the status of distributions paid for
the 2008 CALENDAR YEAR.
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PRIVACY NOTICE (UNAUDITED)
TAX-FREE TRUST OF OREGON
OUR PRIVACY POLICY. In providing services to you as an individual who owns or is
considering investing in shares of the Trust, we collect certain non-public
personal information about you. Our policy is to keep this information strictly
safeguarded and confidential, and to use or disclose it only as necessary to
provide services to you or as otherwise permitted by law. Our privacy policy
applies equally to former shareholders and persons who inquire about the Trust.
INFORMATION WE COLLECT. "Non-public personal information" is personally
identifiable financial information about you as an individual or your family.
The kinds of non-public personal information we have about you may include the
information you provide us on your share purchase application or in telephone
calls or correspondence with us, and information about your fund transactions
and holdings, how you voted your shares and the account where your shares are
held.
INFORMATION WE DISCLOSE. We disclose non-public personal information about you
to companies that provide necessary services to us, such as the Trust's transfer
agent, distributor, investment adviser or sub-adviser, as permitted or required
by law, or as authorized by you. Any other use is strictly prohibited. We do not
sell information about you or any of our fund shareholders to anyone.
NON-CALIFORNIA RESIDENTS: We also may disclose some of this information to
another fund in the Aquila Group of Funds (or its service providers) under joint
marketing agreements that permit the funds to use the information only to
provide you with information about other funds in the Aquila Group of Funds or
new services we are offering that may be of interest to you.
CALIFORNIA RESIDENTS ONLY: In addition, unless you "opt-out" of the following
disclosures using the form that was mailed to you under separate cover, we may
disclose some of this information to another fund in the Aquila Group of Funds
(or its sevice providers) under joint marketing agreements that permit the funds
to use the information only to provide you with information about other funds in
the Aquila Group of Funds or new services we are offering that may be of
interest to you.
HOW WE SAFEGUARD YOUR INFORMATION. We restrict access to non-public personal
information about you to only those persons who need it to provide services to
you or who are permitted by law to receive it. We maintain physical, electronic
and procedural safeguards to protect the confidentiality of all non-public
personal information we have about you.
If you have any questions regarding our Privacy Policy, please contact us at
1-800-437-1020.
AQUILA DISTRIBUTORS, INC.
AQUILA INVESTMENT MANAGEMENT LLC
This Privacy Policy also has been adopted by Aquila Distributors, Inc. and
Aquila Investment Management LLC and applies to all non-public information about
you that each of these companies may obtain in connection with services provided
to the Trust or to you as a shareholder of the Trust.
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FOUNDERS
Lacy B. Herrmann, Chairman Emeritus
Aquila Management Corporation
MANAGER
AQUILA INVESTMENT MANAGEMENT LLC
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
FAF ADVISORS, INC.
555 S.W. Oak Street
U.S. Bancorp Tower
Portland, Oregon 97204
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
James M. McCullough, Senior Vice President
Sally J. Church, Vice President
Christine L. Neimeth, Vice President
Robert W. Anderson, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
TRANSFER AND SHAREHOLDER SERVICING AGENT
PNC GLOBAL INVESTMENT SERVICING
101 Sabin Street
Pawtucket, RI 02860
CUSTODIAN
JPMORGAN CHASE BANK, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TAIT, WELLER & BAKER LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Further information is contained in the Prospectus, which must precede or
accompany this report.
ITEM 2. CODE OF ETHICS.
(a) As of September 30, 2008 (the end of the reporting period) the
Trust has adopted a code of ethics that applies to the Trust's
principal executive officer(s)and principal financial officer(s)
and persons performing similar functions ("Covered Officers") as
defined in the Aquila Group of Funds Code of Ethics for Principal
Executive and Senior Financial Officers under Section 406 of the
Sarbanes-Oxley Act of 2002;
(f)(1) Pursuant to Item 10(a)(1), a copy of the Trust's Code of
Ethics that applies to the Trust's principal executive officer(s)
and principal financial officer(s) and persons performing similar
functions is included as an exhibit to its annual report on this
Form N-CSR;
(f)(2) The text of the Trust's Code of Ethics that applies to the
Trust's principal executive officer(s) and principal financial
officer(s) and persons performing similar functions has been
posted on its Internet website which can be found at the Trust's
Internet address at aquilafunds.com.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1)(ii) The Board of Trustees of the Fund has determined that
it does not have at least one audit committee financial expert
serving on its audit committee. The Fund does not have such a
person serving on the audit committee because none of the persons
currently serving as Trustees happens to have the technical
accounting and auditing expertise included in the definition of
"audit committee financial expert" recently adopted by the Securities
and Exchange Commission in connection with this Form N-CSR, and the
Board has not heretofore deemed it necessary to seek such a person
for election to the Board.
The primary mission of the Board, which is that of oversight over
the operations and affairs of the Fund, confronts the Trustees with
a wide and expanding range of issues and responsibilities. The
Trustees believe that, accordingly, it is essential that the Board's
membership consist of persons with as extensive experience as possible
in fulfilling the duties and responsibilities of mutual fund directors
and audit committee members and, ideally, with extensive experience
and background relating to the economic and financial sectors and
securities in which the Fund invests, including exposure to the
financial and accounting matters commonly encountered with respect
to those sectors and securities. The Board believes that its current
membership satisfies those criteria. It recognizes that it would
also be helpful to have a member with the relatively focused accounting
and auditing expertise reflected in the applicable definition of
"audit committee financial expert," just as additional members with
similarly focused technical expertise in other areas relevant to
the Fund's operations and affairs would also contribute added value.
However, the Board believes that the Fund is better served, and its
assets better employed, by a policy of hiring experts in various
the specialized area of technical accounting and
auditing matters, if and as the Board identifies the need, rather
than by seeking to expand its numbers by adding technical experts
in the areas constituting its domain of responsibility. The Fund's
Audit Committee Charter explicitly authorizes the Committee to
retain such experts as it deems necessary in fulfilling its duties
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
a) Audit Fees - The aggregate fees billed for professional services
rendered by the principal accountant for the audit of the Registrant's
annual financial statements were $18,000 in 2007 and $18,000 in 2008.
b) Audit Related Fees - There were no amounts billed for audit-related
fees over the past two years.
c) Tax Fees - The Registrant was billed by the principal accountant
$3,000 and $3,000 in 2007 and 2008, respectively, for return preparation
and tax compliance.
d) All Other Fees - There were no additional fees paid for audit and
non-audit services other than those disclosed in a) thorough c) above.
e)(1) Currently, the audit committee of the Registrant pre-approves audit
services and fees on an engagement-by-engagement basis
e)(2) None of the services described in b) through d) above were approved
by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X, all were pre-approved on an engagement-by-engagement basis.
f) No applicable.
g) There were no non-audit services fees billed by the Registrant's accountant
to the Registrant's investment adviser or distributor over the past two years
h) 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.
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 fling 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)(1) Aquila Group of Funds Code of Ethics for Principal Executive and
Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act
of 2002.
(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.
TAX-FREE TRUST OF OREGON
By: /s/ Diana P. Herrmann
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Vice Chair, President and Trustee
December 8, 2008
By: /s/ Joseph P. DiMaggio
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Chief Financial Officer
December 8, 2008
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
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Diana P. Herrmann
Vice Chair, President and Trustee
December 8, 2008
By: /s/ Joseph P. DiMaggio
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Joseph P. DiMaggio
Chief Financial Officer and Treasurer
December 8, 2008
TAX-FREE TRUST OF OREGON
EXHIBIT INDEX
(a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and
Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act
of 2002.
(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.