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: 3/31/09
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS
SEMI-ANNUAL
REPORT
MAY 31, 2009
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 TAX-FREE SERVING OREGON INVESTORS FOR MORE THAN TWO DECADES
TRUST OF OREGON:
A SQUARE WITH TAX-FREE TRUST OF OREGON
TWO PINE TREES
IN FRONT OF A "TRANSPARENCY - OUR PHILOSOPHY,
MOUNTAIN] NOT JUST A WORD"
May, 2009
Dear Fellow Shareholder:
For those of you who attended Tax-Free Trust of Oregon's recent Annual or
Outreach Meeting of Shareholders, you will remember that "transparency" was part
of our theme that day. Since we think the message is so important, we thought we
would share it with all our shareholders, some of whom were unable to attend.
As I am sure you have noticed, one of the latest "buzz words" found in the
financial press and otherwise is transparency. In the financial world,
transparency refers to conducting one's business in an open and accountable way.
We wish to assure you that here at Tax-Free Trust of Oregon, transparency
is not a "buzz word" - it is, and always has been, the way we do business.
As you may know, the mutual fund industry is one of the most highly
regulated industries in the entire nation. By law, mutual funds are required to
provide shareholders and potential shareholders with a wide variety of
information. At Tax-Free Trust of Oregon, we have continually sought to go above
and beyond any and all legal requirements.
We have always strived to keep you as informed as possible about your
investment through a broad variety of communication efforts.
One of the best examples of these efforts is our Annual Shareholder
Meetings. Since the inception of the Trust we have held Annual and Outreach
informational meetings in convenient locations specifically designed with you,
our shareholders, in mind.
It is worthy to note that we are one of the few mutual fund groups that
actually hold Annual Meetings and one of very few mutual fund groups that
actively encourage shareholder participation.
Our meetings are structured to try to provide you with as much information
as possible about your Trust. At the same time, we also want to hear from you,
our shareholders, because your input helps us in our desire to continue to
provide you with as high a quality product as possible with Tax-Free Trust of
Oregon.
You can be assured that we will personally be available to meet with you
year after year. And, with this in mind, we know that we better handle things
properly - or we will hear about it for sure!
NOT A PART OF THE SEMI-ANNUAL REPORT
We have also continually sought to keep you as informed as possible about
your Trust through:
o informational "Thoughts For The Month,"
o letters, such as this one, attached to our Annual and
Semi-Annual reports, and
o other special communications.
We furthermore make every effort to leave out fancy terms and financial
jargon, in order to speak to you in plain English. Why? We do this because we
truly want you (and every one of our shareholders) to know as much as you'd like
about your investment.
And, you can additionally be assured that non-routine shareholder matters
get the full attention of Aquila's management. Letters sent to our headquarters
often end up squarely on one or both of our desks.
So, there is no getting lost in the shuffle at Tax-Free Trust of Oregon
and the Aquila Group of Funds. It's pretty easy for you to communicate with
those of us right at the top.
We do this because we truly believe that it is:
o YOUR money,
o invested in YOUR Trust,
o invested right here in projects in YOUR communities.
In short, we have always strived to operate in as TRANSPARENT a manner as
possible (and intend to continue to do so) because we feel you have the right to
know as much as you would like about your investment in Tax-Free Trust of
Oregon.
Thank you for your loyalty and confidence.
Sincerely,
/s/ Lacy B. Herrmann /s/ Diana P. Herrmann
Lacy B. Herrmann Diana P. Herrmann
Founder and Chairman Emeritus Vice Chair and President
NOT A PART OF THE SEMI-ANNUAL REPORT
TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS
MARCH 31, 2009 (UNAUDITED)
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (41.0%) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
Bend, Oregon Transportation Highway System
(National-re Insured)
$ 1,135,000 5.300%, 09/01/17 ............................................... A1/NR $ 1,173,647
Benton and Linn Counties, Oregon School District
#509J (Financial Security Assurance Insured)
4,670,000 5.000%, 06/01/21 pre-refunded .................................. Aa2/NR 5,296,527
Chemeketa, Oregon Community College District
(Financial Guaranty Insurance Corporation Insured)
1,385,000 5.500%, 06/01/14 Escrowed to Maturity .......................... NR/NR* 1,582,085
Chemeketa, Oregon Community College District
(State School Guaranty Program)
1,235,000 5.000%, 06/15/25 ............................................... NR/AA 1,308,705
1,540,000 5.000%, 06/15/26 ............................................... NR/AA 1,619,911
Clackamas, Oregon Community College District
(National-re Insured)
1,535,000 5.000%, 05/01/25 ............................................... A1/AA- 1,567,956
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 .......................................... Aa2/AAA 3,708,082
Clackamas County, Oregon School District #12
(North Clackamas) (Financial Security
Assurance Insured)
2,000,000 4.500%, 06/15/30 ............................................... Aa2/AAA 1,851,860
3,115,000 4.750%, 06/15/31 ............................................... Aa2/AAA 2,982,862
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 1,118,026
Clackamas County, Oregon School District #86
(Canby) (Financial Security Assurance Insured)
2,240,000 5.000%, 06/15/19 ............................................... Aa2/AAA 2,407,597
Clackamas County, Oregon School District #108
(Estacada) (Financial Security Assurance Insured)
1,295,000 5.375%, 06/15/17 pre-refunded .................................. Aa3/AAA 1,419,152
2,000,000 5.000%, 06/15/25 pre-refunded .................................. Aa3/AAA 2,175,460
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
Clackamas County, Oregon School District #115
(Gladstone) National-re Insured) (State
School Bond Guaranty Program)
$ 5,000,000 zero coupon, 06/15/27 .......................................... Baa1/AA $ 1,777,850
Clackamas County, Oregon Tax Allocation
705,000 6.500%, 05/01/20 ............................................... NR/NR* 623,939
Clackamas & Washington Counties, Oregon School
District #3J (West Linn - Wilsonville) (State School
Bond Guaranty Program)
2,000,000 4.500%, 06/15/29 ............................................... Aa2/AA 1,935,380
2,000,000 4.750%, 06/15/32 ............................................... Aa2/AA 1,955,840
3,000,000 5.000%, 06/15/33 ............................................... Aa2/AA 3,009,300
Columbia County, Oregon School District #502
(National-re Financial Guaranty Insurance
Corporation Insured)
2,070,000 zero coupon, 06/01/15 .......................................... A2/AA- 1,692,991
Deschutes County, Oregon (Financial Security
Assurance Insured)
2,260,000 5.000%, 12/01/16 ............................................... Aa3/NR** 2,428,528
Deschutes County, Oregon Administrative School
District #1 (Bend-LaPine) (Financial Security
Assurance Insured)
1,145,000 5.500%, 06/15/14 pre-refunded .................................. Aa2/NR** 1,259,202
1,300,000 5.500%, 06/15/16 pre-refunded .................................. Aa2/NR** 1,429,662
1,355,000 5.500%, 06/15/18 pre-refunded .................................. Aa2/NR** 1,490,148
3,000,000 5.125%, 06/15/21 pre-refunded .................................. Aa2/NR** 3,274,770
Deschutes County, Oregon School District #6 (Sisters)
(Financial Security Assurance Insured)
1,735,000 5.250%, 06/15/19 ............................................... Aa3/AAA 2,012,860
1,030,000 5.250%, 06/15/21 ............................................... Aa3/AAA 1,183,367
Deschutes and Jefferson Counties, Oregon School
District #02J (Redmond) (National-re Financial
Guaranty Insurance Corporation Insured)
1,000,000 5.000%, 06/15/21 ............................................... Aa2/NR 1,046,950
2,330,000 zero coupon, 06/15/22 .......................................... Aa2/NR 1,286,603
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
Deschutes and Jefferson Counties, Oregon School
District #02J (Redmond) (School Bond
Guaranty Program)
$ 1,025,000 zero coupon, 06/15/23 .......................................... Aa2/NR $ 534,373
2,775,000 zero coupon, 06/15/29 .......................................... Aa2/NR 972,249
5,000,000 6.000%, 06/15/31 ............................................... Aa2/NR 5,433,850
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 1,083,097
Gresham, Oregon (Financial Security
Assurance Insured)
1,155,000 5.375%, 06/01/18 ............................................... Aa3/NR** 1,229,902
Jackson County, Oregon School District #4
(Phoenix-Talent) (Financial Security
Assurance Insured)
1,395,000 5.500%, 06/15/18 pre-refunded .................................. Aa3/AAA 1,534,137
Jackson County, Oregon School District #9 (Eagle
Point) (National-re Insured)
2,080,000 5.500%, 06/15/15 ............................................... Aa2/NR 2,423,262
1,445,000 5.500%, 06/15/16 ............................................... Aa2/NR 1,694,653
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 1,234,744
1,880,000 5.000%, 06/15/21 pre-refunded .................................. Aa2/NR 2,047,076
Jackson County, Oregon School District #549
(Medford) (State School Bond Guaranty Program)
1,750,000 5.000%, 06/15/12 ............................................... Aa2/NR 1,943,533
Jackson County, Oregon School District #549C
(Medford) (Financial Security Assurance Insured)
2,000,000 4.750%, 12/15/29 ............................................... Aa2/AAA 1,966,220
3,000,000 5.000%, 12/15/32 ............................................... Aa2/AAA 2,983,290
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
Jackson County, Oregon School District #549C
(Medford) (School Board Guaranty)
$ 1,000,000 4.625%, 06/15/27 ............................................... Aa2/AA $ 1,002,540
1,000,000 4.625%, 06/15/30 ............................................... Aa2/AA 963,920
1,000,000 5.000%, 06/15/33 ............................................... Aa2/AA 991,610
Jefferson County, Oregon School District #509J
(National-re Financial Guaranty Insurance
Corporation Insured)
1,215,000 5.250%, 06/15/14 ............................................... NR/AA 1,300,840
1,025,000 5.250%, 06/15/17 ............................................... NR/AA 1,080,073
Josephine County, Oregon Three Rivers School
District (Financial Security Assurance Insured)
1,780,000 5.250%, 06/15/18 pre-refunded .................................. Aa2/NR** 1,945,807
Keizer, Oregon
2,500,000 5.200%, 06/01/31 ............................................... A3/NR 2,335,975
Lane County, Oregon School District #19 (Springfield)
(Financial Security Assurance Insured)
3,425,000 zero coupon, 06/15/29 .......................................... Aa2/NR 995,750
Lane County, Oregon School District #40 (Creswell)
(State School Bond Guaranty Program)
1,430,000 5.375%, 06/15/20 pre-refunded .................................. NR/AA 1,514,184
Linn County, Oregon School District #7 (Harrisburg)
(State School Bond Guaranty Program)
1,660,000 5.500%, 06/15/19 pre-refunded .................................. NR/AA 1,760,198
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 3,459,060
Linn County, Oregon School District #9 (Lebanon)
(National-re Insured) (State School Bond
Guaranty Program)
2,500,000 5.000%, 06/15/30 ............................................... Baa1/AA 2,502,900
Metro, Oregon
1,100,000 5.000%, 06/01/18 ............................................... Aaa/AAA 1,255,595
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
Morrow County, Oregon School District #1 (Financial
Security Assurance Insured)
$ 1,710,000 5.250%, 06/15/19 ............................................... Aa3/AAA $ 1,983,857
Multnomah County, Oregon School District #7
(Reynolds)(State School Bond Guaranty Program)
500,000 5.625%, 06/15/17 pre-refunded .................................. Aa2/AA 550,650
2,375,000 5.125%, 06/15/19 pre-refunded .................................. Aa2/AA 2,589,795
Multnomah and Clackamas Counties, Oregon School
District #10 (Gresham-Barlow) (Financial Security
Assurance Insured)
1,500,000 5.500%, 06/15/18 pre-refunded .................................. Aa3/AAA 1,647,870
4,275,000 5.250%, 06/15/19 ............................................... Aa2/AAA 4,959,641
2,650,000 5.000%, 06/15/21 pre-refunded .................................. Aa3/AAA 2,882,485
Multnomah and Clackamas Counties, Oregon School
District #28JT (Centennial) (Financial Security
Assurance Insured)
2,680,000 5.250%, 12/15/18 ............................................... Aa3/NR** 3,125,175
Multnomah and Clackamas Counties, Oregon School
District #51J (Riverdale) (State School Bond
Guaranty Program)
1,250,000 zero coupon, 06/15/31 .......................................... NR/AA 366,788
1,300,000 zero coupon, 06/15/32 .......................................... NR/AA 356,915
1,325,000 zero coupon, 06/15/33 .......................................... NR/AA 340,843
1,365,000 zero coupon, 06/15/34 .......................................... NR/AA 330,344
Coast Community College District
(National-re Insured) (State School Bond Guaranty
Program)
1,590,000 5.250%, 06/15/17 ............................................... Aa2/NR 1,724,307
Pacific City, Oregon Joint Water - Sanitary Authority
1,830,000 4.800%, 07/01/27 ............................................... NR/NR* 1,640,540
Polk, Marion & Benton Counties, Oregon School
District #13J (Central) (Financial Security
Assurance Insured)
1,520,000 5.000%, 06/15/21 ............................................... Aa3/AAA 1,645,172
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
Portland, Oregon
$ 1,000,000 4.600%, 06/01/14 ............................................... Aaa/NR $ 1,028,970
2,975,000 zero coupon, 06/01/15 .......................................... Aa1/NR 2,419,925
1,120,000 5.125%, 06/01/18 ............................................... Aaa/NR 1,123,853
9,570,000 4.350%, 06/01/23 ............................................... Aa1/NR 9,729,819
Portland, Oregon Community College District
(Financial Guaranty Insurance Corporation Insured)
1,395,000 5.000%, 06/01/17 pre-refunded .................................. Aa2/AA 1,515,235
Salem-Keizer, Oregon School District #24J (Financial
Security Assurance Insured)
1,000,000 5.000%, 06/15/19 ............................................... Aa2/AAA 1,083,060
Salem-Keizer, Oregon School District #24J (State
School Bond Guaranty Program)
4,000,000 zero coupon, 06/15/28 .......................................... Aa2/AA 1,357,080
3,090,000 zero coupon, 06/15/29 .......................................... Aa2/AA 971,681
3,500,000 zero coupon, 06/15/30 .......................................... Aa2/AA 1,026,585
Southwestern Oregon Community College District
(National-re Insured)
1,120,000 6.000%, 06/01/25 pre-refunded .................................. A2/AA 1,189,194
State of Oregon
500,000 6.000%, 10/01/29 ............................................... Aa2/AA 544,925
State of Oregon Board of Higher Education
820,000 zero coupon, 08/01/16 .......................................... Aa2/AA 629,530
2,000,000 5.000%, 08/01/21 ............................................... Aa2/AA 2,152,400
1,000,000 5.000%, 08/01/34 ............................................... Aa2/AA 1,002,890
1,000,000 5.000%, 08/01/38 ............................................... Aa2/AA 1,000,670
State of Oregon Elderly and Disabled Housing
30,000 6.250%, 08/01/13 ............................................... Aa2/AA 29,996
State of Oregon Veterans' Welfare
565,000 5.200%, 10/01/18 ............................................... Aa2/AA 569,441
550,000 4.800%, 12/01/22 ............................................... Aa2/AA 568,728
400,000 4.900%, 12/01/26 ............................................... Aa2/AA 405,888
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
The Dalles, Oregon
$ 230,000 4.000%, 06/01/20 ............................................... NR/A+ $ 232,456
155,000 4.000%, 06/01/21 ............................................... NR/A+ 155,347
130,000 4.125%, 06/01/22 ............................................... NR/A+ 130,438
100,000 4.200%, 06/01/23 ............................................... NR/A+ 100,071
Wasco County, Oregon School District #12 (The
Dalles) (Financial Security Assurance Insured)
1,135,000 6.000%, 06/15/15 pre-refunded .................................. Aa3/AAA 1,210,296
1,400,000 5.500%, 06/15/17 ............................................... Aa3/AAA 1,649,340
1,790,000 5.500%, 06/15/20 ............................................... Aa3/AAA 2,099,294
Washington County, Oregon
2,465,000 5.000%, 06/01/23 ............................................... Aa2/NR 2,650,417
Washington County, Oregon School District #15
(Forest Grove) (Financial Security Assurance Insured)
1,760,000 5.375%, 06/15/16 pre-refunded .................................. Aa2/NR** 1,930,755
2,000,000 5.000%, 06/15/21 pre-refunded .................................. Aa2/NR** 2,177,740
Washington County, Oregon School District #48J
(Beaverton) (Assured Guaranty Corporation Insured)
1,280,000 5.000%, 06/01/31 ............................................... Aa2/AAA 1,283,968
1,000,000 5.125%, 06/01/36 ............................................... Aa2/AAA 1,000,320
Yamhill County, Oregon School District #40
(McMinnville) (Financial Security Assurance
Insured)
1,375,000 5.000%, 06/15/22 ............................................... Aa2/NR** 1,435,033
------------
Total General Obligation Bonds ................................. 169,357,825
------------
STATE OF OREGON REVENUE BONDS (56.1%)
AIRPORT REVENUE BONDS (0.9%)
Jackson County, Oregon Airport Revenue (Syncora
Guarantee Inc.)
750,000 5.250%, 12/01/32 ............................................... Baa1/NR 642,660
Port of Portland, Oregon Airport (AMBAC Indemnity
Corporation Insured)
2,950,000 5.500%, 07/01/24 .............................................. Baa1/A 2,970,532
------------
Total Airport Revenue Bonds .................................... 3,613,192
------------
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
CERTIFICATES OF PARTICIPATION REVENUE BONDS (6.4%)
Oregon State Department of Administration Services
$ 5,000,000 5.125%, 05/01/33 ............................................... Aa3/AA- $ 4,941,850
Oregon State Department of Administration Services
(AMBAC Indemnity Corporation Insured)
500,000 5.375%, 05/01/14 ............................................... Aa3/AA- 537,795
3,500,000 6.000%, 05/01/26 pre-refunded .................................. Aaa/A+ 3,727,640
State Department of Administrative Services
(National-re Financial Guaranty Insurance
Corporation Insured)
2,000,000 5.000%, 11/01/20 .............................................. Aa3/AA- 2,118,160
2,660,000 5.000%, 11/01/23 .............................................. Aa3/AA- 2,768,767
2,945,000 5.000%, 11/01/24 .............................................. Aa3/AA- 3,034,734
1,475,000 5.000%, 11/01/26 .............................................. Aa3/AA- 1,496,299
3,880,000 5.000%, 11/01/27 .............................................. Aa3/AA- 3,911,506
Oregon State Department of Administrative Services
(Financial Security Assurance Insured)
410,000 5.000%, 05/01/22 .............................................. Aa3/AAA 426,367
2,280,000 4.500%, 11/01/32 .............................................. Aa3/AAA 2,026,852
1,645,000 4.750%, 05/01/33 .............................................. Aa3/AAA 1,585,500
------------
Total Certificates of Participation Revenue Bonds 26,575,470
------------
DEVELOPMENT REVENUE BONDS (1.3%)
Portland, Oregon Economic Development
(Broadway Project)
5,000,000 6.500%, 04/01/35 .............................................. A2/A+ 5,164,800
------------
Total Development Revenue Bonds 5,164,800
------------
HOSPITAL REVENUE BONDS (9.6%)
Clackamas County, Oregon Hospital Facilities
Authority (Legacy Health System)
2,000,000 5.250%, 02/15/17 .............................................. A2/A+ 2,023,680
2,980,000 5.250%, 02/15/18 .............................................. A2/A+ 3,005,509
4,025,000 5.250%, 05/01/21 .............................................. A2/A+ 4,003,506
Clackamas County, Oregon Hospital Facilities Authority
(Legacy Health System) (National-re Insured)
2,650,000 4.750%, 02/15/11 .............................................. A1/AA- 2,688,822
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
HOSPITAL REVENUE BONDS (CONTINUED)
Deschutes County, Oregon Hospital Facilities
Authority (Cascade Health)
$ 2,000,000 5.600%, 01/01/27 pre-refunded ................................. A2/NR $ 2,232,800
3,500,000 8.000%, 01/01/28 .............................................. A3/NR 3,817,905
3,000,000 5.600%, 01/01/32 pre-refunded ................................. A2/NR 3,349,200
Deschutes County, Oregon Hospital Facilities
Authority (Cascade Health) (AMBAC Insured)
3,250,000 5.375%, 01/01/35 ............................................... A3/NR 3,070,340
Klamath Falls, Oregon Inter Community Hospital
(Merle West) (Assured Guaranty Corporation
Insured)
4,000,000 5.000%, 09/01/36 ............................................... NR/AAA 3,279,040
Medford, Oregon Hospital Facilities Authority
(National-re Insured)
345,000 5.000%, 08/15/18 ............................................... Baa1/AA 326,204
Multnomah County, Oregon Hospital Facilities
Authority (Providence Health System)
1,390,000 5.250%, 10/01/22 ............................................... Aa2/AA 1,403,858
Multnomah County, Oregon Hospital Facilities
Authority (Terwilliger Plaza Project)
1,250,000 5.250%, 12/01/36 ............................................... NR/NR* 772,050
Oregon Health Sciences University Series B
(National-re Insured)
1,400,000 5.250%, 07/01/15 ............................................... Baa1/AA- 1,399,762
Salem, Oregon Hospital
2,000,000 5.750%, 08/15/23 ............................................... NR/A+ 2,009,900
3,300,000 4.500%, 08/15/30 ............................................... NR/A+ 2,587,398
State of Oregon Health Housing Educational and
Cultural Facilities Authority (Peacehealth) (AMBAC
Indemnity Corporation Insured)
2,300,000 5.250%, 11/15/17 ............................................... Baa1/AA- 2,399,544
1,430,000 5.000%, 11/15/32 ............................................... Baa1/AA- 1,282,782
------------
Total Hospital Revenue Bonds 39,652,300
------------
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
HOUSING, EDUCATIONAL, AND CULTURAL REVENUE
BONDS (7.8%)
Forest Grove, Oregon (Pacific University) (Radian
Insured)
$ 4,000,000 5.000%, 05/01/22 ............................................... A3/BBB+ $ 3,348,880
Forest Grove, Oregon Student Housing (Oak Tree
Foundation)
5,750,000 5.500%, 03/01/37 ............................................... NR/NR* 4,033,567
Oregon Health Sciences University (National-re
Insured)
11,550,000 zero coupon, 07/01/21 .......................................... Baa1/AA- 5,572,644
3,140,000 5.250%, 07/01/22 ............................................... Baa1/AA- 2,996,942
Oregon State Facilities Authority (Linfield College)
2,115,000 5.000%, 10/01/25 ............................................... Baa1/NR 1,703,188
Oregon State Facilities Authority Revenue (University
of Portland)
5,000,000 5.000%, 04/01/32 ............................................... NR/BBB+ 4,308,200
Oregon State Facilities Authority Revenue (Willamette
University)
5,000,000 5.000%, 10/01/32 ............................................... NR/A 4,490,500
State of Oregon Housing and Community Services
5,000 5.900%, 07/01/12 ............................................... Aa2/NR 5,002
65,000 6.700%, 07/01/13 ............................................... Aa2/NR 65,131
270,000 6.000%, 07/01/20 ............................................... Aa2/NR 269,862
2,500,000 4.650%, 07/01/25 ............................................... Aa2/NR 2,389,875
915,000 5.400%, 07/01/27 ............................................... Aa2/NR 917,288
2,000,000 5.350%, 07/01/30 ............................................... Aa2/NR 2,010,920
------------
Total Housing, Educational, and Cultural Revenue
Bonds ....................................................... 32,111,999
------------
TRANSPORTATION REVENUE BONDS (6.7%)
Oregon St. Department Transportation Highway
Usertax
3,025,000 5.500%, 11/15/18 pre-refunded .................................. Aa2/AAA 3,470,099
2,555,000 5.375%, 11/15/18 pre-refunded .................................. Aa2/AAA 2,742,358
1,200,000 5.000%, 11/15/22 ............................................... Aa2/AAA 1,256,088
1,260,000 5.000%, 11/15/23 ............................................... Aa2/AAA 1,311,194
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
Oregon St. Department Transportation Highway
Usertax (continued)
$ 4,545,000 5.125%, 11/15/26 pre-refunded .................................. Aa2/AAA $ 5,153,712
2,155,000 5.000%, 11/15/28 ............................................... Aa2/AAA 2,183,489
1,000,000 5.000%, 11/15/29 ............................................... Aa2/AAA 1,006,270
2,165,000 4.500%, 11/15/32 ............................................... Aa2/AAA 1,976,926
3,510,000 5.000%, 11/15/33 ............................................... Aa2/AAA 3,520,881
Tri-County Metropolitan Transportation District, Oregon
1,440,000 5.750%, 08/01/16 pre-refunded .................................. Aa3/AAA 1,540,915
1,775,000 5.000%, 09/01/16 ............................................... Aa3/AAA 1,914,568
Tri-County Metropolitan Transportation District,
Oregon (LOC: U.S. Bank NA)
1,650,000 5.400%, 06/01/19 pre-refunded .................................. NR/AAA 1,679,568
------------
Total Transportation Revenue Bonds ............................. 27,756,068
------------
URBAN RENEWAL REVENUE BONDS (3.5%)
Portland, Oregon Airport Way Renewal and
Redevelopment (AMBAC Indemnity Corporation
Insured)
1,640,000 6.000%, 06/15/14 pre-refunded .................................. Aa3/NR 1,765,099
1,765,000 5.750%, 06/15/20 pre-refunded .................................. Aa3/NR 1,894,375
Portland, Oregon River District Urban Renewal and
Redevelopment (AMBAC Indemnity Corporation
Insured)
1,915,000 5.000%, 06/15/20 ............................................... A3/NR 1,988,996
Portland, Oregon Urban Renewal Tax Allocation
(AMBAC Indemnity Corporation Insured)
(Convention Center)
1,150,000 5.750%, 06/15/18 ............................................... Aa3/NR 1,189,457
2,000,000 5.450%, 06/15/19 ............................................... Aa3/NR 2,056,880
Portland, Oregon Urban Renewal Tax Allocation
(Interstate Corridor) (National-re Financial Guaranty
Insurance Corporation Insured)
1,890,000 5.250%, 06/15/20 ............................................... A3/NR 1,919,805
1,810,000 5.250%, 06/15/21 ............................................... A3/NR 1,833,729
2,030,000 5.000%, 06/15/23 ............................................... A3/NR 1,953,631
------------
Total Urban Renewal Revenue Bonds .............................. 14,601,972
------------
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
UTILITY REVENUE BONDS (1.7%)
Emerald Peoples Utility District, Oregon (Financial
Security Assurance Insured)
$ 1,455,000 5.250%, 11/01/22 ............................................... Aa3/NR** $ 1,492,379
Eugene, Oregon Electric Utility
5,635,000 5.000%, 08/01/30 ............................................... A1/AA- 5,634,606
------------
Total Utility Revenue Bonds 7,126,985
------------
WATER AND SEWER REVENUE BONDS (16.1%)
Klamath Falls, Oregon Wastewater (AMBAC Indemnity
Corporation Insured)
1,545,000 5.650%, 06/01/20 pre-refunded .................................. Baa1/A 1,637,932
Klamath Falls, Oregon Water (Financial Security
Assurance Insured)
1,575,000 5.500%, 07/01/16 ............................................... Aa3/AAA 1,737,461
Lane County, Oregon Metropolitan Wastewater
2,500,000 5.250%, 11/01/28 ............................................... A1/AA- 2,568,075
Lebanon, Oregon Wastewater (Financial Security
Assurance Insured)
1,000,000 5.700%, 03/01/20 ............................................... Aa3/AAA 1,024,420
Portland, Oregon Sewer System
5,000,000 5.000%, 06/15/33 ............................................... A1/AA 4,889,750
Portland, Oregon Sewer System (Financial Guaranty
Insurance Corporation Insured)
2,500,000 5.750%, 08/01/19 pre-refunded .................................. Aa3/AA- 2,673,450
Portland, Oregon Sewer System (Financial Security
Assurance Insured)
2,760,000 5.250%, 06/01/17 ............................................... Aa3/AAA 3,004,508
4,595,000 5.000%, 06/01/17 ............................................... Aa3/AAA 5,116,487
3,470,000 5.000%, 06/01/21 ............................................... Aa3/AAA 3,640,967
Portland, Oregon Sewer System (National-re Insured)
4,410,000 5.000%, 06/15/25 ............................................... NR/AA 4,574,228
4,630,000 5.000%, 06/15/26 ............................................... NR/AA 4,776,493
1,610,000 5.000%, 06/15/27 ............................................... NR/AA 1,650,975
Portland, Oregon Water System
2,420,000 5.500%, 08/01/19 pre-refunded .................................. Aa1/NR 2,581,583
1,235,000 5.500%, 08/01/20 pre-refunded .................................. Aa1/NR 1,317,461
RATING
PRINCIPAL MOODY'S/
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
Portland, Oregon Water System (National-re Insured)
$ 2,725,000 4.500%, 10/01/27 ............................................... Aa2/NR $ 2,635,239
Salem, Oregon Water & Sewer (Financial Security
Assurance Insured)
1,000,000 5.375%, 06/01/15 ............................................... Aa3/AAA 1,153,930
1,970,000 5.375%, 06/01/16 pre-refunded .................................. Aa3/AAA 2,082,231
3,025,000 5.500%, 06/01/20 pre-refunded .................................. Aa3/AAA 3,201,690
Sunrise Water Authority, Oregon (Financial Security
Assurance Insured)
2,630,000 5.000%, 03/01/19 ............................................... Aa3/AAA 2,791,876
1,350,000 5.250%, 03/01/24 ............................................... Aa3/AAA 1,404,365
Sunrise Water Authority, Oregon (Syncora Guarantee
Inc.)
1,000,000 5.000%, 09/01/25 ............................................... NR/BBB- 920,910
Washington County, Oregon Clean Water Services
4,000,000 5.000%, 10/01/28 ............................................... Aa3/AA- 4,019,440
County, Oregon Clean Water Services
(National-re Financial Guaranty Insurance
Corporation Insured)
995,000 5.000%, 10/01/13 ............................................... Aa3/AA 1,060,262
3,525,000 5.125%, 10/01/17 ............................................... Aa3/AA 3,665,824
Washington County, Oregon Clean Water Services
(National-re Insured)
2,235,000 5.250%, 10/01/15 ............................................... Aa3/AA 2,588,286
------------
Total Water and Sewer Revenue Bonds 66,717,843
------------
OTHER REVENUE BONDS (2.1%)
Oregon State Department of Administration Services
(Lottery Revenue)
2,500,000 5.000%, 04/01/29 ............................................... Aa3/AAA 2,493,725
Oregon State Department of Administration Services
(Lottery Revenue) (Financial Security Assurance
Insured)
2,700,000 5.000%, 04/01/19 ............................................... Aa3/AAA 2,880,279
3,000,000 5.000%, 04/01/27 ............................................... Aa3/AAA 3,130,470
------------
Total Other Revenue Bonds ...................................... 8,504,474
------------
Total Revenue Bonds ............................................ 231,825,103
------------
RATING
PRINCIPAL MOODY'S/
AMOUNT U.S. TERRITORY BONDS (1.3%) S&P VALUE
- ------------ ---------------------------------------------------------------- --------- ------------
Puerto Rico Commonwealth Aqueduct & Sewer
Authority (Assured Guaranty Corporation Insured)
$ 3,000,000 5.000%, 07/01/28 ............................................... Aa2/AAA $ 2,846,910
Puerto Rico Commonwealth General Obligation
(National-re Insured)
1,270,000 6.000%, 07/01/28 ............................................... Baa1/AA 1,242,936
Puerto Rico Electric Power Authority
1,000,000 5.250%, 07/01/33 ............................................... A3/BBB+ 820,470
Puerto Rico Municipal Finance Agency (Financial
Security Assurance Insured)
500,000 5.250%, 08/01/16 ............................................... Aa3/AAA 506,655
------------
Total U.S. Territory Bonds ..................................... 5,416,971
------------
Total Municipal Bonds (cost $400,539,559-note 4) ............... 98.4% 406,599,899
Other assets less liabilities .................................. 1.6 6,614,689
----- ------------
Net Assets ..................................................... 100.0% $413,214,588
===== ============
(*) Any security not rated (NR) by any of the approved
credit rating services 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
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING PORTFOLIO+
-------------------------------------------------- ----------
Aaa of Moody's or AAA of S&P or AAA of Fitch ..... 24.6%
Pre-refunded bonds ++ ............................ 22.2
Aa of Moody's or AA of S&P ....................... 37.5
A of Moody's or S&P .............................. 12.1
Baa of Moody's or BBB of S&P ..................... 1.9
Not rated* ....................................... 1.7
-----
100.0%
=====
+ Calculated using the highest rating of the three rating
services.
++ Pre-refunded bonds are bonds for which U.S. Government
Obligations have been placed in escrow to retire the
bonds at their earliest call date.
Note: National Public Finance Guarantee Corporation (National-re) is the new
name for MBIA Inc.'s U.S. public finance platform.
PORTFOLIO ABBREVIATIONS:
------------------------
AMBAC - American Municipal Bond Assurance Corp.
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance
National-re - National Public Finance Guarantee Corporation
National-re FGIC - Reinsured FGIC bonds
NR - Not Rated
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2009 (UNAUDITED)
ASSETS
Investments at value (cost $400,539,559) ............................................... $ 406,599,899
Cash ................................................................................... 4,261,441
Interest receivable .................................................................... 5,662,647
Receivable for Trust shares sold ....................................................... 526,971
Receivable for investment securities sold .............................................. 48,875
Other assets ........................................................................... 11,258
--------------
Total assets ........................................................................... 417,111,091
--------------
LIABILITIES
Payable for investment securities purchased ............................................ 2,461,175
Payable for Trust shares redeemed ...................................................... 678,826
Dividends payable ...................................................................... 445,663
Management fees payable ................................................................ 139,405
Distribution and service fees payable .................................................. 56,418
Accrued expenses ....................................................................... 115,016
--------------
Total liabilities ...................................................................... 3,896,503
--------------
NET ASSETS ............................................................................... $ 413,214,588
==============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share .... $ 393,752
Additional paid-in capital ............................................................. 407,290,243
Net unrealized appreciation on investments (note 4) .................................... 6,060,340
Undistributed net investment income .................................................... 526,918
Accumulated net realized loss on investments ........................................... (1,056,665)
--------------
$ 413,214,588
==============
CLASS A
Net Assets ............................................................................. $ 333,949,271
==============
Capital shares outstanding ............................................................. 31,817,308
==============
Net asset value and redemption price per share ......................................... $ 10.50
==============
Maximum offering price per share (100/96 of $10.50 adjusted to nearest cent) ........... $ 10.94
==============
CLASS C
Net Assets ............................................................................. $ 16,875,987
==============
Capital shares outstanding ............................................................. 1,609,357
==============
Net asset value and offering price per share ........................................... $ 10.49
==============
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) ........................................... $ 10.49*
==============
CLASS Y
Net Assets ............................................................................. $ 62,389,330
==============
Capital shares outstanding ............................................................. 5,948,561
==============
Net asset value, offering and redemption price per share ............................... $ 10.49
==============
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 2009 (UNAUDITED)
INVESTMENT INCOME:
Interest income ......................................................... $ 9,738,500
EXPENSES:
Management fees (note 3) ................................................ $ 797,717
Distribution and service fees (note 3) .................................. 326,625
Transfer and shareholder servicing agent fees ........................... 116,714
Trustees' fees and expenses (note 8) .................................... 100,229
Legal fees (note 3) ..................................................... 39,399
Shareholders' reports and proxy statements .............................. 34,765
Custodian fees (note 6) ................................................. 16,129
Registration fees and dues .............................................. 12,786
Auditing and tax fees ................................................... 11,533
Insurance ............................................................... 8,874
Chief compliance officer (note 3) ....................................... 2,002
Miscellaneous ........................................................... 22,873
------------
1,489,646
Expenses paid indirectly (note 6) ....................................... (4,709)
------------
Net expenses ............................................................ 1,484,937
------------
Net investment income ................................................... 8,253,563
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ................... (876,094)
Change in unrealized appreciation on investments ........................ 15,453,306
------------
Net realized and unrealized gain (loss) on investments .................. 14,577,212
------------
Net change in net assets resulting from operations ...................... $ 22,830,775
============
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended
March 31, 2009 Year Ended
(unaudited) September 30, 2008
---------------- ------------------
OPERATIONS:
Net investment income ............................................. $ 8,253,563 $ 16,026,688
Net realized gain (loss) from securities transactions ............. (876,094) (70,279)
Change in unrealized appreciation on investments .................. 15,453,306 (22,601,723)
------------- -------------
Change in net assets resulting from operations .................. 22,830,775 (6,645,314)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (note 10):
Class A Shares:
Net investment income ............................................. (6,629,319) (12,994,601)
Class C Shares:
Net investment income ............................................. (275,055) (648,973)
Class Y Shares:
Net investment income ............................................. (1,258,730) (2,237,833)
------------- -------------
Change in net assets from distributions ......................... (8,163,104) (15,881,407)
------------- -------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold ......................................... 34,020,587 59,920,079
Reinvested dividends and distributions ............................ 4,589,178 9,104,476
Cost of shares redeemed ........................................... (39,809,532) (57,366,111)
------------- -------------
Change in net assets from capital share transactions ............ (1,199,767) 11,658,444
------------- -------------
Change in net assets ............................................ 13,467,904 (10,868,277)
NET ASSETS:
Beginning of period ............................................... 399,746,684 410,614,961
------------- -------------
End of period* .................................................... $ 413,214,588 $ 399,746,684
============= =============
* Includes undistributed net investment income of: ................ $ 526,918 $ 436,459
============= =============
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2009 (UNAUDITED)
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. Class I Shares are sold at net asset value without
any sales charge, redemption fees, or contingent deferred sales charge. Class I
Shares carry a distribution fee and a service fee. As of the report date, there
were no Class I Shares outstanding. All classes of shares represent interests in
the same portfolio of investments and are identical as to rights and privileges
but differ with respect to the effect of sales charges, the distribution and/or
service fees borne by each class, expenses specific to each class, voting rights
on matters affecting a single class and the exchange privileges of each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are in
conformity with accounting principles generally accepted in the United States of
America for investment companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities
of more than 60 days are valued each business day based upon information
provided by a nationally prominent independent pricing service and
periodically verified through other pricing services. In the case of
securities for which market quotations are readily available, securities
are valued by the pricing service at the mean of bid and asked quotations.
If 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) FAIR VALUE MEASUREMENTS: The Trust adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" ("SFAS 157"), effective October 1, 2008. SFAS 157
established a three-tier hierarchy of inputs to establish classification
of fair value measurements for disclosure purposes. Inputs may be
observable or unobservable. Observable inputs reflect the assumptions
market participants would use in pricing the asset or liability developed
based on market data obtained from sources independent of the reporting
entity. Unobservable inputs reflect the reporting entity's own assumptions
about the assumptions market participants would use in pricing the asset
or liability developed based on the best information available in the
circumstances. The Trust's investments are assigned levels based upon the
observability.
The three-tier hierarchy of inputs is summarized below:
Level 1 - quoted prices in active markets for identical securities
Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 - significant unobservable inputs (including the Trust's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities.
The following is a summary of the valuation inputs, representing 100% of
the Trust's investments, used to value the Trust's net assets as of March
31, 2009:
VALUATION INPUTS INVESTMENTS IN SECURITIES
---------------- -------------------------
Level 1 - Quoted Prices ........................ -
Level 2 - Other Significant Observable Inputs .. $406,599,899
Level 3 - Significant Unobservable Inputs ...... -
------------
Total .......................................... $406,599,899
============
c) 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.
d) 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.
The Trust has adapted FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). Management has reviewed the tax
positions for each of the open tax years (2005-2009) and has determined
that implementation of FIN 48 did not have a material impact on the
Trust's financial statements.
e) 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.
f) 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.
g) 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.
h) ACCOUNTING PRONOUNCEMENT: In April 2009, the Financial Accounting
Standards Board ("FASB") issued FASB Staff Position No. 157-4,
"Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly" ("FSP 157-4"). FSP 157-4 provides
additional guidance for estimating fair value in accordance with FASB
Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" ("FAS 157"), when the volume and level of activity for the
asset or liability have significantly decreased as well as guidance on
identifying circumstances that indicate a transaction is not orderly. FSP
157-4 is effective for fiscal years and interim periods ending after June
15, 2009. Management is currently evaluating the impact the adoption of
FSP 157-4 will have on the Trust's financial statement disclosures.
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. (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 six months ended March 31, 2009, service fees on Class A
Shares amounted to $242,048 of which the Distributor retained $13,245.
Under another part of the Plan, the Trust is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Trust's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Trust's average net assets represented by Class C Shares and for
the six months ended March 31, 2009, amounted to $63,433. In addition, under a
Shareholder Services Plan, the Trust is authorized to make service fee payments
with respect to Class C Shares to Qualified Recipients for providing personal
services and/or maintenance of shareholder accounts. These payments are made at
the annual rate of 0.25% of the Trust's average net assets represented by Class
C Shares and for the six months ended March 31, 2009, amounted to $21,144. The
total of these payments made with respect to Class C Shares amounted to $84,577,
of which the Distributor retained $19,218.
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 six months ended March 31, 2009, total commissions on
sales of Class A Shares amounted to $302,065 of which the Distributor received
$59,006.
c) OTHER RELATED PARTY TRANSACTIONS
For the six months ended March 31, 2009, the Trust incurred $39,279 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 six months ended March 31, 2009, purchases of securities and
proceeds from the sales of securities aggregated $51,956,031 and $49,027,640,
respectively.
At March 31, 2009, the aggregate tax cost for all securities was
$400,013,866. At March 31, 2009, the aggregate gross unrealized appreciation for
all securities in which there is an excess of value over tax cost amounted to
$16,111,551 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $9,525,518 for a net
unrealized appreciation of $6,586,033.
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:
Six Months Ended
March 31, 2009 Year Ended
(unaudited) September 30, 2008
Shares Amount Shares Amount
---------- ------------ ---------- ------------
CLASS A SHARES:
Proceeds from shares sold .................. 1,883,544 $ 19,336,611 2,708,755 $ 28,860,028
Reinvested dividends and
distributions ............................ 395,499 4,068,855 737,413 7,833,815
Cost of shares redeemed .................... (2,472,079) (25,045,364) (2,893,080) (30,811,101)
---------- ------------ ---------- ------------
Net change ............................... (193,036) (1,639,898) 553,088 5,882,742
---------- ------------ ---------- ------------
CLASS C SHARES:
Proceeds from shares sold .................. 205,519 2,139,413 296,648 3,162,360
Reinvested dividends and
distributions ............................ 16,363 168,109 36,361 386,263
Cost of shares redeemed .................... (361,427) (3,719,599) (953,455) (10,168,628)
---------- ------------ ---------- ------------
Net change ............................... (139,545) (1,412,077) (620,446) (6,620,005
---------- ------------ ---------- ------------
CLASS Y SHARES:
Proceeds from shares sold .................. 1,227,167 12,544,563 2,621,931 27,897,691
Reinvested dividends and
distributions ............................ 34,365 352,214 83,671 884,398
Cost of shares redeemed .................... (1,091,084) (11,044,569) (1,536,728) (16,386,382)
---------- ------------ ---------- ------------
Net change ............................... 170,448 1,852,208 1,168,874 12,395,707
---------- ------------ ---------- ------------
Total transactions in Trust
shares ..................................... (162,133) $ (1,199,767) 1,101,516 $ 11,658,444
========== ============ ========== ============
8. TRUSTEES' FEES AND EXPENSES
At March 31, 2009 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 six months ended March 31, 2009 was $78,464, 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, 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 six months ended March 31, 2009, such meeting-related expenses amounted
to $21,765.
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 DEVELOPMENT
Over the past year, 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
--------------------------------------------------------------------------
Six Months
Ended Year Ended September 30,
3/31/09 ------------------------------------------------------------
(unaudited) 2008 2007 2006 2005 2004
----------- ------- ------- ------- ------- -------
Net asset value, beginning of period ............... $ 10.11 $ 10.68 $ 10.84 $ 10.91 $ 11.01 $ 11.04
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ............................ 0.21++ 0.42++ 0.41+ 0.41+ 0.42+ 0.44+
Net gain (loss) on securities (both
realized and unrealized) ....................... 0.39 (0.58) (0.16) (0.05) (0.10) (0.01)
------- ------- ------- ------- ------- -------
Total from investment operations ................. 0.60 (0.16) 0.25 0.36 0.32 0.43
------- ------- ------- ------- ------- -------
Less distributions (note 10):
Dividends from net investment income ............. (0.21) (0.41) (0.41) (0.41) (0.41) (0.44)
Distributions from capital gains ................. - - *** (0.02) (0.01) (0.02)
------- ------- ------- ------- ------- -------
Total distributions .............................. (0.21) (0.41) (0.41) (0.43) (0.42) (0.46)
------- ------- ------- ------- ------- -------
Net asset value, end of period ..................... $ 10.50 $ 10.11 $ 10.68 $ 10.84 $ 10.91 $ 11.01
======= ======= ======= ======= ======= =======
Total return (not reflecting sales charge) ......... 5.99%* (1.58)% 2.37% 3.42% 2.98% 3.97%
Ratios/supplemental data
Net assets, end of period (in millions) .......... $ 334 $ 324 $ 336 $ 359 $ 369 $ 367
Ratio of expenses to average net assets .......... 0.73%** 0.76% 0.75% 0.75% 0.77% 0.72%
Ratio of net investment income to average
net assets ..................................... 4.15%** 3.89% 3.77% 3.82% 3.79% 4.02%
Portfolio turnover rate .......................... 12%* 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 .......... 0.73%** 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.
* Not annualized.
** Annualized.
*** 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
-----------------------------------------------------------------------
Six Months
Ended Year Ended September 30,
3/31/09 -------------------------------------------------------
(unaudited) 2008 2007 2006 2005 2004
----------- ------ ------ ------ ------ ------
Net asset value, beginning of period ............... $10.10 $10.68 $10.84 $10.90 $11.00 $11.03
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ............................ 0.17++ 0.33++ 0.32+ 0.32+ 0.32+ 0.35+
Net gain (loss) on securities (both
realized and unrealized) ....................... 0.39 (0.59) (0.16) (0.04) (0.09) (0.02)
------ ------ ------ ------ ------ ------
Total from investment operations ................. 0.56 (0.26) 0.16 0.28 0.23 0.33
------ ------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ............. (0.17) (0.32) (0.32) (0.32) (0.32) (0.34)
Distributions from capital gains ................. - - *** (0.02) (0.01) (0.02)
------ ------ ------ ------ ------ ------
Total distributions .............................. (0.17) (0.32) (0.32) (0.34) (0.33) (0.36)
------ ------ ------ ------ ------ ------
Net asset value, end of period ..................... $10.49 $10.10 $10.68 $10.84 $10.90 $11.00
====== ====== ====== ====== ====== ======
Total return (not reflecting sales charge) ......... 5.55%* (2.51)% 1.51% 2.64% 2.10% 3.09%
Ratios/supplemental data
Net assets, end of period (in millions) .......... $ 16.9 $ 17.7 $ 25.3 $ 32.9 $ 41.9 $ 41.4
Ratio of expenses to average net assets .......... 1.58%** 1.61% 1.60% 1.60% 1.62% 1.57%
Ratio of net investment income to
average net assets ............................. 3.29%** 3.04% 2.92% 2.97% 2.94% 3.17%
Portfolio turnover rate .......................... 12%* 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 .......... 1.58%** 1.59% 1.59% 1.59% 1.61% 1.56%
Class Y
-----------------------------------------------------------------------
Six Months
Ended Year Ended September 30,
3/31/09 -------------------------------------------------------
(unaudited) 2008 2007 2006 2005 2004
----------- ------ ------ ------ ------ ------
Net asset value, beginning of period ............... $10.10 $10.68 $10.84 $10.90 $11.00 $11.03
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ............................ 0.22++ 0.43++ 0.43+ 0.43+ 0.43+ 0.46+
Net gain (loss) on securities (both
realized and unrealized) ....................... 0.39 (0.58) (0.16) (0.04) (0.09) (0.02)
------ ------ ------ ------ ------ ------
Total from investment operations ................. 0.61 (0.15) 0.27 0.39 0.34 0.44
------ ------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ............. (0.22) (0.43) (0.43) (0.43) (0.43) (0.45)
Distributions from capital gains ................. - - *** (0.02) (0.01) (0.02)
------ ------ ------ ------ ------ ------
Total distributions .............................. (0.22) (0.43) (0.43) (0.45) (0.44) (0.47)
------ ------ ------ ------ ------ ------
Net asset value, end of period ..................... $10.49 $10.10 $10.68 $10.84 $10.90 $11.00
====== ====== ====== ====== ====== ======
Total return (not reflecting sales charge) ......... 6.07%* (1.52)% 2.52% 3.67% 3.11% 4.13%
Ratios/supplemental data
Net assets, end of period (in millions) .......... $ 62.4 $ 58.4 $ 49.2 $ 43.9 $ 36.0 $ 37.0
Ratio of expenses to average net assets .......... 0.58%** 0.61% 0.60% 0.60% 0.62% 0.57%
Ratio of net investment income to
average net assets ............................. 4.29%** 4.04% 3.92% 3.97% 3.95% 4.17%
Portfolio turnover rate .......................... 12%* 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 .......... 0.58%** 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.
* Not annualized.
** Annualized.
*** Less than $0.01 per share.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
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 October 1,
2008 and held for the six months ended March 31, 2009.
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 MARCH 31, 2009
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
CLASS A 5.99% $1,000.00 $1,059.90 $3.75
- --------------------------------------------------------------------------------
CLASS C 5.55% $1,000.00 $1,055.50 $8.10
- --------------------------------------------------------------------------------
CLASS Y 6.07% $1,000.00 $1,060.70 $2.98
- --------------------------------------------------------------------------------
(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 182/365 (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 MARCH 31, 2009
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.29 $3.68
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,017.05 $7.95
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,022.04 $2.92
- --------------------------------------------------------------------------------
(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 182/365 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
RENEWAL OF THE ADVISORY AND ADMINISTRATION AGREEMENT AND THE SUB-ADVISORY
AGREEMENT
Renewal until June 30, 2010 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, 2009. At a meeting called and held for the
foregoing 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,
2008;
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 shares 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 acted on the Advisory Agreement and the Sub-Advisory
Agreement separately but they considered each in conjunction with the other to
determine the agreements' 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 was greater than all but two of its peers
for the one-, three- and five-year periods and greater than all of its peers for
the ten-year period, with annualized 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.
- --------------------------------------------------------------------------------
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, D.C. or by calling 800-SEC-0330.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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
Maryann Bruce, 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.
Not applicable
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
No 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)(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
- - ---------------------------------
Vice Chair, President and Trustee
June 3, 2009
By: /s/ Joseph P. DiMaggio
- - -----------------------------------
Chief Financial Officer
June 3, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Diana P. Herrmann
- - ---------------------------------
Diana P. Herrmann
Vice Chair, President and Trustee
June 3, 2009
By: /s/ Joseph P. DiMaggio
- - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
June 3, 2009
TAX-FREE TRUST OF OREGON
EXHIBIT INDEX
(a) (2) Certifications of principal executive officer
and principal financial officer as required by Rule 30a-2(a)
under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.