UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4626
Tax-Free Trust or Oregon
(Exact name of Registrant as specified in charter)
380 Madison Avenue
New York, New York 10017
(Address of principal executive offices) (Zip code)
Joseph P. DiMaggio
380 Madison Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 697-6666
Date of fiscal year end: 9/30
Date of reporting period: 9/30/09
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS
ANNUAL
REPORT
SEPTEMBER 30, 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 AQUILA
GROUP OF FUNDS:
AN EAGLE'S HEAD] AQUILA GROUP OF FUNDS (R)
SERVING OREGON INVESTORS FOR MORE THAN TWO DECADES
TAX-FREE TRUST OF OREGON
"SOME COMFORT IN UNSETTLING TIMES"
November, 2009
Dear Fellow Shareholder:
We know it. And, you know it too. The United States has seen better
economic days.
Like it or not, unpleasant market cycles do occur periodically. This tends
to distract some people's focus from the longer-term objective that influenced
their investment decision in the first place.
Our shareholder and financial professional surveys have consistently
indicated over the years that the original investment objective and decision for
investors in Tax-Free Trust of Oregon, has generally been aligned with the
Trust's objective: to seek as high a level of current income exempt from Oregon
state and regular Federal income taxes as is consistent with preservation of
capital.
How does the Trust seek to fulfill its and your investment objective?
Perhaps the single most significant matter we wish to emphasize is the
element of professional management that we have continually sought to bring to
bear on your behalf. The job of investment managers is to be keen observers of
the scene, setting aside emotions. This is particularly true in the constantly
changing environment that exists today. One must make every effort to be as
objective as possible, adjusting the portfolio of investments as necessary, to
try to be of most benefit to shareholders.
Management of Tax-Free Trust of Oregon and its municipal bond portfolio
management team believe that when you are dealing with investments, quality
counts.
As you may recall, there are nine separate credit ratings assignable to
municipal securities, ranging from the most conservative to the highly
speculative. For protection of investors' capital, the Trust intentionally
limits its purchases to securities rated (or, if unrated, deemed by the
Investment Sub-Adviser to be) investment grade quality - that is rated within
the four highest credit ratings: AAA, AA, A, and BBB.
NOT A PART OF THE ANNUAL REPORT
In general, the higher the quality rating of a municipal security, the
greater or more reliable the cash flow there is for the municipality to cover
interest and principal payments when due on the security. While exaggerated
price changes may occur in emotionally charged securities markets, they normally
are not reflective of a municipal issuer's capability to pay interest and
principal in a timely manner on any particular security. It is the cash flow and
solidness of the municipal issuer that count - and this is reflected in the
quality level of the credit rating.
We can assure you that the Trust's portfolio management team pays
considerable attention to this factor before any security is purchased for the
portfolio as well as in conducting continuing analysis and evaluation with each
and every security once it is a part of the Trust's investment portfolio. It is
additionally important for you to know that, with any insured securities, our
portfolio management team has always sought to look beyond the insurance to the
credit quality of the underlying issuer rather than relying upon any insurance.
We fully recognize that the current times can be unsettling. However, we
hope that you are comforted to know that we believe you have a knowledgeable
team of financial experts, which has continually sought to carefully choose the
securities in the Trust's portfolio and seeks to continuously monitor your
investment in Tax-Free Trust of Oregon.
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 ANNUAL REPORT
[LOGO OF TAX-FREE TRUST OF
OREGON: A SQUARE WITH TWO PINE
TREES IN FRONT OF A MOUNTAIN]
SERVING OREGON INVESTORS FOR MORE THAN TWO DECADES
TAX-FREE TRUST OF OREGON
ANNUAL REPORT
MANAGEMENT DISCUSSION
In last year's Annual Report we likened the U.S financial system to that
of a patient in intensive care. The body trying to fight off the disease that is
spreading, and as it does so, the body convulses, settles for a time and then
convulses again. At that time we did not imagine the extreme measures the
Federal Government would need to undertake in order to reestablish calm and
begin to move the economy ahead again. We avoided a near depression and
financial sector meltdown with massive monetary, fiscal stimulus and bank
bailouts. In less than 60 days after being sworn in as President, President
Barack Obama signed the American Recovery and Reinvestment Act of 2009 (Act of
2009), a record stimulus package designed to kick start the economy. The
financial crisis produced the worst economic downturn since the 1930s. Today,
the housing market remains weak, the consumer heavily indebted, and jobs are
tough to find, yet the markets seem to be anticipating better times ahead as the
various markets have generally continued to rebound from their lows.
The municipal market worked its way through the recessionary environment
stumbling through 2008 as the market struggled considerably to find any
supply/demand equilibrium. The fourth quarter of 2008 was extremely difficult
for the municipal market as selling pressure came from leveraged arbitrageurs
hurt by a breakdown of their hedging strategies. Credit spreads (i.e. the yield
difference between higher and lower-quality bonds) continued to widen over fears
on the impact a slowing economy would have on the lower rated municipal issuers.
High-yield funds were hit hard by tax-loss selling and flight-to-quality
liquidations, forcing them to sell into an ever weakening market. The
broker-dealer community continued to shrink and those who remained were beset
with balance sheet problems. This combination of heavy selling pressure, fewer
market participants and reduced liquidity drove municipal yields higher on both
an absolute and relative basis. Ratios to comparable-maturity Treasury bonds
skyrocketed to far over 100% late in 2008 as Treasuries became the investment
vehicle of choice.
After calendar year end, market dynamics improved tremendously. The
sellers from the fourth quarter 2008 seemed to have been satisfied and ratios to
Treasuries and absolute yields attracted crossover buyers and steady retail
demand sparked a strong reversal. Investors dissatisfied with money market
yields and willing to assume additional risk, poured monies into tax-exempt bond
funds at a record pace. Meanwhile, a program that came from the Act of 2009,
Build America Bonds (BABS), diverted long-end new issue supply to the taxable
market. The BABS program provides a 35% subsidy to municipal issuers who issue
bonds in the taxable market. The BABS program was designed to create another
market for municipal issuers. The implementation of the program was helped by
the steepness of the yield curve and the long held view that municipal credits
are systematically underrated vs. their corporate counterparts. Prior to the
current credit crisis, Moody's and Fitch were on the verge of transitioning
their municipal ratings to a global scale rating which would have resulted in
rating upgrades of several notches for a large number of municipal credits.
MANAGEMENT DISCUSSION (CONTINUED)
The momentum from the first quarter carried over into the second quarter
as yields were attractive to the more traditional municipal bond investors
looking for income. Mutual fund flows were extremely strong perhaps reflecting
the 1) dissatisfaction with money fund yields, 2) demand for professional credit
monitoring and surveillance, and 3) desire for better liquidity. The BABS
program began to be widely accepted by the taxable community and continued to
offer issuers better net costs than did issuing bonds in the tax-exempt market.
The advantage was particularly evident in bonds with maturities approximately 20
years and longer.
Returns for third quarter 2009 were robust and among the best in recent
memory. Buying interest moved steadily longer as the quarter progressed. When
returns in the high quality market seemed to slow down, the lower rated market
picked up and credit spreads narrowed significantly. The enormity of the
reversal in the municipal market since year end 2008 is striking. Most nominal
high-grade yields are now at multi-decade lows. Although upturns in municipal
credit quality typically lag the rest of the economy, investor's appetite for
risk seems to be improving. However, given the experience of the last year, we
believe credit spreads will stay wider than historical norms. The ratios to
Treasuries have now generally recovered to relationships that existed pre-credit
crisis
Throughout this volatile period of time, we have diligently sought to stay
on top of the credit strength of the municipal issuers held in the portfolio.
Whereas there were considerable rating changes in the period due to essentially
the demise of the municipal insurance business, we remain confident that the
underlying credit of the portfolio is of very high quality.
The total net assets of Tax-Free Trust of Oregon were $476,495,533 as of
the end of the fiscal year on September 30, 2009. This compared with
$399,746,684 on September 30, 2008.
PERFORMANCE REPORT
The following graph illustrates the value of $10,000 invested in the Class
A shares of Tax-Free Trust of Oregon for the 10-year period ended September 30,
2009 as compared with the Barclays Capital Quality Intermediate Municipal Bond
Index (the "Barclays Capital Index") (formerly known as the Lehman Brothers
Quality Intermediate Municipal Bond Index) and the Consumer Price Index (a cost
of living index). The performance of each of the other classes is not shown in
the graph but is included in the table below. It should be noted that the
Barclays Capital Index does not include any operating expenses nor sales charges
and being nationally oriented, does not reflect state specific bond market
performance for the limited number of states in which the Tax-Free Trust of
Oregon may invest..
[Graphic of a line chart with the following information:]
TFTO TFTO
Cost of Trusts Class A Shares Trust Class A Shares Barclays
Living Index no sales charge with sales charge Capital Index
9/99 10,000 10,000 9,600 10,000
9/00 10,345 10,530 10,106 10,533
9/01 10,619 11,484 11,023 11,535
9/02 10,780 12,447 11,947 12,489
9/03 11,030 12,785 12,271 13,012
9/04 11,310 13,512 12,969 13,408
9/05 11,840 13,903 13,344 13,655
9/06 12,085 14,350 13,774 14,139
9/07 12,418 14,623 14,035 14,664
9/08 13,031 14,646 14,057 15,085
9/09 12,863 16,409 15,750 16,776
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED SEPTEMBER 30, 2009
------------------------------------------
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
------ ------- -------- ---------
Class A (commenced operations on 6/16/86)
With Maximum Sales Charge ............................................ 9.20% 3.21% 4.65% 5.74%
Without Sales Charge ................................................. 13.74 4.06 5.08 5.93
Class C (commenced operations on 4/5/96)
With CDSC ............................................................ 11.76 3.18 4.18 4.16
Without CDSC ......................................................... 12.79 3.18 4.18 4.16
Class Y (commenced operations on 4/5/96)
No Sales Charge ...................................................... 13.92 4.22 5.23 5.20
Barclays Capital Index ................................................. 11.23 4.58 5.31 5.98* (Class A)
5.27 (Class C&Y)
* From commencement of the index on 1/1/87.
Total return figures shown for the Trust reflect any change in price and assume
all distributions within the period were invested in additional shares. Returns
for Class A shares are calculated with and without the effect of the initial 4%
maximum sales charge. Returns for Class C shares are calculated with and without
the effect of the 1% contingent deferred sales charge (CDSC), imposed on
redemptions made within the first 12 months after purchase. Class Y shares are
sold without any sales charge. The rates of return will vary and the principal
value of an investment will fluctuate with market conditions. Shares, if
redeemed, may be worth more or less than their original cost. A portion of each
class's income may be subject to Federal and state income taxes. Past
performance is not predictive of future investment results.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Tax-Free Trust of Oregon:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Tax-Free Trust of Oregon as of
September 30, 2009 and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Trust is not required to have, nor were we engaged to perform, an audit of
the Trust's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Trust's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 2009, by correspondence
with the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Tax-Free Trust of Oregon as of September 30, 2009, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
November 23, 2009
TAX-FREE TRUST OF OREGON
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2009
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (42.8%) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
Bend, Oregon Transportation Highway System
(National Public Finance Guarantee Insured)
$ 1,135,000 5.300%, 09/01/17 .......................................... A1/NR $ 1,165,622
Benton and Linn Counties, Oregon School District #509J
(Financial Security Assurance Insured)
4,670,000 5.000%, 06/01/21 pre-refunded ............................. Aa2/NR** 5,291,997
Chemeketa, Oregon Community College District
(Financial Guaranty Insurance Corporation Insured)
1,385,000 5.500%, 06/01/14 Escrowed to Maturity ..................... NR/NR* 1,595,437
Chemeketa, Oregon Community College District
(State School Guaranty Program)
1,235,000 5.000%, 06/15/25 .......................................... NR/AA 1,388,535
1,540,000 5.000%, 06/15/26 .......................................... NR/AA 1,722,813
City of Lake Oswego, Oregon Series A
3,500,000 4.500%, 12/01/34 .......................................... Aa1/AAA 3,619,000
Clackamas, Oregon Community College District
(National Public Finance Guarantee Insured)
1,535,000 5.000%, 05/01/25 .......................................... A1/AA- 1,672,858
Clackamas County, Oregon School District #12
(North Clackamas) Convertible Capital Appreciation
Bonds (Financial Security Assurance Insured) ( School
Bond Guaranty Program) (converts to a 5% coupon
on 06/15/11)
6,000,000 zero coupon, 06/15/27 Series B ............................ Aa2/AAA 5,947,800
9,250,000 zero coupon, 06/15/29 ..................................... Aa2/AAA 9,075,915
Clackamas County, Oregon School District #46
(Oregon Trail) (School Bond Guaranty Program)
1,865,000 5.000%, 06/15/28 Series A ................................. NR/AA 2,049,728
1,800,000 5.000%, 06/15/29 Series A ................................. NR/AA 1,970,640
2,000,000 4.500%, 06/15/30 .......................................... Aa2/AAA 2,073,620
3,115,000 4.750%, 06/15/31 .......................................... Aa2/AAA 3,274,581
Clackamas County, Oregon School District No. 46,
(Oregon Trail) Series A
2,000,000 5.000%, 06/15/32 .......................................... NR/AA 2,152,640
3,780,000 4.750%, 06/15/32 .......................................... NR/AA 3,980,907
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
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 $ 1,092,642
Clackamas County, Oregon School District #86
(Canby) (Financial Security Assurance Insured)
2,240,000 5.000%, 06/15/19 .......................................... Aa2/AAA 2,466,643
Clackamas County, Oregon School District #108
(Estacada) (Financial Security Assurance Insured)
1,295,000 5.375%, 06/15/17 pre-refunded ............................. Aa3/AAA 1,398,160
2,000,000 5.000%, 06/15/25 pre-refunded ............................. Aa3/AAA 2,146,700
Clackamas County, Oregon School District #115
(Gladstone) (National Public Finance Guarantee
Insured) (State School Bond Guaranty Program)
5,000,000 zero coupon, 06/15/27 ..................................... Baa1/AA 2,220,650
Clackamas County, Oregon Tax Allocation
705,000 6.500%, 05/01/20 .......................................... NR/NR* 705,275
Clackamas & Washington Counties, Oregon School
District No. 003 (West Linn-Wilsonville) (School
Bond Guaranty Program)
500,000 5.000%, 06/15/34 .......................................... Aa2/AA 546,130
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 2,152,900
2,000,000 4.750%, 06/15/32 .......................................... Aa2/AA 2,162,880
3,000,000 5.000%, 06/15/33 .......................................... Aa2/AA 3,284,400
Columbia County, Oregon School District #502
(National Public Finance Guarantee-Financial
Guaranty Insurance Corporation Insured)
2,070,000 zero coupon, 06/01/15 ..................................... A2/A 1,772,727
2,260,000 5.000%, 12/01/16 .......................................... Aa3/NR** 2,439,625
Deschutes County, Oregon Administrative School
District #1 (Bend-LaPine) (Financial Security
Assurance Insured)
1,300,000 5.500%, 06/15/16 pre-refunded ............................. Aa2/NR** 1,405,144
1,355,000 5.500%, 06/15/18 pre-refunded ............................. Aa2/NR** 1,464,592
3,000,000 5.125%, 06/15/21 pre-refunded ............................. Aa2/NR** 3,223,710
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
Deschutes County, Oregon School District #6
(Sisters) (Financial Security Assurance Insured)
$ 1,735,000 5.250%, 06/15/19 .......................................... Aa3/AAA $ 2,101,848
1,030,000 5.250%, 06/15/21 .......................................... Aa3/AAA 1,258,258
Deschutes and Jefferson Counties, Oregon School
District #02J (Redmond) (National Public Finance
Guarantee-Financial Guaranty Insurance
Corporation Insured)
1,000,000 5.000%, 06/15/21 .......................................... Aa2/NR 1,086,010
2,330,000 zero coupon, 06/15/22 ..................................... Aa2/NR 1,388,424
Deschutes and Jefferson Counties, Oregon School
District #02J (Redmond) (School Bond Guaranty
Program)
1,025,000 zero coupon, 06/15/23 ..................................... Aa2/NR 585,593
2,775,000 zero coupon, 06/15/29 ..................................... Aa2/NR 1,133,116
5,000,000 6.000%, 06/15/31 .......................................... Aa2/NR 5,896,900
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 1,057,648
Gresham, Oregon (Financial Security Assurance Insured)
1,155,000 5.375%, 06/01/18 .......................................... Aa3/NR** 1,234,233
Jackson County, Oregon School District #4
(Phoenix-Talent) (Financial Security Assurance
Insured)
1,395,000 5.500%, 06/15/18 pre-refunded ............................. Aa3/AAA 1,510,297
Jackson County, Oregon School District #9 (Eagle Point)
(National Public Finance Guarantee Insured)
2,080,000 5.500%, 06/15/15 .......................................... Aa2/NR 2,385,406
1,445,000 5.500%, 06/15/16 .......................................... Aa2/NR 1,670,145
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 1,214,931
1,880,000 5.000%, 06/15/21 pre-refunded ............................. Aa2/NR 2,019,571
Jackson County, Oregon School District #549 (Medford)
(State School Bond Guaranty Program)
1,750,000 5.000%, 06/15/12 .......................................... Aa2/NR 1,923,810
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
Jackson County, Oregon School District #549C
(Medford) (Financial Security Assurance Insured)
$ 2,000,000 4.750%, 12/15/29 .......................................... Aa2/AAA $ 2,128,260
3,000,000 5.000%, 12/15/32 .......................................... Aa2/AAA 3,209,850
Jackson County, Oregon School District #549C
(Medford) (School Board Guaranty)
1,000,000 4.625%, 06/15/27 .......................................... Aa2/AA 1,062,830
1,000,000 4.625%, 06/15/30 .......................................... Aa2/AA 1,049,210
1,000,000 5.000%, 06/15/33 .......................................... Aa2/AA 1,072,010
Jefferson County, Oregon School District #509
(National Public Finance Guarantee-Financial
Guaranty Insurance Corporation Insured)
1,215,000 5.250%, 06/15/14 .......................................... NR/AA 1,314,715
1,025,000 5.250%, 06/15/17 .......................................... NR/AA 1,093,819
Josephine County, Oregon Three Rivers School District
(Financial Security Assurance Insured)
1,780,000 5.250%, 06/15/18 pre-refunded ............................. Aa2/NR** 1,918,057
Keizer, Oregon
2,500,000 5.200%, 06/01/31 .......................................... A3/NR 2,604,150
Lane County, Oregon School District #19 (Springfield)
(Financial Security Assurance Insured)
3,425,000 zero coupon, 06/15/29 ..................................... Aa2/NR 1,277,662
Lane County, Oregon School District #40 (Creswell)
(State School Bond Guaranty Program)
1,430,000 5.375%, 06/15/20 pre-refunded ............................. NR/AA 1,480,307
Linn County, Oregon School District #7 (Harrisburg)
(State School Bond Guaranty Program)
1,660,000 5.500%, 06/15/19 pre-refunded ............................. NR/AA 1,719,826
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 3,450,900
Linn County, Oregon School District #9 (Lebanon)
(National Public Finance Guarantee Insured)
(State School Bond Guaranty Program)
2,500,000 5.000%, 06/15/30 .......................................... Baa1/AA 2,555,250
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
Metro, Oregon
$ 1,100,000 5.000%, 06/01/18 .......................................... Aaa/AAA $ 1,293,842
Morrow County, Oregon School District #1 (Financial
Security Assurance Insured)
1,710,000 5.250%, 06/15/19 .......................................... Aa3/AAA 2,071,562
Multnomah County, Oregon School District #7
(Reynolds) (State School Bond Guaranty Program)
500,000 5.625%, 06/15/17 pre-refunded ............................. Aa2/AA 541,935
2,375,000 5.125%, 06/15/19 pre-refunded ............................. Aa2/AA 2,554,218
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 1,622,640
4,275,000 5.250%, 06/15/19 .......................................... Aa2/AAA 5,178,906
2,650,000 5.000%, 06/15/21 pre-refunded ............................. Aa3/AAA 2,844,378
Multnomah and Clackamas Counties, Oregon School
District #28JT (Centennial) (Financial Security
Assurance Insured)
2,680,000 5.250%, 12/15/18 .......................................... Aa3/NR** 3,121,450
Multnomah and Clackamas Counties, Oregon School
District #51J (Riverdale) (State School Bond
Guaranty Program)
1,250,000 zero coupon, 06/15/31 ..................................... NR/AA 458,200
1,300,000 zero coupon, 06/15/32 ..................................... NR/AA 451,958
1,325,000 zero coupon, 06/15/33 ..................................... NR/AA 435,647
1,365,000 zero coupon, 06/15/34 ..................................... NR/AA 424,105
Oregon Coast Community College District (National
Public Finance Guarantee Insured) (State School
Bond Guaranty Program)
1,590,000 5.250%, 06/15/17 .......................................... Aa2/NR 1,771,292
Pacific City, Oregon Joint Water - Sanitary Authority
1,830,000 4.800%, 07/01/27 .......................................... NR/NR* 1,855,858
Polk, Marion & Benton Counties, Oregon School
District #13J (Central) (Financial Security
Assurance Insured)
1,520,000 5.000%, 06/15/21 .......................................... Aa3/AAA 1,712,964
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
Polk Marion & Benton Counties, Oregon School
District No. 13J (Central) Series B (State School
Bond Guaranty Program)
$ 5,650,000 zero coupon, 06/15/32 ..................................... NR/AA $ 1,951,284
Portland, Oregon
1,000,000 4.600%, 06/01/14 .......................................... Aaa/NR 1,020,000
2,975,000 zero coupon, 06/01/15 ..................................... Aa1/NR 2,523,722
9,050,000 4.350%, 06/01/23 .......................................... Aa1/NR 9,460,146
Portland, Oregon Community College District
(Financial Guaranty Insurance Corporation Insured)
1,395,000 5.000%, 06/01/17 pre-refunded ............................. Aa2/AA 1,494,994
Redmond, Oregon Terminal Expansion Project
500,000 5.000%, 06/01/34 .......................................... A3/NR 506,080
City of Salem, Oregon
1,750,000 5.000%, 06/01/29 .......................................... A1/AA- 1,891,855
Salem-Keizer, Oregon School District #24J (Financial
Security Assurance Insured)
1,000,000 5.000%, 06/15/19 .......................................... Aa2/AAA 1,102,590
Salem-Keizer, Oregon School District #24J (State
School Bond Guaranty Program)
4,000,000 zero coupon, 06/15/28 ..................................... Aa2/AA 1,760,040
3,090,000 zero coupon, 06/15/29 ..................................... Aa2/AA 1,273,945
3,500,000 zero coupon, 06/15/30 ..................................... Aa2/AA 1,360,100
Southwestern Oregon Community College District
(National Public Finance Guarantee Insured)
1,120,000 6.000%, 06/01/25 pre-refunded ............................. NR/A 1,160,253
State of Oregon
500,000 6.000%, 10/01/29 .......................................... Aa2/AA 587,260
State of Oregon Board of Higher Education
820,000 zero coupon, 08/01/16 ..................................... Aa2/AA 658,107
2,000,000 5.000%, 08/01/21 .......................................... Aa2/AA 2,221,180
500,000 5.750%, 08/01/29 Series A ................................. Aa2/AA 579,790
1,000,000 5.000%, 08/01/34 .......................................... Aa2/AA 1,084,500
1,000,000 5.000%, 08/01/38 .......................................... Aa2/AA 1,079,840
State of Oregon Elderly and Disabled Housing
25,000 6.250%, 08/01/13 .......................................... Aa2/AA 25,096
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON GENERAL OBLIGATION BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
State of Oregon Veterans' Welfare
$ 555,000 5.200%, 10/01/18 .......................................... Aa2/AA $ 558,447
550,000 4.800%, 12/01/22 .......................................... Aa2/AA 571,753
400,000 4.900%, 12/01/26 .......................................... Aa2/AA 411,340
The Dalles, Oregon
230,000 4.000%, 06/01/20 .......................................... NR/A+ 244,345
155,000 4.000%, 06/01/21 .......................................... NR/A+ 163,824
130,000 4.125%, 06/01/22 .......................................... NR/A+ 138,115
100,000 4.200%, 06/01/23 .......................................... NR/A+ 106,647
Wasco County, Oregon School District #12
(The Dalles) (Financial Security Assurance Insured)
1,135,000 6.000%, 06/15/15 pre-refunded ............................. Aa3/AAA 1,179,844
1,400,000 5.500%, 06/15/17 .......................................... Aa3/AAA 1,693,370
1,790,000 5.500%, 06/15/20 .......................................... Aa3/AAA 2,211,509
Washington County, Oregon
2,465,000 5.000%, 06/01/23 .......................................... Aa2/NR 2,787,964
Washington County, Oregon School District #15
(Forest Grove) (Financial Security Assurance Insured)
1,760,000 5.375%, 06/15/16 pre-refunded ............................. Aa2/NR** 1,900,202
2,000,000 5.000%, 06/15/21 pre-refunded ............................. Aa2/NR** 2,146,700
Washington County, Oregon School District #48J
(Beaverton) (Assured Guaranty Corporation Insured)
1,280,000 5.000%, 06/01/31 .......................................... Aa2/AAA 1,391,245
1,000,000 5.125%, 06/01/36 .......................................... Aa2/AAA 1,076,860
Yamhill County, Oregon School District #40
(McMinnville) (Financial Security Assurance Insured)
1,375,000 5.000%, 06/15/22 .......................................... Aa2/NR** 1,503,301
------------
Total General Obligation Bonds ............................ 204,032,510
------------
STATE OF OREGON REVENUE BONDS (51.7%)
-----------------------------------------------------------
AIRPORT REVENUE BONDS (0.5%)
Jackson County, Oregon Airport Revenue (Syncora
Guarantee Inc.)
750,000 5.250%, 12/01/32 .......................................... Baa1/NR 745,965
Redmond, Oregon Airport Revenue
550,000 6.000%, 06/01/34 .......................................... Baa3/NR 558,806
825,000 6.250%, 06/01/39 .......................................... Baa3/NR 832,648
------------
Total Airport Revenue Bonds ............................... 2,137,419
------------
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
CERTIFICATES OF PARTICIPATION REVENUE BONDS (5.1%)
Oregon State Department of Administration Services
$ 5,000,000 5.125%, 05/01/33 .......................................... Aa3/AA- $ 5,353,150
Oregon State Department of Administration Services
(AMBAC Indemnity Corporation Insured)
500,000 5.375%, 05/01/14 .......................................... Aa3/AA- 534,060
Oregon State Department of Administrative Services
(National Public Finance Guarantee-Financial
Guaranty Insurance Corporation Insured)
2,000,000 5.000%, 11/01/20 .......................................... Aa3/AA- 2,194,880
2,660,000 5.000%, 11/01/23 .......................................... Aa3/AA- 2,914,961
2,945,000 5.000%, 11/01/24 .......................................... Aa3/AA- 3,211,846
1,475,000 5.000%, 11/01/26 .......................................... Aa3/AA- 1,592,366
3,880,000 5.000%, 11/01/27 .......................................... Aa3/AA- 4,168,750
Oregon State Department of Administrative Services
(Financial Security Assurance Insured)
2,280,000 4.500%, 11/01/32 .......................................... Aa3/AAA 2,327,926
1,645,000 4.750%, 05/01/33 .......................................... Aa3/AAA 1,736,182
------------
Total Certificates of Participation Revenue Bonds ......... 24,034,121
------------
DEVELOPMENT REVENUE BONDS (1.2%)
Oregon State Bond Bank Revenue, Oregon Economic
& Community Development Series A
250,000 4.750%, 01/01/34 .......................................... Aa3/AA+ 260,230
Portland, Oregon Economic Development
(Broadway Project)
5,000,000 6.500%, 04/01/35 .......................................... A2/A+ 5,572,150
------------
Total Development Revenue Bonds ........................... 5,832,380
------------
HOSPITAL REVENUE BONDS (9.4%)
Clackamas County, Oregon Hospital Facilities
Authority (Legacy Health System)
2,000,000 5.250%, 02/15/17 .......................................... A2/A+ 2,030,160
2,980,000 5.250%, 02/15/18 .......................................... A2/A+ 3,022,763
4,025,000 5.250%, 05/01/21 .......................................... A2/A+ 4,106,224
Clackamas County, Oregon Hospital Facilities
Authority (Legacy Health System) (National Public
Finance Guarantee Insured)
2,650,000 4.750%, 02/15/11 .......................................... A2/A 2,692,108
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
HOSPITAL REVENUE BONDS (CONTINUED)
Clackamas County, Oregon Hospital Facility
Authority (Legacy Health System) Series A
$ 750,000 5.500%, 07/15/35 .......................................... A2/A+ $ 801,397
Deschutes County, Oregon Hospital Facilities
Authority (Cascade Health)
2,000,000 5.600%, 01/01/27 pre-refunded ............................. A3/NR 2,206,440
3,500,000 8.000%, 01/01/28 .......................................... A3/NR 4,211,305
3,000,000 5.600%, 01/01/32 pre-refunded ............................. A3/NR 3,309,660
Deschutes County, Oregon Hospital Facilities
Authority (Cascade Health) (AMBAC Insured)
3,250,000 5.375%, 01/01/35 .......................................... A3/NR 3,283,962
Klamath Falls, Oregon Inter Community Hospital (Merle
West) (Assured Guaranty Corporation Insured)
4,000,000 5.000%, 09/01/36 .......................................... NR/AAA** 3,812,280
Medford, Oregon Hospital Facilities Authority
(National Public Finance Guarantee Insured)
345,000 5.000%, 08/15/18 .......................................... Baa1/A 345,538
Multnomah County, Oregon Hospital Facilities
Authority (Adventist Health/West)
500,000 5.000%, 09/01/21 .......................................... NR/A 530,040
2,000,000 5.125%, 09/01/40 .......................................... NR/A 2,061,820
Multnomah County, Oregon Hospital Facilities
Authority (Providence Health System)
1,390,000 5.250%, 10/01/22 .......................................... Aa2/AA 1,476,917
Multnomah County, Oregon Hospital Facilities
Authority (Terwilliger Plaza Project)
1,250,000 5.250%, 12/01/36 .......................................... NR/NR* 1,078,762
Oregon Health Sciences University Series B (National
Public Finance Guarantee Insured)
1,400,000 5.250%, 07/01/15 .......................................... A2/A 1,400,294
Salem, Oregon Hospital Facility Authority
(Salem Hospital)
2,000,000 5.750%, 08/15/23 .......................................... NR/A+*** 2,170,260
3,300,000 4.500%, 08/15/30 .......................................... NR/A+*** 3,093,420
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
HOSPITAL REVENUE BONDS (CONTINUED)
State of Oregon Health Housing Educational and
Cultural Facilities Authority (Peacehealth) (AMBAC
Indemnity Corporation Insured)
$ 1,835,000 5.250%, 11/15/17 .......................................... NR/AA-** $ 1,923,300
1,430,000 5.000%, 11/15/32 .......................................... NR/AA-** 1,443,042
------------
Total Hospital Revenue Bonds .............................. 44,999,692
------------
HOUSING, EDUCATIONAL, AND CULTURAL REVENUE
BONDS (8.9%)
Forest Grove, Oregon Campus Improvement
(Pacific University Project)
1,500,000 6.000%, 05/01/30 .......................................... NR/BBB 1,535,955
Forest Grove, Oregon (Pacific University) (Radian
Insured)
4,000,000 5.000%, 05/01/22 .......................................... NR/BBB 3,897,880
Forest Grove, Oregon Student Housing (Oak Tree
Foundation)
5,750,000 5.500%, 03/01/37 .......................................... NR/NR* 4,604,600
Oregon Health Sciences University (National Public
Finance Guarantee Insured)
11,550,000 zero coupon, 07/01/21 ..................................... A2/A 6,084,425
2,890,000 5.250%, 07/01/22 .......................................... A2/A 2,924,044
Oregon Health & Science University Series A
5,000,000 5.750%, 07/01/39 .......................................... A2/BBB+ 5,442,800
Oregon State Facilities Authority (Linfield College)
2,115,000 5.000%, 10/01/25 .......................................... Baa1/NR 2,073,927
Oregon State Facilities Authority Revenue (University
of Portland)
5,000,000 5.000%, 04/01/32 .......................................... NR/BBB+ 5,051,650
Oregon State Facilities Authority Revenue (Willamette
University)
5,000,000 5.000%, 10/01/32 .......................................... NR/A 5,026,150
State of Oregon Housing and Community Services
40,000 6.700%, 07/01/13 .......................................... Aa2/NR 40,072
220,000 6.000%, 07/01/20 .......................................... Aa2/NR 224,545
2,495,000 4.650%, 07/01/25 .......................................... Aa2/NR 2,531,227
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
HOUSING, EDUCATIONAL, AND CULTURAL REVENUE
BONDS (CONTINUED)
State of Oregon Housing and Community Services
(continued)
$ 650,000 5.400%, 07/01/27 .......................................... Aa2/NR $ 657,521
2,000,000 5.350%, 07/01/30 .......................................... Aa2/NR 2,087,800
------------
Total Housing, Educational, and Cultural Revenue Bonds .... 42,182,596
------------
TRANSPORTATION REVENUE BONDS (5.6%)
Oregon St. Department Transportation Highway Usertax
3,025,000 5.500%, 11/15/18 pre-refunded ............................. Aa2/AAA 3,437,913
2,555,000 5.375%, 11/15/18 pre-refunded ............................. Aa2/AAA 2,695,167
1,200,000 5.000%, 11/15/22 .......................................... Aa2/AAA 1,302,240
1,260,000 5.000%, 11/15/23 .......................................... Aa2/AAA 1,362,413
4,545,000 5.125%, 11/15/26 pre-refunded ............................. Aa2/AAA 5,113,352
2,155,000 5.000%, 11/15/28 .......................................... Aa2/AAA 2,346,946
1,000,000 5.000%, 11/15/29 .......................................... Aa2/AAA 1,062,390
2,165,000 4.500%, 11/15/32 .......................................... Aa2/AAA 2,243,828
3,510,000 5.000%, 11/15/33 .......................................... Aa2/AAA 3,822,741
Tri-County Metropolitan Transportation District, Oregon
1,440,000 5.750%, 08/01/16 pre-refunded ............................. Aa3/AAA 1,504,397
1,775,000 5.000%, 09/01/16 .......................................... Aa3/AAA 1,926,834
------------
Total Transportation Revenue Bonds ........................ 26,818,221
------------
URBAN RENEWAL REVENUE BONDS (3.1%)
Portland, Oregon Airport Way Renewal and
Redevelopment (AMBAC Indemnity Corporation
Insured)
1,640,000 6.000%, 06/15/14 pre-refunded ............................. Aa3/NR 1,721,164
1,765,000 5.750%, 06/15/20 pre-refunded ............................. Aa3/NR 1,849,279
Portland, Oregon River District Urban Renewal and
Redevelopment (AMBAC Indemnity Corporation
Insured)
1,915,000 5.000%, 06/15/20 .......................................... A3/NR 2,024,538
Portland, Oregon Urban Renewal Tax Allocation
(AMBAC Indemnity Corporation Insured)
(Convention Center)
1,150,000 5.750%, 06/15/18 .......................................... Aa3/NR 1,183,672
2,000,000 5.450%, 06/15/19 .......................................... Aa3/NR 2,052,640
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
URBAN RENEWAL REVENUE BONDS (CONTINUED)
Portland, Oregon Urban Renewal Tax Allocation
(Interstate Corridor) (National Public Finance
Guarantee-Financial Guaranty Insurance
Corporation Insured)
$ 1,890,000 5.250%, 06/15/20 .......................................... A3/NR $ 2,015,080
1,810,000 5.250%, 06/15/21 .......................................... A3/NR 1,918,419
2,030,000 5.000%, 06/15/23 .......................................... A3/NR 2,108,236
------------
Total Urban Renewal Revenue Bonds ......................... 14,873,028
------------
UTILITY REVENUE BONDS (1.6%)
Emerald Peoples Utility District, Oregon (Financial
Security Assurance Insured)
1,455,000 5.250%, 11/01/22 .......................................... Aa3/NR** 1,558,814
Eugene, Oregon Electric Utility
5,635,000 5.000%, 08/01/30 .......................................... A1/AA- 6,080,559
------------
Total Utility Revenue Bonds ............................... 7,639,373
------------
WATER AND SEWER REVENUE BONDS (14.4%)
Klamath Falls, Oregon Wastewater (AMBAC Indemnity
Corporation Insured)
1,545,000 5.650%, 06/01/20 pre-refunded ............................. NR/NR* 1,596,479
Klamath Falls, Oregon Water (Financial Security
Assurance Insured)
1,575,000 5.500%, 07/01/16 .......................................... Aa3/AAA 1,760,787
Lane County, Oregon Metropolitan Wastewater
2,500,000 5.250%, 11/01/28 .......................................... A1/AA- 2,771,850
Lebanon, Oregon Wastewater (Financial Security
Assurance Insured)
1,000,000 5.700%, 03/01/20 .......................................... Aa3/AAA 1,013,780
Portland, Oregon Sewer System
5,000,000 5.000%, 06/15/33 .......................................... A1/AA 5,314,750
Portland, Oregon Sewer System (Financial Guaranty
Insurance Corporation Insured)
2,500,000 5.750%, 08/01/19 pre-refunded ............................. Aa3/AA 2,610,725
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
WATER AND SEWER REVENUE BONDS (CONTINUED)
Portland, Oregon Sewer System (Financial Security
Assurance Insured)
$ 2,760,000 5.250%, 06/01/17 .......................................... Aa3/AAA $ 3,036,690
4,595,000 5.000%, 06/01/17 .......................................... Aa3/AAA 5,181,690
3,470,000 5.000%, 06/01/21 .......................................... Aa3/AAA 3,719,632
Portland, Oregon Sewer System (National Public
Finance Guarantee Insured)
4,410,000 5.000%, 06/15/25 .......................................... Aa3/AA 4,829,082
4,630,000 5.000%, 06/15/26 .......................................... Aa3/AA 5,046,839
1,610,000 5.000%, 06/15/27 .......................................... Aa3/AA 1,746,931
Portland, Oregon Water System
2,420,000 5.500%, 08/01/19 pre-refunded ............................. Aa1/NR 2,523,261
1,235,000 5.500%, 08/01/20 pre-refunded ............................. Aa1/NR 1,287,697
Portland, Oregon Water System (National Public
Finance Guarantee Insured)
2,725,000 4.500%, 10/01/27 .......................................... Aa2/NR 2,849,614
Salem, Oregon Water & Sewer (Financial Security
Assurance Insured)
1,000,000 5.375%, 06/01/15 .......................................... Aa3/AAA 1,170,260
1,970,000 5.375%, 06/01/16 pre-refunded ............................. Aa3/AAA 2,035,424
3,025,000 5.500%, 06/01/20 pre-refunded ............................. Aa3/AAA 3,127,941
Sunrise Water Authority, Oregon (Financial Security
Assurance Insured)
2,630,000 5.000%, 03/01/19 .......................................... Aa3/AAA 2,842,110
1,350,000 5.250%, 03/01/24 .......................................... Aa3/AAA 1,451,912
Sunrise Water Authority, Oregon (Syncora
Guarantee Inc.)
1,000,000 5.000%, 09/01/25 .......................................... NR/NR* 1,010,130
Washington County, Oregon Clean Water Services
4,000,000 5.000%, 10/01/28 .......................................... Aa3/AA- 4,406,360
Washington County, Oregon Clean Water Services
(National Public Finance Guarantee-Financial
Guaranty Insurance Corporation Insured)
995,000 5.000%, 10/01/13 .......................................... Aa3/AA 1,055,725
3,525,000 5.125%, 10/01/17 .......................................... Aa3/AA 3,671,323
RATING
MOODY'S/
PRINCIPAL S&P
AMOUNT STATE OF OREGON REVENUE BONDS (CONTINUED) (UNAUDITED) VALUE
- ----------- ----------------------------------------------------------- --------- ------------
WATER AND SEWER REVENUE BONDS (CONTINUED)
Washington County, Oregon Clean Water Services
(National Public Finance Guarantee Insured)
$ 2,235,000 5.250%, 10/01/15 .......................................... Aa3/AA $ 2,633,389
------------
Total Water and Sewer Revenue Bonds ....................... 68,694,381
------------
OTHER REVENUE BONDS (1.9%)
Oregon State Department of Administration Services
(Lottery Revenue)
2,500,000 5.000%, 04/01/29 .......................................... Aa3/AAA 2,758,075
Oregon State Department of Administration Services
(Lottery Revenue) (Financial Security Assurance
Insured)
2,700,000 5.000%, 04/01/19 .......................................... Aa3/AAA 2,932,281
3,000,000 5.000%, 04/01/27 .......................................... Aa3/AAA 3,287,970
------------
Total Other Revenue Bonds ................................. 8,978,326
------------
Total Revenue Bonds ....................................... 246,189,537
------------
U.S. TERRITORY (1.7%)
Puerto Rico Commonwealth Aqueduct & Sewer
Authority (Assured Guaranty Corporation Insured)
3,000,000 5.000%, 07/01/28 .......................................... Aa2/AAA 3,180,600
Puerto Rico Commonwealth General Obligation
(National Public Finance Guarantee Insured)
1,270,000 6.000%, 07/01/28 .......................................... Baa3/A 1,329,614
Puerto Rico Electric Power Authority
1,000,000 5.250%, 07/01/33 .......................................... A3/BBB+ 1,028,140
Puerto Rico Municipal Finance Agency (Financial
Security Assurance Insured)
500,000 5.250%, 08/01/16 .......................................... Aa3/AAA 531,180
Puerto Rico Sales Tax Financing Corp., Sales Tax
Revenue First Subordinate Series A
2,000,000 5.750%, 08/01/37 .......................................... A2/A+ 2,160,280
------------
Total U.S. Territory Bonds ................................ 8,229,814
------------
Total Municipal Bonds (cost $429,752,771-note 4) .......... 96.2% 458,451,861
Other assets less liabilities ............................. 3.8 18,043,672
-------- ------------
Net Assets ................................................ 100.0% $476,495,533
======== ============
(*) 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
*** A
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED) PORTFOLIO+
- ---------------------------------------------------- ----------
Aaa of Moody's or AAA of S&P or Fitch .............. 23.7%
Pre-refunded bonds ++ .............................. 18.0
Aa of Moody's or AA of S&P ......................... 36.9
A of Moody's or S&P or Fitch ....................... 16.2
Baa of Moody's or BBB of S&P ....................... 3.2
Not rated* ......................................... 2.0
-----
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.
PORTFOLIO ABREVIATIONS:
- -----------------------
AMBAC - American Municipal Bond Assurance Corp.
NR - Not Rated
Note: National Public Finance Guarantee was formerly known as National-re.
On November 2, 2009, Assured Guaranty Ltd., the holding company for Assured
Guaranty Corp. and Financial Security Assurance Inc. ("FSA"), announced that
pending regulatory approval, it will change the name of its subsidiary FSA to
Assured Guaranty Municipal Corp. The Company also plans to change the names of
he FSA companies worldwide.
See accompanying notes to financial sttements.
TAX-FREE TRUST OF OREGON
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2009
ASSETS
Investments at value (cost $429,752,771) ................................................ $ 458,451,861
Cash .................................................................................... 12,078,961
Interest receivable ..................................................................... 6,766,533
Receivable for Trust shares sold ........................................................ 1,163,665
Other assets ............................................................................ 25,485
------------------
Total assets ............................................................................ 478,486,505
------------------
LIABILITIES
Payable for Trust shares redeemed ....................................................... 715,380
Payable for investment securities purchased ............................................. 578,560
Dividends payable ....................................................................... 400,642
Management fees payable ................................................................. 152,874
Accrued expenses ........................................................................ 143,516
------------------
Total liabilities ....................................................................... 1,990,972
------------------
NET ASSETS ...................................................................................... $ 476,495,533
==================
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share ..... $ 431,333
Additional paid-in capital .............................................................. 447,594,820
Net unrealized appreciation on investments (note 4) ..................................... 28,699,090
Undistributed net investment income ..................................................... 355,792
Accumulated net realized loss on investments ............................................ (585,502)
------------------
$ 476,495,533
==================
CLASS A
Net Assets .............................................................................. $ 369,684,972
==================
Capital shares outstanding .............................................................. 33,458,740
==================
Net asset value and redemption price per share .......................................... $ 11.05
==================
Maximum offering price per share (100/96 of $11.05 adjusted to nearest cent) ............ $ 11.51
==================
CLASS C
Net Assets .............................................................................. $ 21,946,832
==================
Capital shares outstanding .............................................................. 1,988,164
==================
Net asset value and offering price per share ............................................ $ 11.04
==================
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) ...................................... $ 11.04*
==================
CLASS Y
Net Assets .............................................................................. $ 84,863,729
==================
Capital shares outstanding .............................................................. 7,686,378
==================
Net asset value, offering and redemption price per share ................................ $ 11.04
==================
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 2009
Investment Income:
Interest income ...................................... $ 19,904,960
Expenses:
Management fees (note 3) ............................. $ 1,676,410
Distribution and service fees (note 3) ............... 683,997
Transfer and shareholder servicing agent fees ........ 255,350
Trustees' fees and expenses (note 8) ................. 203,677
Legal fees (note 3) .................................. 92,038
Shareholders' reports and proxy statements ........... 63,088
Registration fees and dues ........................... 32,303
Custodian fees (note 6) .............................. 29,256
Auditing and tax fees ................................ 24,000
Insurance ............................................ 18,999
Chief compliance officer (note 3) .................... 4,164
Miscellaneous ........................................ 39,828
------------
3,123,110
Expenses paid indirectly (note 6) .................... (6,513)
------------
Net expenses ......................................... 3,116,597
------------
Net investment income ................................ 16,788,363
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) from securities transactions (404,931)
Change in unrealized depreciation on investments ..... 38,092,055
------------
Net realized and unrealized gain (loss) on investments 37,687,124
------------
Net change in net assets resulting from operations ... $ 54,475,487
============
See accompanying notes to financial statements.
TAX-FREE TRUST OF OREGON
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2009 SEPTEMBER 30, 2008
------------------ ------------------
OPERATIONS:
Net investment income ...................................... $ 16,788,363 $ 16,026,688
Net realized gain (loss) from securities transactions ...... (404,931) (70,279)
Change in unrealized depreciation on investments ........... 38,092,055 (22,601,723)
------------------ ------------------
Change in net assets resulting from operations ..... 54,475,487 (6,645,314)
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS (note 10):
Class A Shares:
Net investment income ...................................... (13,489,974) (12,994,601)
Class C Shares:
Net investment income ...................................... (563,484) (648,973)
Class Y Shares:
Net investment income ...................................... (2,684,060) (2,237,833)
------------------ ------------------
Change in net assets from distributions ............ (16,737,518) (15,881,407)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold .................................. 98,215,834 59,920,079
Reinvested dividends and distributions ..................... 9,702,017 9,104,476
Cost of shares redeemed .................................... (68,906,971) (57,366,111)
------------------ ------------------
Change in net assets from capital share transactions 39,010,880 11,658,444
------------------ ------------------
Change in net assets ............................... 76,748,849 (10,868,277)
NET ASSETS:
Beginning of period ........................................ 399,746,684 410,614,961
------------------ ------------------
End of period* ............................................. $ 476,495,533 $ 399,746,684
================== ==================
* Includes undistributed net investment income of: ......... $ 355,792 $ 436,459
================== ==================
See accompanying notes to financial statements.
1. ORGANIZATION
Tax-Free Trust of Oregon (the "Trust") is a separate portfolio of The
Cascades Trust. The Cascades Trust (the "Business Trust") is an open-end
investment company, which was organized on October 17, 1985, as a Massachusetts
business trust and is authorized to issue an unlimited number of shares. The
Trust is a non-diversified portfolio which commenced operations on June 16, 1986
and until April 5, 1996, offered only one class of shares. On that date, the
Trust began offering two additional classes of shares, Class C and Class Y
Shares. All shares outstanding prior to that date were designated as Class A
Shares and are sold with a front-payment sales charge and bear an annual
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 sevice at the mean of bid and asked quotations.
If market quotations or a valuation from the pricing service is not
readily available, the security is valued at fair value determined in good
faith under procedures established by and under the general supervision of
the Board of Trustees. Securities which mature in 60 days or less are
valued at amortized cost if their term to maturity at purchase is 60 days
or less, or by amortizing their unrealized appreciation or depreciation on
the 61st day prior to maturity, if their term to maturity at purchase
exceeds 60 days.
b) FAIR VALUE MEASUREMENTS: The Trust follows a fair value hierarchy that
distinguishes between market data obtained from independent sources
(observable inputs) and the Trust's own market assumptions (unobservable
inputs). These inputs are used in determining the value of the Trust's
investments and are summarized in the following fair value hierarchy:
Level 1 - 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 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 (details of which can be found in the schedule of
investments), used to value the Trust's net assets as of September 30,
2009:
VALUATION INPUTS INVESTMENTS IN SECURITIES
---------------- -------------------------
Level 1 - Quoted Prices ..................... $ --
Level 2 - Other Significant Observable Inputs
Municipal Bonds ................. 458,451,861
Level 3 - Significant Unobservable Inputs ... --
------------
Total ....................................... $458,451,861
============
c) SUBSEQUENT EVENTS: In preparing these financial statements, the Trust has
evaluated events and transactions for potential recognition or disclosure
through November 23, 2009, the date the financial statements were issued.
d) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses
from securities transactions are reported on the identified cost basis.
Interest income is recorded daily on the accrual basis and is adjusted for
amortization of premium and accretion of original issue and market
discount.
e) FEDERAL INCOME TAXES: It is the policy of the Trust to 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.
Management has reviewed the tax positions for each of the open tax years
(2006-2009) and has concluded that there are no significant uncertain tax
positions that would require recognition in the financial statements.
f) MULTIPLE CLASS ALLOCATIONS: All income, expenses (other than
class-specific expenses), and realized and unrealized gains or losses are
allocated daily to each class of shares based on the relative net assets
of each class. Class-specific expenses, which include distribution and
service fees and any other items that are specifically attributed to a
particular class, are charged directly to such class.
g) USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ from
those estimates.
h) RECLASSIFICATION OF CAPITAL ACCOUNTS: Accounting principles generally
accepted in the United States of America require that certain components
of net assets relating to permanent differences be reclassified between
financial and tax reporting. These reclassifications have no effect on net
assets or net asset value per share. On September 30, 2009, the Trust
decreased undistributed net investment income by $131,512 and increased
paid-in capital by $131,512 due primarily to differing book/tax treatment
of distributions and bond amortization.
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
distribution fee payments to broker-dealers or others ("Qualified Recipients")
selected by Aquila Distributors, Inc. (the "Distributor"), including, but not
limited to, any principal underwriter of the Trust, with which the Distributor
has entered into written agreements contemplated by the Rule and which have
rendered assistance in the distribution and/or retention of the Trust's shares
or servicing of shareholder accounts. The Trust makes payment of this
distribution fee at the annual rate of 0.15% of the Trust's average net assets
represented by Class A Shares. For the year ended September 30, 2009,
distribution fees on Class A Shares amounted to $504,743 of which the
Distributor retained $27,507.
Under another part of the Plan, the Trust is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Trust's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Trust's average net assets represented by Class C Shares and for
the year ended September 30, 2009, amounted to $134,440. In addition, under a
Shareholder Services Plan, the Trust is authorized to make service fee payments
with respect to Class C Shares to Qualified Recipients for providing personal
services and/or maintenance of shareholder accounts. These payments are made at
the annual rate of 0.25% of the Trust's average net assets represented by Class
C Shares and for the year ended September 30, 2009, amounted to $44,814. The
total of these payments made with respect to Class C Shares amounted to
$179,254, of which the Distributor retained $36,017.
Specific details about the Plans are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive
distributor of the Trust's shares. Through agreements between the Distributor
and various brokerage and advisory firms ("intermediaries"), the Trust's shares
are sold primarily through the facilities of these intermediaries having offices
within Oregon, with the bulk of sales commissions inuring to such
intermediaries. For the year ended September 30, 2009, total commissions on
sales of Class A Shares amounted to $981,191 of which the Distributor received
$177,649.
c) OTHER RELATED PARTY TRANSACTIONS
For the year ended September 30, 2009, the Trust incurred $92,027 of legal
fees allocable to Butzel Long PC, counsel to the Trust, for legal services in
conjunction with the Trust's ongoing operations. The Secretary of the Trust is a
shareholder in that firm.
4. PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 2009, purchases of securities and
proceeds from the sales of securities aggregated $93,208,387 and $61,825,487,
respectively.
At September 30, 2009, the aggregate tax cost for all securities was
$429,396,978. At September 30, 2009, the aggregate gross unrealized appreciation
for all securities in which there is an excess of value over tax cost amounted
to $31,267,454 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $2,212,571 for a net
unrealized appreciation of $29,054,883.
5. PORTFOLIO ORIENTATION
Since the Trust invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Oregon, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Oregon and whatever
effects these may have upon Oregon issuers' ability to meet their obligations.
Two such developments, Measure 5, a 1990 amendment to the Oregon Constitution,
as well as Measures 47 and 50, limit the taxing and spending authority of
certain Oregon governmental entities. These amendments could have an adverse
effect on the general financial condition of certain municipal entities that
would impair the ability of certain Oregon issuer's to pay interest and
principal on their obligations.
6. EXPENSES
The Trust has negotiated an expense offset arrangement with its custodian,
wherein it receives credit toward the reduction of custodian fees and other
Trust expenses whenever there are uninvested cash balances.The Statement of
Operations reflects the total expenses before any offset, the amount of offset
and the net expenses.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2009 SEPTEMBER 30, 2008
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
CLASS A SHARES:
Proceeds from shares sold 4,697,244 $ 49,345,864 2,708,755 $ 28,860,028
Reinvested dividends and
distributions ... 798,336 8,395,301 737,413 7,833,815
Cost of shares redeemed . (4,047,184) (41,864,254) (2,893,080) (30,811,101)
------------ ------------ ------------ ------------
Net change ...... 1,448,396 15,876,911 553,088 5,882,742
------------ ------------ ------------ ------------
CLASS C SHARES:
Proceeds from shares sold 935,602 9,948,051 296,648 3,162,360
Reinvested dividends and
distributions ... 33,668 353,605 36,361 386,263
Cost of shares redeemed . (730,007) (7,654,529) (953,455) (10,168,628)
------------ ------------ ------------ ------------
Net change ...... 239,263 2,647,127 (620,446) (6,620,005
------------ ------------ ------------ ------------
CLASS Y SHARES:
Proceeds from shares sold 3,693,383 38,921,919 2,621,931 27,897,691
Reinvested dividends and
distributions ... 90,565 953,111 83,671 884,398
Cost of shares redeemed . (1,875,683) (19,388,188) (1,536,728) (16,386,382)
------------ ------------ ------------ ------------
Net change ...... 1,908,265 20,486,842 1,168,874 12,395,707
------------ ------------ ------------ ------------
Total transactions in Trust
shares .................. 3,595,924 $ 39,010,880 1,101,516 $ 11,658,444
============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES
At September 30, 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 year ended September 30, 2009 was $160,000,
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 Meeting of Shareholders. For the year ended
September 30, 2009, such meeting-related expenses amounted to $43,677.
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,
2009, the Trust had a capital loss carryforward of $566,227 of which $32,810
expires in 2016 and $533,417 expires in 2017.
As of September 30, 2009 there were post-October capital loss deferrals of
$19,275 which will be recognized in the following year.
The tax character of distributions:
Year Ended September 30,
2009 2008
----------- -----------
Net tax-exempt income $16,737,518 $15,881,178
Ordinary income -- 229
Capital gain -- --
----------- -----------
$16,737,518 $15,881,407
=========== ===========
As of September 30, 2009, the components of distributable earnings on a
tax basis were as follows:
Unrealized appreciation $ 29,054,883
Undistributed tax-exempt income 400,642
Accumulated net loss on investments (566,227)
Other temporary differences (419,917)
------------
$ 28,469,381
============
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. ONGOING DEVELOPMENT
Since December 2007, municipal bond insurance companies have been under
review by the three major rating agencies: Standard & Poor's, Moody's and Fitch.
The ratings of most of the insurance companies have either been downgraded
and/or have a negative outlook. The financial markets continue to assess the
severity of the losses caused by the subprime credit crisis and its impact on
municipal bond insurance companies and the prices of insured municipal bonds.
TAX-FREE TRUST OF OREGON
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A
------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
2009 2008 2007 2006 2005
-------- -------- -------- -------- --------
Net asset value, beginning of period ............ $ 10.11 $ 10.68 $ 10.84 $ 10.91 $ 11.01
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ................... 0.42++ 0.42++ 0.41+ 0.41+ 0.42+
Net gain (loss) on securities (both
realized and unrealized) ........ 0.94 (0.58) (0.16) (0.05) (0.10)
-------- -------- -------- -------- --------
Total from investment operations ........ 1.36 (0.16) 0.25 0.36 0.32
-------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income .... (0.42) (0.41) (0.41) (0.41) (0.41)
Distributions from capital gains ........ -- -- *** (0.02) (0.01)
-------- -------- -------- -------- --------
Total distributions ..................... (0.42) (0.41) (0.41) (0.43) (0.42)
-------- -------- -------- -------- --------
Net asset value, end of period .................. $ 11.05 $ 10.11 $ 10.68 $ 10.84 $ 10.91
======== ======== ======== ======== ========
Total return (not reflecting sales charge) ...... 13.74% (1.58)% 2.37% 3.42% 2.98%
Ratios/supplemental data
Net assets, end of period (in millions) . $ 370 $ 324 $ 336 $ 359 $ 369
Ratio of expenses to average net assets . 0.73% 0.76% 0.75% 0.75% 0.77%
Ratio of net investment income to average
net assets 4.02% 3.89% 3.77% 3.82% 3.79%
Portfolio turnover rate ................. 15% 15% 22% 16% 14%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets . 0.73% 0.74% 0.74% 0.74% 0.76%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
*** Less than $0.01 per share.
See accompanying notes to financial statements.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class C
------------------------------------------------------------------
Year Ended September 30,
------------------------------------------------------------------
2009 2008 2007 2006 2005
-------- -------- -------- -------- --------
Net asset value, beginning of period .......... $ 10.10 $ 10.68 $ 10.84 $ 10.90 $ 11.00
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ................. 0.33++ 0.33++ 0.32+ 0.32+ 0.32+
Net gain (loss) on securities (both
realized and unrealized) ...... 0.94 (0.59) (0.16) (0.04) (0.09)
-------- -------- -------- -------- --------
Total from investment operations ...... 1.27 (0.26) 0.16 0.28 0.23
-------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income .. (0.33) (0.32) (0.32) (0.32) (0.32)
Distributions from capital gains ...... -- -- *** (0.02) (0.01)
-------- -------- -------- -------- --------
Total distributions ................... (0.33) (0.32) (0.32) (0.34) (0.33)
-------- -------- -------- -------- --------
Net asset value, end of period ................ $ 11.04 $ 10.10 $ 10.68 $ 10.84 $ 10.90
======== ======== ======== ======== ========
Total return (not reflecting sales charge) .... 12.79% (2.51)% 1.51% 2.64% 2.10%
Ratios/supplemental data
Net assets, end of period (in millions) $ 21.9 $ 17.7 $ 25.3 $ 32.9 $ 41.9
Ratio of expenses to average net assets 1.58% 1.61% 1.60% 1.60% 1.62%
Ratio of net investment income to
average net assets ............ 3.15% 3.04% 2.92% 2.97% 2.94%
Portfolio turnover rate ............... 15% 15% 22% 16% 14%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets 1.58% 1.59% 1.59% 1.59% 1.61%
Class Y
------------------------------------------------------------------
Year Ended September 30,
------------------------------------------------------------------
2009 2008 2007 2006 2005
-------- -------- -------- -------- --------
Net asset value, beginning of period .......... $ 10.10 $ 10.68 $ 10.84 $ 10.90 $ 11.00
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ................. 0.44++ 0.43++ 0.43+ 0.43+ 0.43+
Net gain (loss) on securities (both
realized and unrealized) ...... 0.93 (0.58) (0.16) (0.04) (0.09)
-------- -------- -------- -------- --------
Total from investment operations ...... 1.37 (0.15) 0.27 0.39 0.34
-------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income .. (0.43) (0.43) (0.43) (0.43) (0.43)
Distributions from capital gains ...... -- -- *** (0.02) (0.01)
-------- -------- -------- -------- --------
Total distributions ................... (0.43) (0.43) (0.43) (0.45) (0.44)
-------- -------- -------- -------- --------
Net asset value, end of period ................ $ 11.04 $ 10.10 $ 10.68 $ 10.84 $ 10.90
======== ======== ======== ======== ========
Total return (not reflecting sales charge) .... 13.92% (1.52)% 2.52% 3.67% 3.11%
Ratios/supplemental data
Net assets, end of period (in millions) $ 84.9 $ 58.4 $ 49.2 $ 43.9 $ 36.0
Ratio of expenses to average net assets 0.58% 0.61% 0.60% 0.60% 0.62%
Ratio of net investment income to
average net assets ............ 4.16% 4.04% 3.92% 3.97% 3.95%
Portfolio turnover rate ............... 15% 15% 22% 16% 14%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets 0.58% 0.59% 0.59% 0.59% 0.61%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily average shares
method.
*** Less than $0.01 per share.
See accompanying notes to financial statements.
ADDITIONAL INFORMATION (UNAUDITED)
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
INTERESTED TRUSTEES(4)
- ----------------------
Diana P. Herrmann Vice Chair Vice Chair and Chief Executive Officer of 12 ICI Mutual Insurance
New York, NY of the Board Aquila Management Corporation, Founder Company
(02/25/58) of Trustees of the Aquila Group of Funds(5) and parent of
since 2003, Aquila Investment Management LLC,
President Manager since 2004, President since 1997,
since 1998 Chief Operating Officer, 1997-2008, a
and Trustee Director since 1984, Secretary since 1986
since 1994 and previously its Executive Vice President,
Senior Vice President or Vice President,
1986-1997; Chief Executive Officer and
Vice Chair since 2004, President and
Manager of the Manager since 2003, and
Chief Operating Officer of the Manager,
2003-2008; Chair, Vice Chair, President,
Executive Vice President and/or Senior Vice
President of funds in the Aquila Group of
Funds since 1986; Director of the
Distributor since 1997; Governor,
Investment Company Institute (a trade
organization for the U.S. mutual fund
industry dedicated to protecting shareholder
interests and educating the public about
investing) for various periods, 2004-2009,
and head of its Small Funds Committee,
2004-2009; active in charitable and
volunteer organizations.
John W. Mitchell Trustee Principal of M & H Economic Consultants; 1 Oregon Mutual
Portland, OR since 1999 Economist, Western Region, for U. S. Insurance; Western
(07/13/44) Bancorp 1998-2007; Chief Economist, U.S. Capital Corporation
Bancorp, Portland, Oregon, 1983-1998;
member, Oregon Governor's Council of
Economic Advisors, 1984-1998; Chairman,
Oregon Governor's Technical Advisory
Committee for Tax Review in 1998.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
NON-INTERESTED TRUSTEES
- -----------------------
James A. Gardner Chair of President, Gardner Associates, an 1 None
Terrebonne, OR the Board investment and real estate firm, since 1989;
(07/22/43) of Trustees Founding Partner and Chairman, Ranch of
since 2005 the Canyons, a real estate firm, since 1991;
and Trustee President Emeritus, Lewis and Clark College
since 1986 and Law School; director, Oregon High
Desert Museum since 1989, Vice Chairman
since 2002; active in civic, business,
educational and church organizations in
Oregon.
Gary C. Cornia Trustee Dean, Marriott School of Management, 4 Lincoln Institute of Land
Orem, UT since 2002 Brigham Young University, since 2008; Policy, Cambridge, MA
(06/24/48) Director, Romney Institute of Public
Management, Marriott School of
Management, 2004-2008; Professor,
Marriott School of Management, 1980-
present; Past President, the National Tax
Association; Fellow, Lincoln Institute of
Land Policy, 2002-present; Associate Dean,
Marriott School of Management, Brigham
Young University, 1991-2000; member,
Utah Governor's Tax Review Committee
since 1993.
Edmund P. Jensen Trustee President and CEO, VISA International, 1 BMG-Seltec, a software
Portland, OR since 2003 1994-1999; Vice Chairman and Chief company;
(04/13/37) Operating Officer, US Bancorp, 1974-1994. CreditCards.com, a credit
card search company.
Ralph R. Shaw Trustee President, Shaw Management Company, an 1 Schnitzer Steel Industries,
Portland, OR since 2000 investment counseling firm, 1980-present; Inc., Telestream, Inc.,
(08/23/38) General Partner, Shaw Venture Partners, BMG Seltec Corporation,
1983-2005; Shaw Venture Partners II, 1987- Rentrak Corporation,
2005; and Shaw Venture Partners III, 1994- One-to-One Interactive,
2005 (US Bancorp, parent of the Sub-Adviser, Optimum Energy Co.
was a limited partner in these three ventures).
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Nancy Wilgenbusch Trustee President Emerita since 2008 and President 1 West Coast Bank;
Marylhurst, OR since 2002 1984-2008, Marylhurst University; member, Cascade Corporation, a
(09/17/47) former Chair, Portland Branch of the Federal leading international
Reserve Bank of San Francisco; active board manufacturer of lift truck
member of a number of civic organizations. attachments.
OTHER INDIVIDUALS
- -----------------
TRUSTEES EMERITUS(6)
- --------------------
Lacy B. Herrmann Founder and Founder and Chairman of the Board, Aquila N/A N/A
New York, NY Chairman Management Corporation, the sponsoring
(05/12/29) Emeritus organization and parent of the Manager or
since 2005; Administrator and/or Adviser or Sub-Adviser
Chairman to each fund of the Aquila Group of Funds;
of the Board Chairman of the Manager or Administrator
of Trustees and/or Adviser or Sub-Adviser to each since
1985-2004 2004; Founder and Chairman Emeritus of
and Trustee, each fund in the Aquila Group of Funds;
1985-2005 previously Chairman and a Trustee of each
fund in the Aquila Group of Funds since its
establishment until 2004 or 2005; Director
of the Distributor since 1981 and formerly
Vice President or Secretary, 1981-1998;
Director or trustee, Premier VIT, 1994-2009;
Director or trustee of Oppenheimer Quest
Value Funds Group, Oppenheimer Small
Cap Value Fund, Oppenheimer Midcap
Fund, 1987-2009, and Oppenheimer
Rochester Group of Funds, 1995-2009;
Trustee Emeritus, Brown University and the
Hopkins School; active in university, school
and charitable organizations.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Vernon R. Alden Trustee Retired; former director or trustee of various N/A N/A
Boston, MA Emeritus Fortune 500 companies, including Colgate-
(04/07/23) since 2006 Palmolive and McGraw Hill; formerly
President of Ohio University and Associate
Dean of the Harvard University Graduate
School of Business Administration; Trustee,
Narragansett Insured Tax-Free Income Fund,
1992-2006, Tax-Free Trust of Oregon,
1988-2001 and Hawaiian Tax-Free Trust,
Pacific Capital Cash Assets Trust, Pacific
Capital Tax-Free Cash Assets Trust and
Pacific Capital U.S. Government Securities
Cash Assets Trust, 1998-2001; Trustee
Emeritus, Tax-Free Trust of Oregon since
2006; member of several Japan-related
advisory councils, including Chairman of
the Japan Society of Boston; trustee of
various cultural, educational and civic
organizations.
David B. Frohnmayer Trustee President, University of Oregon since 1994; N/A N/A
Eugene, OR Emeritus former Dean of the University of Oregon
(07/09/40) since 2003 Law School and former Attorney General of
the State of Oregon; Trustee, Tax-Free Trust
of Oregon, 1997-2003.
Patricia L. Moss Trustee President and Chief Executive Officer, N/A N/A
Bend, OR Emerita Cascade Bancorp and Bank of the Cascades
(07/23/53) since 2005 since 1998; Trustee, Tax-Free Trust of
Oregon, 2002-2005; active in community
and educational organizations.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
OFFICERS
- --------
Charles E. Childs, III Executive Executive Vice President of all funds in the N/A N/A
New York, NY Vice President Aquila Group of Funds and the Manager
(04/01/57) since 2003 and the Manager's parent since 2003;
Executive Vice President and Chief
Operating Officer of the Manager and the
Manager's parent since 2008; formerly
Senior Vice President, corporate
development, Vice President, Assistant Vice
President and Associate of the Manager's
parent since 1987; Senior Vice President,
Vice President or Assistant Vice President of
the Aquila Money-Market Funds, 1988-2003.
Maryann Bruce Senior President, Aquila Distributors, Inc., since N/A N/A
Cornelius, NC Vice President 2008; Senior Vice President of each of the
(04/01/60) since 2009 equity and bond funds in the Aquila Group
of Funds since 2009; Executive Managing
Director, Evergreen Investments, 2004-2007,
President, Evergreen Investment Services,
Inc., 1999-2007; President and CEO,
Allstate Financial Distributors, Inc., 1998-
1999; Senior Vice President and Director
Financial Institution Division, Oppenheimer
Funds, Inc., 1990-1998, Regional Vice
President, 1987-1990; Vice President and
Mutual Fund Marketing Manager, J.C.
Bradford & Company, 1982-1987.
Sally J. Church Vice President Vice President, Tax-Free Trust of Oregon N/A N/A
Portland, OR since 2002 since 2002 and 1989-1997; retired, 1997-
(10/17/48) 2002; Vice President of Aquila Cascadia
Equity Fund, 1996-1997.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Christine L. Neimeth Vice President Vice President of Aquila Rocky Mountain N/A N/A
Portland, OR since 1998 Equity Fund and Tax-Free Trust of Oregon.
(02/10/64)
Robert W. Anderson Chief Chief Compliance Officer of the Trust and N/A N/A
New York, NY Compliance each of the other funds in the Aquila Group
(08/23/40) Officer of Funds, the Manager and the Distributor
since 2004 since 2004, Compliance Officer of the
and Assistant Manager or its predecessor and current
Secretary parent 1998-2004; Assistant Secretary of the
since 2000 Aquila Group of Funds since 2000.
Joseph P. DiMaggio Chief Chief Financial Officer of each fund in the N/A N/A
New York, NY Financial Aquila Group of Funds since 2003 and
(11/06/56) Officer Treasurer since 2000.
since 2003
and Treasurer
since 2000
Edward M. W. Hines Secretary Shareholder of Butzel Long, a professional N/A N/A
New York, NY since 1985 corporation, counsel to the Trust, since
(12/16/39) 2007; Partner of Hollyer Brady Barrett &
Hines LLP, its predecessor as counsel, 1989-
2007; Secretary of each fund in the Aquila
Group of Funds.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, TRUST AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
John M. Herndon Assistant Assistant Secretary of each fund in the N/A N/A
New York, NY Secretary Aquila Group of Funds since 1995 and Vice
(12/17/39) since 1995 President of the three Aquila Money-Market
Funds since 1990; Vice President of the
Manager or its predecessor and current
parent since 1990.
Lori A. Vindigni Assistant Assistant Treasurer of each fund in the N/A N/A
New York, NY Treasurer Aquila Group of Funds since 2000; Assistant
(11/02/66) since 2000 Vice President of the Manager or its
predecessor and current parent since 1998;
Fund Accountant for the Aquila Group of
Funds, 1995-1998.
- ----------
(1) The Trust's Statement of Additional Information includes additional
information about the Trustees and is available, without charge, upon request by
calling 800-437-1020 (toll-free) or by visiting www.aquilafunds.com or the EDGAR
Database at the SEC's internet site at www.sec.gov.
(2) The mailing address of each Trustee and officer is c/o Tax-Free Trust of
Oregon, 380 Madison Avenue, New York, NY 10017.
(3) Each Trustee holds office until the next annual meeting of shareholders or
until his or her successor is elected and qualifies. The term of office of each
officer is one year.
(4) Ms. Herrmann is an interested person of the Trust as an officer of the
Trust, as a director, officer and shareholder of the Manager's corporate parent,
as an officer and Manager of the Manager, and as a shareholder and director of
the Distributor. Ms. Herrmann is the daughter of Lacy B. Herrmann, the Founder
and Chairman Emeritus of the Fund. Mr. Mitchell is an interested person as a
security holder of the Sub-Adviser's parent.
(5) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash Assets
Trust, each of which is a money-market fund, are called the "Aquila Money-Market
Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of
Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky,
Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of
which is a tax-free municipal bond fund, are called the "Aquila Municipal Bond
Funds"; Aquila Rocky Mountain Equity Fund is an equity fund; Aquila Three Peaks
High Income Fund is a high income corporate bond fund; considered together,
these 12 funds are called the "Aquila Group of Funds."
(6) A Trustee Emeritus may attend Board meetings but has no voting power.
ANALYSIS OF EXPENSES (UNAUDITED)
As a shareholder of the Trust, you may incur two types of costs: (1)
transaction costs, including front-end sales charges with respect to Class A
shares or contingent deferred sales charges ("CDSC") with respect to Class C
shares; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other Trust expenses. The table below is intended to
help you understand your ongoing costs (in dollars) of investing in the Trust
and to compare these costs with the ongoing costs of investing in other mutual
funds.
The table below is based on an investment of $1,000 invested on April 1,
2009 and held for the six months ended September 30, 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 SEPTEMBER 30, 2009
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 7.31% $1,000.00 $1,073.10 $3.80
- --------------------------------------------------------------------------------
Class C 6.86% $1,000.00 $1,068.60 $8.18
- --------------------------------------------------------------------------------
Class Y 7.40% $1,000.00 $1,074.00 $3.01
- --------------------------------------------------------------------------------
(1) ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF
ANY, AT NET ASSET VALUE AND DOES NOT REFLECT THE DEDUCTION OF THE
APPLICABLE SALES CHARGES WITH RESPECT TO CLASS A SHARES OR THE APPLICABLE
CONTINGENT DEFERRED SALES CHARGES ("CDSC") WITH RESPECT TO CLASS C SHARES.
TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
TOTAL RETURN FOR THE YEAR.
(2) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.73%, 1.58% AND
0.58% FOR THE TRUST'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/365 (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 SEPTEMBER 30, 2009
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.41 $3.70
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,017.16 $7.98
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,022.16 $2.94
- --------------------------------------------------------------------------------
(1) Expenses are equal to the annualized expense ratio of 0.73%, 1.58% and
0.58% for the Trust's Class A, C and Y shares, respectively, multiplied by
the average account value over the period, multiplied by 183/365 (to
reflect the one-half year period).
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Tax-Free Trust of Oregon (the
"Trust") was held on April 1, 2009. The holders of shares representing 92% of
the total net asset value of the shares entitled to vote were present in person
or by proxy. At the meeting, the following matters were voted upon and approved
by the shareholders (the resulting votes for are presented below).
1. To elect Trustees.
DOLLAR AMOUNT OF VOTES:
-----------------------
TRUSTEE FOR WITHHELD
------- --- --------
Gary C. Cornia $371,495,767 $4,083,395
James A. Gardner $370,956,290 $4,622,883
Diana P. Herrmann $371,063,971 $4,515,202
Edmund P. Jensen $371,508,592 $4,070,580
John W. Mitchell $370,841,124 $4,738,049
Ralph R. Shaw $371,537,532 $4,041,630
Nancy Wilgenbusch $371,418,941 $4,160,231
2. To ratify the selection of Tait, Weller & Baker LLP as the Trust's
independent registered public accounting firm.
DOLLAR AMOUNT OF VOTES:
-----------------------
FOR AGAINST ABSTAIN
--- ------- -------
$367,341,886 $554,020 $7,683,286
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 your Trust's entire list of portfolio securities twice a
year in the semi-annual and annual reports you receive. Additionally, under
Trust policies, the Manager publicly discloses the complete schedule of the
Trust's portfolio holdings, as of each calendar quarter, generally by the 15th
day after the end of each calendar quarter. Such information remains accessible
until the next schedule is made publicly available. You may obtain a copy of the
Trust's portfolio holding schedule for the most recently completed period by
visiting the Trust's website at WWW.AQUILAFUNDS.COM. The Trust also discloses
its five largest holdings by value as of the close of the last business day of
each calendar month in a posting to its website on the 5th business day
following the month end. This information remains on the website until the next
such posting. Whenever you wish to see a listing of your Trust's portfolio other
than in your shareholder reports, please check our website at
WWW.AQUILAFUNDS.COM or call us at 1-800-437-1020.
The Trust additionally files a complete list of its portfolio holdings
with the SEC for the first and third quarter ends of each fiscal year on Form
N-Q. Forms N-Q are available free of charge on the SEC website at WWW.SEC.GOV.
You may also review or, for a fee, copy the forms at the SEC's Public Reference
Room in Washington, D.C. or by calling 1-800-SEC-0330.
- --------------------------------------------------------------------------------
PROXY VOTING RECORD (UNAUDITED)
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, 2009 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
WWW.SEC.GOV.
- --------------------------------------------------------------------------------
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement of the
Internal Revenue Code AND NO ACTION ON THE PART OF SHAREHOLDERS IS REQUIRED.
For the fiscal year ended September 30, 2009, $16,737,518 of dividends
paid by Tax-Free Trust of Oregon, constituting 100% of total dividends paid
during fiscal year 2009 were exempt-interest dividends.
Prior to January 31, 2010, shareholders will be mailed the appropriate tax
form(s) which will contain information on the status of distributions paid for
the 2009 CALENDAR YEAR.
- --------------------------------------------------------------------------------
PRIVACY NOTICE (UNAUDITED)
TAX-FREE TRUST OF OREGON
OUR PRIVACY POLICY. In providing services to you as an individual who owns or is
considering investing in shares of the Trust, we collect certain non-public
personal information about you. Our policy is to keep this information strictly
safeguarded and confidential, and to use or disclose it only as necessary to
provide services to you or as otherwise permitted by law. Our privacy policy
applies equally to former shareholders and persons who inquire about the Trust.
INFORMATION WE COLLECT. "Non-public personal information" is personally
identifiable financial information about you as an individual or your family.
The kinds of non-public personal information we have about you may include the
information you provide us on your share purchase application or in telephone
calls or correspondence with us, and information about your fund transactions
and holdings, how you voted your shares and the account where your shares are
held.
INFORMATION WE DISCLOSE. We disclose non-public personal information about you
to companies that provide necessary services to us, such as the Trust's transfer
agent, distributor, investment adviser or sub-adviser, if any, as permitted or
required by law, or as authorized by you. Any other use is strictly prohibited.
We do not sell information about you or any of our fund shareholders to anyone.
NON-CALIFORNIA RESIDENTS: We also may disclose some of this information to
another fund in the Aquila Group of Funds (or its service providers) under joint
marketing agreements that permit the funds to use the information only to
provide you with information about other funds in the Aquila Group of Funds or
new services we are offering that may be of interest to you.
CALIFORNIA RESIDENTS ONLY: In addition, unless you "opt-out" of the following
disclosures using the form that was mailed to you under separate cover, we may
disclose some of this information to another fund in the Aquila Group of Funds
(or its sevice providers) under joint marketing agreements that permit the funds
to use the information only to provide you with information about other funds in
the Aquila Group of Funds or new services we are offering that may be of
interest to you.
HOW WE SAFEGUARD YOUR INFORMATION. We restrict access to non-public personal
information about you to only those persons who need it to provide services to
you or who are permitted by law to receive it. We maintain physical, electronic
and procedural safeguards to protect the confidentiality of all non-public
personal information we have about you.
If you have any questions regarding our Privacy Policy, please contact us at
1-800-437-1020.
AQUILA DISTRIBUTORS, INC.
AQUILA INVESTMENT MANAGEMENT LLC
This Privacy Policy also has been adopted by Aquila Distributors, Inc. and
Aquila Investment Management LLC and applies to all non-public information about
you that each of these companies may obtain in connection with services provided
to the Trust or to you as a shareholder of the Trust.
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, OH 43240
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Further information is contained in the Prospectus,
which must precede or accompany this report.
ITEM 2. CODE OF ETHICS.
(a) As of September 30, 2009 (the end of the reporting period) the
Trust has adopted a code of ethics that applies to the Trust's
principal executive officer(s)and principal financial officer(s)
and persons performing similar functions ("Covered Officers") as
defined in the Aquila Group of Funds Code of Ethics for Principal
Executive and Senior Financial Officers under Section 406 of the
Sarbanes-Oxley Act of 2002;
(f)(1) Pursuant to Item 10(a)(1), a copy of the Trust's Code of
Ethics that applies to the Trust's principal executive officer(s)
and principal financial officer(s) and persons performing similar
functions is included as an exhibit to its annual report on this
Form N-CSR;
(f)(2) The text of the Trust's Code of Ethics that applies to the
Trust's principal executive officer(s) and principal financial
officer(s) and persons performing similar functions has been
posted on its Internet website which can be found at the Trust's
Internet address at aquilafunds.com.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1)(ii) The Board of Trustees of the Fund has determined that
it does not have at least one audit committee financial expert
serving on its audit committee. The Fund does not have such a
person serving on the audit committee because none of the persons
currently serving as Trustees happens to have the technical
accounting and auditing expertise included in the definition of
"audit committee financial expert" recently adopted by the Securities
and Exchange Commission in connection with this Form N-CSR, and the
Board has not heretofore deemed it necessary to seek such a person
for election to the Board.
The primary mission of the Board, which is that of oversight over
the operations and affairs of the Fund, confronts the Trustees with
a wide and expanding range of issues and responsibilities. The
Trustees believe that, accordingly, it is essential that the Board's
membership consist of persons with as extensive experience as possible
in fulfilling the duties and responsibilities of mutual fund directors
and audit committee members and, ideally, with extensive experience
and background relating to the economic and financial sectors and
securities in which the Fund invests, including exposure to the
financial and accounting matters commonly encountered with respect
to those sectors and securities. The Board believes that its current
membership satisfies those criteria. It recognizes that it would
also be helpful to have a member with the relatively focused accounting
and auditing expertise reflected in the applicable definition of
"audit committee financial expert," just as additional members with
similarly focused technical expertise in other areas relevant to
the Fund's operations and affairs would also contribute added value.
However, the Board believes that the Fund is better served, and its
assets better employed, by a policy of hiring experts in various
the specialized area of technical accounting and
auditing matters, if and as the Board identifies the need, rather
than by seeking to expand its numbers by adding technical experts
in the areas constituting its domain of responsibility. The Fund's
Audit Committee Charter explicitly authorizes the Committee to
retain such experts as it deems necessary in fulfilling its duties
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
a) Audit Fees - The aggregate fees billed for professional services
rendered by the principal accountant for the audit of the Registrant's
annual financial statements were $18,900 in 2008 and $19,800 in 2009.
b) Audit Related Fees - There were no amounts billed for audit-related
fees over the past two years.
c) Tax Fees - The Registrant was billed by the principal accountant
$3,000 and $3,200 in 2008 and 2009, respectively, for return preparation
and tax compliance.
d) All Other Fees - There were no additional fees paid for audit and
non-audit services other than those disclosed in a) thorough c) above.
e)(1) Currently, the audit committee of the Registrant pre-approves audit
services and fees on an engagement-by-engagement basis
e)(2) None of the services described in b) through d) above were approved
by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X, all were pre-approved on an engagement-by-engagement basis.
f) No applicable.
g) There were no non-audit services fees billed by the Registrant's accountant
to the Registrant's investment adviser or distributor over the past two years
h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included in Item 1 above
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Directors of the Registrant has adopted a Nominating
Committee Charter which provides that the Nominating Committee (the 'Committee')
may consider and evaluate nominee candidates properly submitted by shareholders
if a vacancy among the Independent Trustees of the Registrant occurs and if,
based on the Board's then current size, composition and structure, the Committee
determines that the vacancy should be filled. The Committee will consider
candidates submitted by shareholders on the same basis as it considers and
evaluates candidates recommended by other sources. A copy of the qualifications
and procedures that must be met or followed by shareholders to properly submit
a nominee candidate to the Committee may be obtained by submitting a request
in writing to the Secretary of the Registrant.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls
and procedures (as defined in Rule 30a-2(c) under the Investment Company
Act of 1940) as of a date within 90 days of the fling of this report, the
registrant's chief financial and executive officers have concluded that the
disclosure controls and procedures of the registrant are appropriately
designed to ensure that information required to be disclosed in the
registrant's reports that are filed under the Securities Exchange Act of
1934 are accumulated and communicated to registrant's management, including
its principal executive officer(s) and principal financial officer(s), to
allow timely decisions regarding required disclosure and is recorded,
processed, summarized and reported, within the time periods specified in
the rules and forms adopted by the Securities and Exchange Commission.
(b) There have been no significant changes in registrant's internal controls
or in other factors that could significantly affect registrant's internal
controls subsequent to the date of the most recent evaluation, including no
significant deficiencies or material weaknesses that required corrective action.
ITEM 12. EXHIBITS.
(a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and
Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act
of 2002.
(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of
1940.
(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
TAX-FREE TRUST OF OREGON
By: /s/ Diana P. Herrmann
- ----------------------------------
Vice Chair, President and Trustee
December 3, 2009
By: /s/ Joseph P. DiMaggio
- ------------------------------------
Chief Financial Officer
December 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
December 3, 2009
By: /s/ Joseph P. DiMaggio
- ------------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
December 3, 2009
TAX-FREE TRUST OF OREGON
EXHIBIT INDEX
(a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and
Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act
of 2002.
(a) (2) Certifications of principal executive officer
and principal financial officer as required by Rule 30a-2(a)
under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.