UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-5047
Tax-Free Fund of Colorado
(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: 12/31/10
Date of reporting period: 06/30/11
FORM N-CSRS
ITEM 1. REPORTS TO STOCKHOLDERS.
Semi-Annual Report |
June 30, 2011 |
TAX-FREE FUND OF COLORADO A tax-free income investment |
Serving Colorado Investors For Close to 25 Years Tax-Free Fund of Colorado “Experience, Procedures and Review” |
August, 2011
Dear Fellow Shareholder:
The Management of Tax-Free Fund of Colorado has been privileged to serve you and our other shareholders since the Fund’s inception in 1987 – close to 25 years ago.
One of the benefits of being in existence so long is that we have experienced a number of up and down economic cycles and endured a variety of changes and challenges. In short, we have generally “seen it all before.” Back in 1993, we produced a “Thought for the Month” entitled “The Sky is Falling!” It was intended to calm any fears that our then shareholders might have had as a result of newspaper and magazine articles which were predicting that the municipal bond market was about to crumble.
Here we are 18 years later and similar articles have been appearing once again in both the financial and local press. While the facts and circumstances may be somewhat different, we believe that what we said back in 1993 still holds true for us today.
Certainly there is a degree of risk with virtually everything in life. However, we do not believe that “the sky is falling.” Furthermore, all of us associated with Tax-Free Fund of Colorado take very deliberate steps each and every day in pursuit of your Fund’s objective of seeking to provide you with as high a level of double tax-free income as is consistent with preservation of capital.
The following are among those deliberate steps we take each day in managing your Fund:
· | In line with Tax-Free Fund of Colorado’s prospectus, we may only purchase investment grade securities – securities rated within the four highest credit ratings assigned by nationally recognized statistical rating organizations - or if unrated, determined by your investment team to be of comparable quality. In addition to credit characteristics, we also look at an issue’s maturity and sector (in order to enhance diversification and meet other requirements identified by your portfolio management team). |
· | We invest in an issue based on our initial research. Then we monitor the ongoing financial condition of the issuer. This may include speaking to financial officers affiliated with the issuer, reviewing economic changes impacting the issuer, and reviewing the issuer’s financial reports. The importance of knowing what we own is heightened during periods of market volatility. |
NOT A PART OF THE SEMI-ANNUAL REPORT
The research conducted prior to investing in a bond, and ongoing credit monitoring, make it possible to evaluate potential risks associated with an individual bond and the adequacy of the compensation provided for that risk. Simply put, we seek to evaluate whether, as a bond investor, the Fund is adequately compensated for the risk associated with lending to a particular issuer.
· | We use a nationally prominent independent pricing service to price each and every single one of your Fund’s portfolio holdings on a daily basis. |
· | In an effort to test the accuracy of our pricing, we regularly compare and confirm prices of our portfolio securities with a second pricing service. |
· | We continually seek to ensure that Tax-Free Fund of Colorado’s net assets are invested in liquid securities. |
· | And, your Fund’s portfolio holdings are published regularly. A detailed report is available quarterly, while your Fund’s five largest portfolio holdings are listed as of each month-end. This information may be found on our website at www.aquilafunds.com. |
We believe that following these various policies and procedures have served you and our other shareholders well over the past 24 years.
And, you can rest assured that we regularly review and seek to enhance them as and when we believe appropriate.
Sincerely,
Lacy B. Herrmann Founder and Chairman Emeritus | Diana P. Herrmann President |
Consideration should be given to the risks of investing, including: potential loss of value, market risk, interest rate risk, credit risk, and geographic concentration. Past performance does not guarantee future stability. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. For certain investors, some dividends may be subject to Federal and state taxes.
NOT A PART OF THE SEMI-ANNUAL REPORT
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (22.5%) | and Fitch | Value | ||||||
Metropolitan District (5.6%) | |||||||||
Arapahoe, Colorado Park & Recreation District | |||||||||
$ | 1,070,000 | 5.000%, 12/01/17 NPFG Insured | A1/NR/NR | $ | 1,098,109 | ||||
Denver, Colorado International Business Center | |||||||||
Metropolitan District No.1, Refunding | |||||||||
2,090,000 | 5.125%, 12/01/25 | NR/BBB+/NR | 2,010,601 | ||||||
Foothills, Colorado Park & Recreational District | |||||||||
1,325,000 | 5.000%, 12/01/13 AGMC Insured Pre-Refunded | Aa2/NR/NR | 1,350,480 | ||||||
Fraser Valley, Colorado Metropolitan Recreational | |||||||||
District | |||||||||
1,875,000 | 5.000%, 12/01/25 | NR/A/NR | 1,964,812 | ||||||
Lincoln Park, Colorado Metropolitan District, | |||||||||
Refunding & Improvement | |||||||||
1,535,000 | 5.625%, 12/01/20 | NR/BBB-/NR | 1,538,577 | ||||||
North Metro Fire Rescue District, Colorado | |||||||||
1,200,000 | 4.625%, 12/01/20 AMBAC Insured | NR/AA/NR | 1,290,972 | ||||||
Poudre Tech Metropolitan District, Colorado Unlimited | |||||||||
Property Tax Supported Revenue Refunding & | |||||||||
Improvement, Series B | |||||||||
1,990,000 | 5.000%, 12/01/28 AGMC Insured | NR/AA+/NR | 2,198,791 | ||||||
Stonegate Village Metropolitan District, Colorado | |||||||||
Refunding & Improvement | |||||||||
500,000 | 5.000%, 12/01/23 NPFG Insured | Baa1/A-/NR | 518,155 | ||||||
900,000 | 5.000%, 12/01/24 NPFG Insured | Baa1/A-/NR | 933,120 | ||||||
Park Creek Metropolitan District, Colorado Revenue | |||||||||
Refunding & Improvement - Senior Property | |||||||||
Tax Support | |||||||||
2,000,000 | 5.500%, 12/01/21 AGMC Insured | NR/AA+/BBB+ | 2,175,020 | ||||||
Total Metropolitan District | 15,078,637 | ||||||||
School Districts (16.9%) | |||||||||
Adams & Arapahoe Counties, Colorado Joint School | |||||||||
District #28J | |||||||||
2,500,000 | 5.500%, 12/01/23 | Aa2/AA-/NR | 2,827,000 | ||||||
Adams & Weld Counties, Colorado School District #27J | |||||||||
1,000,000 | 5.375%, 12/01/26 NPFG Insured | Aa2/AA-/NR | 1,073,210 |
1
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
School Districts (continued) | |||||||||
Adams County, Colorado School District #12 (Adams | |||||||||
12 Five Star Schools) | |||||||||
$ | 1,170,000 | 5.000%, 12/15/12 NPFG Insured | Aa2/AA-/NR | $ | 1,193,084 | ||||
830,000 | 5.000%, 12/15/12 NPFG Insured Pre-Refunded | Aa3/AAA/AAA | 847,505 | ||||||
Arapahoe County, Colorado School District #006 | |||||||||
Littleton | |||||||||
1,000,000 | 5.250%, 12/01/21 NPFG Insured Pre-Refunded | Aa1/AA/NR | 1,069,090 | ||||||
Boulder Larimer & Weld Counties, Colorado | |||||||||
1,260,000 | 5.000%, 12/15/26 AGMC Insured | Aa2/AA+/NR | 1,326,074 | ||||||
1,500,000 | 5.000%, 12/15/28 | Aa2/AA-/NR | 1,630,890 | ||||||
Clear Creek, Colorado School District | |||||||||
1,000,000 | 5.000%, 12/01/16 AGMC Insured | Aa3/AA+/NR | 1,055,860 | ||||||
Denver, Colorado City & County School District No. 1 | |||||||||
3,000,000 | 5.250%, 12/01/27 | Aa2/AA-/NR | 3,288,000 | ||||||
1,000,000 | 5.000%, 12/01/28 Series A | Aa2/AA-/NR | 1,073,450 | ||||||
3,000,000 | 3.000%, 12/01/23 Series C | Aa2/AA-/NR | 2,935,890 | ||||||
Douglas County, Colorado School District No. RE-1 | |||||||||
Douglas & Elbert Counties | |||||||||
1,320,000 | 3.500%, 12/15/23 | Aa2/NR/AA+ | 1,339,642 | ||||||
El Paso County, Colorado School District #20 | |||||||||
1,500,000 | 5.000%, 12/15/14 NPFG Insured Pre-Refunded | Aa2/NR/NR | 1,601,115 | ||||||
1,085,000 | 5.500%, 12/15/23 NPFG Insured Pre-Refunded | Aa2/NR/NR | 1,215,927 | ||||||
El Paso County, Colorado School District #20 | |||||||||
1,500,000 | 4.500%, 12/15/25 AGMC Insured | Aa2/NR/NR | 1,545,630 | ||||||
El Paso County, Colorado School District #20 | |||||||||
Refunding | |||||||||
1,945,000 | 4.375%, 12/15/23 | Aa2/NR/NR | 2,094,512 | ||||||
El Paso County, Colorado School District #49 | |||||||||
1,000,000 | 5.250%, 12/01/14 NPFG Insured Pre-Refunded | Aa2/AA-/NR | 1,020,240 | ||||||
Garfield County, Colorado School District | |||||||||
1,250,000 | 5.000%, 12/01/17 AGMC Insured Pre-Refunded | Aa2/NR/NR | 1,331,987 |
2
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | General Obligation Bonds (continued) | and Fitch | Value | ||||||
School Districts (continued) | |||||||||
Gunnison Watershed, Colorado School District | |||||||||
$ | 1,025,000 | 5.250%, 12/01/26 | Aa2/AA-/NR | $ | 1,102,275 | ||||
Jefferson County, Colorado School District #R-001 | |||||||||
3,000,000 | 5.250%, 12/15/25 AGMC Insured | Aa2/AA+/NR | 3,258,030 | ||||||
La Plata County, Colorado School District #9 | |||||||||
1,500,000 | 5.000%, 11/01/18 NPFG Insured Pre-Refunded | NR/NR/NR* | 1,592,970 | ||||||
Pueblo County, Colorado School District #70 | |||||||||
1,000,000 | 5.000%, 12/01/15 NPFG Insured | Aa2/AA-/NR | 1,013,860 | ||||||
3,440,000 | 5.000%, 12/01/16 NPFG Insured | Aa2/AA-/NR | 3,483,482 | ||||||
Teller County, Colorado School District #2 Woodland | |||||||||
Park | |||||||||
1,265,000 | 5.000%, 12/01/17 NPFG Insured Pre-Refunded | Aa2/AA-/NR | 1,443,909 | ||||||
Weld County, Colorado School District #2 | |||||||||
1,315,000 | 5.000%, 12/01/15 AGMC Insured | Aa2/AA+/NR | 1,374,885 | ||||||
Weld County, Colorado School District #6 | |||||||||
1,195,000 | 5.000%, 12/01/15 AGMC Insured Pre-Refunded | Aa2/AA+/NR | 1,217,980 | ||||||
Weld County, Colorado School District #8 | |||||||||
1,115,000 | 5.000%, 12/01/15 AGMC Insured Pre-Refunded | Aa2/AA+/NR | 1,188,947 | ||||||
1,385,000 | 5.250%, 12/01/17 AGMC Insured Pre-Refunded | Aa2/AA+/NR | 1,481,701 | ||||||
Total School Districts | 45,627,145 | ||||||||
Total General Obligation Bonds | 60,705,782 | ||||||||
Revenue Bonds (76.6%) | |||||||||
Airport (3.7%) | |||||||||
Denver, Colorado City & County Airport Revenue | |||||||||
System, Series A | |||||||||
1,210,000 | 5.250%, 11/15/28 | A1/A+/A+ | 1,270,851 | ||||||
3,000,000 | 5.250%, 11/15/29 | A1/A+/A+ | 3,133,860 | ||||||
Denver, Colorado City & County Airport Revenue | |||||||||
System, Series A Refunding | |||||||||
4,340,000 | 5.000%, 11/15/24 | A1/A+/A+ | 4,606,172 | ||||||
Walker Field, Colorado Public Airport Authority | |||||||||
Airport Revenue | |||||||||
1,000,000 | 5.000%, 12/01/22 | Baa2/NR/NR | 973,690 | ||||||
Total Airport | 9,984,573 |
3
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Electric (3.6%) | |||||||||
Colorado Springs, Colorado Utilities Revenue | |||||||||
$ | 1,660,000 | 5.000%, 11/15/17 Pre-Refunded | Aa2/AA/NR | $ | 1,767,087 | ||||
Colorado Springs, Colorado Utilities Revenue, | |||||||||
Refunding Series A | |||||||||
2,000,000 | 4.750%, 11/15/27 | Aa2/AA/AA | 2,107,040 | ||||||
Colorado Springs, Colorado Utilities Revenue, | |||||||||
Refunding Series A-1 | |||||||||
2,000,000 | 4.000%, 11/15/26 | Aa2/AA/AA | 2,013,920 | ||||||
1,000,000 | 4.000%, 11/15/27 | Aa2/AA/AA | 995,210 | ||||||
Colorado Springs, Colorado Utilities Revenue | |||||||||
Refunding Series B | |||||||||
1,285,000 | 5.250%, 11/15/23 | Aa2/AA/AA | 1,438,557 | ||||||
Colorado Springs, Colorado Utilities Revenue | |||||||||
Subordinated Lien Improvement Series B | |||||||||
1,160,000 | 5.000%, 11/15/23 | Aa2/AA/AA | 1,216,504 | ||||||
Total Electric | 9,538,318 | ||||||||
Higher Education (23.3%) | |||||||||
Adams State College, Colorado Auxiliary Facilities | |||||||||
Revenue Improvement Series A | |||||||||
1,000,000 | 5.200%, 05/15/27 | Aa2/AA-/NR | 1,062,850 | ||||||
Adams State College, Colorado Auxiliary Facilities | |||||||||
Revenue Refunding, Series B | |||||||||
3,000,000 | 4.500%, 05/15/29 | Aa2/AA-/NR | 3,019,590 | ||||||
Boulder, Colorado Development Revenue UCAR | |||||||||
1,880,000 | 5.000%, 09/01/27 NPFG Insured | A2/A+/NR | 1,892,446 | ||||||
Colorado Educational & Cultural Facility Authority, | |||||||||
Johnson & Wales | |||||||||
860,000 | 5.000%, 04/01/18 Syncora Guarantee, Inc. Insured | NR/NR/NR* | 870,630 | ||||||
Colorado Educational & Cultural Facility Authority, | |||||||||
Regis University Project | |||||||||
1,695,000 | 5.000%, 06/01/24 Radian Insured Pre-Refunded | NR/BBB/NR | 1,901,451 |
4
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Higher Education (continued) | |||||||||
Colorado Educational & Cultural Facility Authority, | |||||||||
Student Housing - Campus Village Apartments | |||||||||
Refunding | |||||||||
$ | 2,935,000 | 5.375%, 06/01/28 | NR/A/NR | $ | 2,982,283 | ||||
Colorado Educational & Cultural Facility Authority, | |||||||||
University Corp. Atmosphere Project, Refunding | |||||||||
1,700,000 | 5.000%, 09/01/22 | A2/A+/NR | 1,823,743 | ||||||
1,635,000 | 5.000%, 09/01/28 | A2/A+/NR | 1,674,714 | ||||||
Colorado Educational & Cultural Facility Authority, | |||||||||
University of Colorado Foundation Project | |||||||||
2,110,000 | 5.000%, 07/01/17 AMBAC Insured Pre-Refunded | NR/NR/NR* | 2,204,570 | ||||||
1,865,000 | 5.375%, 07/01/18 AMBAC Insured Pre-Refunded | NR/NR/NR* | 1,955,471 | ||||||
Colorado Educational & Cultural Facility Authority | |||||||||
Revenue Refunding, University of Denver Project | |||||||||
1,000,000 | 5.250%, 03/01/26 NPFG Insured | A1/A+/NR | 1,089,890 | ||||||
Colorado Educational & Cultural Facility Authority | |||||||||
Revenue Refunding, University of Denver Project, | |||||||||
Series B | |||||||||
3,085,000 | 5.000%, 03/01/22 NPFG-FGIC Insured | A1/A+/NR | 3,222,622 | ||||||
Colorado Educational & Cultural Facility Authority, | |||||||||
University of Denver Project, Series B Refunding | |||||||||
3,620,000 | 5.250%, 03/01/23 NPFG Insured | A1/A+/AA | 3,794,375 | ||||||
Colorado Mountain Jr. College District Student | |||||||||
Housing Facilities Enterprise | |||||||||
1,000,000 | 4.500%, 06/01/18 NPFG Insured | Baa1/BBB/NR | 1,020,440 | ||||||
1,825,000 | 5.000%, 06/01/23 NPFG Insured | Baa1/BBB/NR | 1,839,399 | ||||||
Colorado School of Mines Enterprise Refunding & | |||||||||
Improvement | |||||||||
1,455,000 | 5.000%, 12/01/24 | Aa2/AA-/NR | 1,552,179 | ||||||
Colorado State Board of Governors University | |||||||||
Enterprise System, Series A, Refunding and | |||||||||
Improvement | |||||||||
425,000 | 5.000%, 03/01/17 Pre-Refunded | Aa3/NR/NR | 457,687 |
5
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Higher Education (continued) | |||||||||
Colorado State Board of Governors University | |||||||||
Enterprise System, Series A, Refunding and | |||||||||
Improvement | |||||||||
$ | 1,105,000 | 5.000%, 03/01/17 AMBAC Insured | Aa3/NR/NR | $ | 1,157,311 | ||||
Colorado State Board of Governors University | |||||||||
Enterprise System, Series A | |||||||||
930,000 | 5.000%, 03/01/28 AGMC Insured | Aa3/AA+/NR | 974,389 | ||||||
Colorado State COP University of Colorado at Denver | |||||||||
Health Sciences Center Fitzsimons Academic | |||||||||
Projects Series B | |||||||||
3,135,000 | 5.250%, 11/01/25 NPFG Pre-Refunded | Baa1/AA-/NR | 3,689,550 | ||||||
Mesa State College, Colorado Auxiliary Facilities | |||||||||
Enterprise | |||||||||
1,000,000 | 5.000%, 05/15/20 Syncora Guarantee, Inc. Insured | A2/NR/NR | 1,033,210 | ||||||
2,000,000 | 5.700%, 05/15/26 Pre-Refunded | NR/AA-/NR | 2,481,520 | ||||||
University of Colorado Enterprise System | |||||||||
2,325,000 | 5.000%, 06/01/15 AMBAC Insured Pre-Refunded | Aa2/AA-/NR | 2,424,742 | ||||||
1,735,000 | 5.000%, 06/01/16 Pre-Refunded | Aa2/AA-/AAA | 1,884,748 | ||||||
1,000,000 | 5.250%, 06/01/17 NPFG Insured Pre-Refunded | Aa2/AA-/NR | 1,091,040 | ||||||
2,000,000 | 5.000%, 06/01/27 | Aa2/AA-/AA+ | 2,135,700 | ||||||
University of Colorado Enterprise System, Refunding, | |||||||||
Series B | |||||||||
1,680,000 | 4.000%, 06/01/23 | Aa2/AA-/AA+ | 1,730,753 | ||||||
University of Colorado Enterprise System, Refunding | |||||||||
& Improvement | |||||||||
3,905,000 | 5.000%, 06/01/24 NPFG Insured | Aa2/AA-/AA+ | 4,109,544 | ||||||
University of Northern Colorado Auxiliary Facilities | |||||||||
1,390,000 | 5.000%, 06/01/15 AMBAC Insured | A1/A/NR | 1,392,210 | ||||||
University of Northern Colorado Greeley Institutional | |||||||||
Enterprise Refunding, Series A | |||||||||
2,810,000 | 5.000%, 06/01/26 State Higher Education Intercept | ||||||||
Program Insured | Aa2/AA-/NR | 3,016,394 |
6
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Higher Education (continued) | |||||||||
University of Northern Colorado Refunding | |||||||||
$ | 1,000,000 | 5.000%, 06/01/24 AGMC Insured | Aa3/AA+/NR | $ | 1,032,120 | ||||
Western State College, Colorado Institutional | |||||||||
Enterprise, Series A | |||||||||
1,160,000 | 5.000%, 05/15/24 State Higher Education Intercept | ||||||||
Program Insured | Aa2/AA-/NR | 1,241,281 | |||||||
Western State College, Colorado | |||||||||
1,020,000 | 5.000%, 05/15/27 State Higher Education Intercept | ||||||||
Program Insured | Aa2/AA-/NR | 1,081,792 | |||||||
Total Higher Education | 62,840,644 | ||||||||
Hospital (11.1%) | |||||||||
Colorado Health Facility Authority Hospital Revenue, | |||||||||
Adventist Health/Sunbelt, Refunding | |||||||||
2,500,000 | 5.125%, 11/15/29 | Aa3/AA-/AA- | 2,523,725 | ||||||
Colorado Health Facility Authority Hospital Revenue, | |||||||||
Catholic Health | |||||||||
1,000,000 | 4.750%, 09/01/25 AGMC Insured | Aa2/AA+/AA | 1,026,300 | ||||||
Colorado Health Facility Authority Hospital Revenue, | |||||||||
Evangelical Lutheran Project Refunding | |||||||||
1,575,000 | 5.250%, 06/01/19 | A3/A-/NR | 1,641,859 | ||||||
1,000,000 | 5.250%, 06/01/21 | A3/A-/NR | 1,024,670 | ||||||
2,000,000 | 5.250%, 06/01/24 | A3/A-/NR | 2,005,880 | ||||||
Colorado Health Facility Authority Hospital Revenue, | |||||||||
NCMC, Inc., Project | |||||||||
2,000,000 | 5.250%, 05/15/26 Series A AGMC Insured | NR/AA+/A+ | 2,096,900 | ||||||
Colorado Health Facility Authority Hospital Revenue, | |||||||||
Poudre Valley Health Care Series F Refunding | |||||||||
4,760,000 | 5.000%, 03/01/25 | A2/A/NR | 4,762,856 | ||||||
Colorado Health Facility Authority Hospital Revenue | |||||||||
Refunding, Catholic Health, Series A | |||||||||
2,000,000 | 5.250%, 07/01/24 | Aa2/AA/AA | 2,151,060 |
7
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Hospital (continued) | |||||||||
Colorado Health Facility Authority Hospital Revenue, | |||||||||
Valley View Hospital Association, Refunding | |||||||||
$ | 1,500,000 | 5.500%, 05/15/28 | NR/BBB+/NR | $ | 1,440,975 | ||||
Colorado Health Facility Authority, Catholic Health | |||||||||
Initiatives, Series D | |||||||||
2,000,000 | 5.000%, 10/01/16 | Aa2/AA/AA | 2,290,380 | ||||||
1,000,000 | 6.000%, 10/01/23 | Aa2/AA/AA | 1,115,870 | ||||||
Colorado Health Facility Authority, Sisters | |||||||||
Leavenworth, Refunding | |||||||||
3,000,000 | 5.250%, 01/01/25 | Aa3/AA/AA- | 3,168,060 | ||||||
Denver, Colorado Health & Hospital Authority | |||||||||
Healthcare, Series A Refunding | |||||||||
2,000,000 | 5.000%, 12/01/18 | NR/BBB/BBB+ | 2,007,420 | ||||||
1,500,000 | 5.000%, 12/01/19 | NR/BBB/BBB+ | 1,477,710 | ||||||
Park Hospital District Larimer County, Colorado | |||||||||
Limited Tax Revenue | |||||||||
1,010,000 | 4.500%, 01/01/21 AGMC Insured | Aa3/AA+/NR | 1,024,332 | ||||||
Total Hospital | 29,757,997 | ||||||||
Housing (1.7%) | |||||||||
Colorado Housing & Finance Authority | |||||||||
170,000 | 6.050%, 10/01/16 Series 1999A3 | Aa2/NR/NR | 176,446 | ||||||
5,000 | 6.125%, 11/01/23 Series 1998D3 | Aa2/NR/NR | 5,237 | ||||||
Colorado Housing & Finance Authority, Single | |||||||||
Family Program Refunding | |||||||||
55,000 | 5.000%, 08/01/13 Series 2001 Series B | A1/A+/NR | 54,908 | ||||||
Colorado Housing Finance Authority, Single Family | |||||||||
Mortgage | |||||||||
10,000 | 5.700%, 10/01/22 Series 2000C3 | Aa2/AA/NR | 10,522 | ||||||
Colorado Housing & Finance Authority, Single Family | |||||||||
Mortgage Class II | |||||||||
850,000 | 5.500%, 11/01/29 | Aaa/AAA/NR | 875,321 | ||||||
Colorado Housing Finance Authority, Single Family | |||||||||
Mortgage Class III Series A-5 | |||||||||
2,495,000 | 5.000%, 11/01/34 | A1/A+/NR | 2,496,896 |
8
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Housing (continued) | |||||||||
Colorado Housing Finance Authority, Single Family | |||||||||
Mortgage Subordinated | |||||||||
$ | 15,000 | 5.400%, 10/01/12 Series 2000D | A1/A+/NR | $ | 15,115 | ||||
Colorado Housing and Finance Authority, Multi-Family | |||||||||
Project C1-II Series A-2 | |||||||||
885,000 | 5.400%, 10/01/29 | Aa2/AA/NR | 906,267 | ||||||
Total Housing | 4,540,712 | ||||||||
Lease (18.2%) | |||||||||
Adams 12 Five Star Schools, Colorado COP | |||||||||
1,770,000 | 4.625%, 12/01/24 | Aa3/A+/NR | 1,798,214 | ||||||
500,000 | 5.000%, 12/01/25 | Aa3/A+/NR | 517,800 | ||||||
Adams County, Colorado Corrections Facility COP, | |||||||||
Series B | |||||||||
1,600,000 | 5.000%, 12/01/26 | Aa2/AA/NR | 1,653,904 | ||||||
1,200,000 | 5.125%, 12/01/27 | Aa2/AA/NR | 1,243,668 | ||||||
Aurora, Colorado COP, Refunding | |||||||||
1,500,000 | 5.000%, 12/01/26 Series A | Aa2/AA-/NR | 1,583,085 | ||||||
Brighton, Colorado COP Refunding | |||||||||
1,865,000 | 5.000%, 12/01/24 Series A AGMC Insured | Aa3/AA+/NR | 1,966,493 | ||||||
Broomfield, Colorado COP | |||||||||
2,000,000 | 4.500%, 12/01/28 | Aa3/NR/NR | 2,009,060 | ||||||
Colorado Educational & Cultural Facilities Authority, | |||||||||
Aurora Academy Project | |||||||||
1,255,000 | 5.250%, 02/15/24 Syncora Guarantee, Inc. Insured | NR/A/NR | 1,228,896 | ||||||
Colorado Educational & Cultural Facilities Authority, | |||||||||
Ave Maria School Project Refunding | |||||||||
1,000,000 | 4.850%, 12/01/25 Radian Insured | NR/NR/NR* | 883,900 | ||||||
Colorado Educational & Cultural Facilities Authority, | |||||||||
Charter School - James, Refunding & Improvement | |||||||||
3,000,000 | 5.000%, 08/01/27 CIFG Insured | NR/A/NR | 2,973,750 | ||||||
Colorado Educational & Cultural Facilities Authority, | |||||||||
Peak to Peak Charter School, Refunding | |||||||||
1,500,000 | 5.250%, 08/15/24 Syncora Guarantee, Inc. Insured | NR/A/NR | 1,502,895 |
9
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Lease (continued) | |||||||||
Colorado State Higher Education Capital Construction | |||||||||
Lease | |||||||||
$ | 3,000,000 | 5.250%, 11/01/23 | Aa2/AA-/NR | $ | 3,216,060 | ||||
1,690,000 | 5.000%, 11/01/26 | Aa2/AA-/NR | 1,744,807 | ||||||
Denver, Colorado City and County COP (Botanical | |||||||||
Gardens) | |||||||||
2,015,000 | 5.250%, 12/01/22 | Aa2/AA+/AA+ | 2,223,794 | ||||||
Denver, Colorado City and County COP (Roslyn Fire) | |||||||||
1,835,000 | 5.000%, 12/01/15 Pre-Refunded | Aa1/AA+/AA | 1,870,287 | ||||||
Douglas County, Colorado School District No. RE-1 | |||||||||
Douglas & Elbert Counties COP | |||||||||
3,075,000 | 5.000%, 01/15/29 | Aa2/NR/NR | 3,172,201 | ||||||
El Paso County, Colorado COP (Judicial Complex | |||||||||
Project) Series A | |||||||||
1,820,000 | 4.500%, 12/01/26 AMBAC Insured | NR/AA-/NR | 1,798,014 | ||||||
El Paso County, Colorado COP (Pikes Peak Regional | |||||||||
Development Authority) | |||||||||
1,925,000 | 5.000%, 12/01/18 AMBAC Insured | NR/AA-/NR | 2,019,941 | ||||||
Fort Collins, Colorado Lease COP Series A | |||||||||
3,020,000 | 4.750%, 06/01/18 AMBAC Insured | Aa1/NR/NR | 3,249,490 | ||||||
Fremont County, Colorado COP Refunding & | |||||||||
Improvement Series A | |||||||||
2,075,000 | 5.000%, 12/15/18 NPFG Insured | Baa1/BBB/NR | 2,135,901 | ||||||
Garfield County, Colorado COP Public Library District | |||||||||
1,000,000 | 5.375%, 12/01/27 | NR/A/NR | 1,028,880 | ||||||
Gypsum, Colorado COP | |||||||||
1,050,000 | 5.000%, 12/01/28 | NR/A+/NR | 1,068,942 | ||||||
Northern Colorado Water Conservancy District COP | |||||||||
1,000,000 | 5.000%, 10/01/15 NPFG Insured | Baa1/AA-/NR | 1,031,440 | ||||||
Pueblo, Colorado COP (Police Complex Project) | |||||||||
2,170,000 | 5.500%, 08/15/22 AGMC Insured | Aa3/AA+/NR | 2,383,636 | ||||||
Rangeview Library District Project, Colorado COP | |||||||||
2,210,000 | 5.000%, 12/15/26 AGMC Insured | Aa3/AA+/NR | 2,274,930 | ||||||
1,000,000 | 5.000%, 12/15/28 AGMC Insured | Aa3/AA+/NR | 1,019,890 |
10
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Lease (continued) | |||||||||
Westminster, Colorado COP | |||||||||
$ | 1,480,000 | 4.250%, 12/01/22 AGMC Insured | Aa3/AA+/NR | $ | 1,515,594 | ||||
Total Lease | 49,115,472 | ||||||||
Metropolitan District (0.3%) | |||||||||
Hyland Hills Metro Park & Recreation District, | |||||||||
Colorado Special Revenue Refunding & | |||||||||
Improvement | |||||||||
875,000 | 4.375%, 12/15/26 ACA Insured | NR/NR/NR* | 723,835 | ||||||
Sales Tax (5.2%) | |||||||||
Boulder, Colorado Open Space Capital Improvement | |||||||||
1,630,000 | 5.000%, 07/15/17 NPFG Insured Pre-Refunded | Aa1/AA/NR | 1,709,381 | ||||||
Boulder County, Colorado Open Space Capital | |||||||||
Improvement Series A | |||||||||
1,500,000 | 5.000%, 01/01/24 AGMC Insured | Aa3/AA+/NR | 1,573,230 | ||||||
Commerce City, Colorado Sales & Use Tax Revenue | |||||||||
1,000,000 | 5.000%, 08/01/21 AMBAC Insured | NR/A+/NR | 1,057,200 | ||||||
Gypsum County, Colorado Sales Tax & General Fund | |||||||||
Revenue | |||||||||
1,690,000 | 5.250%, 06/01/30 AGMC Insured | NR/AA+/NR | 1,732,402 | ||||||
Jefferson County, Colorado Open Space Sales Tax | |||||||||
1,600,000 | 5.000%, 11/01/13 AMBAC Insured Pre-Refunded | Aa2/AA-/AA | 1,624,400 | ||||||
1,080,000 | 5.000%, 11/01/14 AMBAC Insured Pre-Refunded | Aa2/AA-/AA | 1,096,470 | ||||||
Park Meadows Business Implementation District, | |||||||||
Colorado Shared Sales Tax Revenue | |||||||||
1,500,000 | 5.300%, 12/01/27 | NR/NR/NR* | 1,309,005 | ||||||
Pueblo, Colorado Urban Renewal Authority, Refunding | |||||||||
& Improvement, Series B | |||||||||
1,250,000 | 5.250%, 12/01/28 | A2/A/NR | 1,309,150 | ||||||
Steamboat Springs, Colorado Redevelopment Authority | |||||||||
Tax Increment Refunding & Improvement, Base Area | |||||||||
Redevelopment Project | |||||||||
1,575,000 | 4.500%, 12/01/26 | A1/NR/NR | 1,610,107 |
11
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Sales Tax (continued) | |||||||||
Thornton, Colorado Sales Tax | |||||||||
$ | 1,000,000 | 5.000%, 09/01/14 AGMC Insured Pre-Refunded | Aa3/AA+/NR | $ | 1,007,290 | ||||
Total Sales Tax | 14,028,635 | ||||||||
Transportation (1.3%) | |||||||||
Regional Transportation District, Colorado COP, | |||||||||
Series A | |||||||||
3,500,000 | 5.000%, 06/01/25 AMBAC Insured | Aa3/A-/AA- | 3,568,110 | ||||||
Water & Sewer (6.1%) | |||||||||
Aurora, Colorado Water Improvement Revenue First | |||||||||
Lien, Series A | |||||||||
1,250,000 | 5.000%, 08/01/25 AMBAC Insured | Aa2/NR/AA | 1,330,587 | ||||||
Broomfield, Colorado Sewer and Waste Water Revenue | |||||||||
1,985,000 | 5.000%, 12/01/15 AMBAC Insured | A1/NR/NR | 2,035,280 | ||||||
Broomfield, Colorado Water Activity Enterprise | |||||||||
1,500,000 | 5.300%, 12/01/12 NPFG Insured | Aa3/NR/NR | 1,520,190 | ||||||
1,730,000 | 5.250%, 12/01/13 NPFG Insured | Aa3/NR/NR | 1,752,992 | ||||||
Colorado Water Resource & Power Development | |||||||||
Authority | |||||||||
2,675,000 | 5.000%, 09/01/16 NPFG Insured | Baa1/BBB/NR | 2,857,141 | ||||||
1,855,000 | 5.000%, 09/01/17 NPFG Insured | Baa1/BBB/NR | 1,954,298 | ||||||
Colorado Water Resource & Power Development | |||||||||
Authority Clean Water Revenue Series A | |||||||||
260,000 | 5.000%, 09/01/12 Un-Refunded portion | Aaa/AAA/AAA | 261,851 | ||||||
Denver, Colorado City and County Wastewater | |||||||||
Revenue | |||||||||
1,560,000 | 5.000%, 11/01/15 NPFG Insured | Aa2/AAA/AAA | 1,650,277 | ||||||
Erie, Colorado Water Enterprise Revenue, Series A | |||||||||
1,000,000 | 5.000%, 12/01/25 AGMC Insured | Aa3/NR/NR | 1,062,920 | ||||||
Greeley, Colorado Water Revenue | |||||||||
1,920,000 | 4.200%, 08/01/24 NPFG Insured | Aa2/AA-/NR | 1,946,208 | ||||||
Total Water & Sewer | 16,371,744 |
12
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Rating | |||||||||
Principal | Moody’s, S&P | ||||||||
Amount | Revenue Bonds (continued) | and Fitch | Value | ||||||
Miscellaneous Revenue (2.1%) | |||||||||
Colorado Educational & Cultural Facility Authority, | |||||||||
Independent School Revenue Refunding, Kent | |||||||||
Denver School Project | |||||||||
$ | 1,000,000 | 5.000%, 10/01/30 | NR/A-/NR | $ | 1,007,310 | ||||
Colorado Educational & Cultural Facility Authority, | |||||||||
Independent School Revenue Refunding, Vail | |||||||||
Mountain School Project | |||||||||
1,820,000 | 6.000%, 05/01/30 | NR/BBB-/NR | 1,760,104 | ||||||
Colorado Educational & Cultural Facility Authority | |||||||||
Revenue Charter School, Colorado Springs Charter | |||||||||
Academy | |||||||||
3,020,000 | 5.250%, 07/01/28 | NR/A/NR | 2,808,117 | ||||||
Total Miscellaneous Revenue | 5,575,531 | ||||||||
Total Revenue Bonds | 206,045,571 | ||||||||
Total Investments (cost $259,796,141 – note 4) | 99.1% | 266,751,353 | |||||||
Other assets less liabilities | 0.9 | 2,491,608 | |||||||
Net Assets | 100.0% | $ | 269,242,961 |
* | Any security not rated (NR) by any of the Nationally Recognized Statistical Rating Organizations (“NRSRO” or “credit rating agency”) has been determined by the Investment Sub-Adviser to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a NRSRO. |
13
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS (continued)
JUNE 30, 2011 (unaudited)
Percent of | |||||||
Portfolio Distribution By Quality Rating | Investments1 | ||||||
Aaa of Moody’s or AAA of S&P or Fitch | 1.1 | % | |||||
Pre-Refunded Bonds2/Escrowed to Maturity Bonds | 15.9 | ||||||
Aa of Moody’s or AA of S&P or Fitch | 51.9 | ||||||
A of Moody’s or S&P or Fitch | 21.8 | ||||||
Baa of Moody’s or BBB of S&P or Fitch | 7.9 | ||||||
Not rated* | 1.4 | ||||||
100.0 | % | ||||||
1 | Calculated using the highest rating of the three NRSROs. | ||||||
2 | Pre-refunded bonds are bonds for which U.S. Govenment Obligations have been placed in escrow to retire the bonds at their earliest call date. | ||||||
PORTFOLIO ABBREVIATIONS: ACA - American Capital Assurance Financial Guaranty Corp. AGMC - Assured Guaranty Municipal Corp. AMBAC - American Municipal Bond Assurance Corp. CIFG - CDC IXIS Financial Guaranty COP - Certificates of Participation FGIC - Financial Guaranty Insurance Co. NPFG - National Public Finance Guarantee NR - Not Rated |
See accompanying notes to financial statements
14
TAX-FREE FUND OF COLORADO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2011 (unaudited)
ASSETS | ||||
Investments at value (cost $259,796,141) | $ | 266,751,353 | ||
Cash | 3,698,067 | |||
Interest receivable | 2,145,322 | |||
Receivable for Fund shares sold | 387,799 | |||
Other assets | 4,577 | |||
Total assets | 272,987,118 | |||
LIABILITIES | ||||
Payable for investment securities purchased | 3,042,865 | |||
Payable for Fund shares redeemed | 380,428 | |||
Dividends payable | 175,810 | |||
Management fee payable | 110,816 | |||
Distribution and service fees payable | 1,951 | |||
Accrued expenses | 32,287 | |||
Total liabilities | 3,744,157 | |||
NET ASSETS | $ | 269,242,961 | ||
Net Assets consist of: | ||||
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share. | $ | 261,188 | ||
Additional paid-in capital | 262,719,006 | |||
Net unrealized appreciation on investments (note 4) | 6,955,212 | |||
Accumulated net realized loss on investments | (733,328 | ) | ||
Undistributed net investment income | 40,883 | |||
$ | 269,242,961 | |||
CLASS A | ||||
Net Assets | $ | 209,295,795 | ||
Capital shares outstanding | 20,306,023 | |||
Net asset value and redemption price per share | $ | 10.31 | ||
Maximum offering price per share (100/96 of $10.31 adjusted to nearest cent) | $ | 10.74 | ||
CLASS C | ||||
Net Assets | $ | 25,136,474 | ||
Capital shares outstanding | 2,443,475 | |||
Net asset value and offering price per share | $ | 10.29 | ||
Redemption price per share (*a charge of 1% is imposed on the redemption | ||||
proceeds of the shares, or on the original price, whichever is lower, if redeemed | ||||
during the first 12 months after purchase) | $ | 10.29 | * | |
CLASS Y | ||||
Net Assets | $ | 34,810,692 | ||
Capital shares outstanding | 3,369,310 | |||
Net asset value, offering and redemption price per share | $ | 10.33 |
See accompanying notes to financial statements.
15
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2011 (unaudited)
Investment Income: | ||||||||
Interest income | $ | 6,109,975 | ||||||
Expenses: | ||||||||
Management fee (note 3) | $ | 665,815 | ||||||
Distribution and service fees (note 3) | 176,301 | |||||||
Transfer and shareholder servicing agent fees | 79,498 | |||||||
Trustees’ fees and expenses (note 8) | 58,538 | |||||||
Legal fees (note 3) | 35,993 | |||||||
Shareholders’ reports and proxy statements | 23,885 | |||||||
Custodian fees (note 6) | 11,448 | |||||||
Auditing and tax fees | 10,835 | |||||||
Registration fees and dues | 8,528 | |||||||
Insurance | 7,219 | |||||||
Chief compliance officer services (note 3) | 2,235 | |||||||
Miscellaneous | 17,990 | |||||||
Total expenses | 1,098,285 | |||||||
Expenses paid indirectly (note 6) | (33 | ) | ||||||
Net expenses | 1,098,252 | |||||||
Net investment income | 5,011,723 | |||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||
Net realized gain (loss) from securities transactions | (678,116 | ) | ||||||
Change in unrealized appreciation on investments | 5,043,551 | |||||||
Net realized and unrealized gain (loss) on investments | 4,365,435 | |||||||
Net change in net assets resulting from operations | $ | 9,377,158 |
See accompanying notes to financial statements.
16
TAX-FREE FUND OF COLORADO
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended | ||||||||
June 30, 2011 | Year Ended | |||||||
(unaudited) | December 31, 2010 | |||||||
OPERATIONS: | ||||||||
Net investment income | $ | 5,011,723 | $ | 10,512,273 | ||||
Net realized gain (loss) from securities transactions | (678,116 | ) | 346,685 | |||||
Change in unrealized appreciation (depreciation) on investments | 5,043,551 | (7,701,088 | ) | |||||
Change in net assets from operations | 9,377,158 | 3,157,870 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS (note 10): | ||||||||
Class A Shares: | ||||||||
Net investment income | (3,989,117 | ) | (8,352,842 | ) | ||||
Class C Shares: | ||||||||
Net investment income | (359,107 | ) | (655,304 | ) | ||||
Class Y Shares: | ||||||||
Net investment income | (655,900 | ) | (1,512,329 | ) | ||||
Change in net assets from distributions | (5,004,124 | ) | (10,520,475 | ) | ||||
CAPITAL SHARE TRANSACTIONS (note 7): | ||||||||
Proceeds from shares sold | 18,135,777 | 79,757,891 | ||||||
Reinvested dividends and distributions | 2,992,788 | 6,242,951 | ||||||
Cost of shares redeemed | (29,301,604 | ) | (56,440,080 | ) | ||||
Change in net assets from capital share transactions | (8,173,039 | ) | 29,560,762 | |||||
Change in net assets | (3,800,005 | ) | 22,198,157 | |||||
NET ASSETS: | ||||||||
Beginning of period | 273,042,966 | 250,844,809 | ||||||
End of period* | $ | 269,242,961 | $ | 273,042,966 | ||||
* Includes undistributed net investment income of: | $ | 40,883 | $ | 33,284 |
See accompanying notes to financial statements.
17
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 (unaudited)
1. Organization
Tax-Free Fund of Colorado (the “Fund”), a non-diversified, open-end investment company, was organized in February, 1987 as a Massachusetts business trust and commenced operations on May 21, 1987. The Fund is authorized to issue an unlimited number of shares and, since its inception to April 30, 1996, offered only one class of shares. On that date, the Fund 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 at net asset value plus a sales charge of varying size (depending upon a variety of factors) paid at the time of purchase and bear a distribution fee. Class C Shares are sold at net asset value with no sales charge payable at the time of purchase but with a level charge for service and distribution fees for six years thereafter. Class C Shares automatically convert to Class A Shares after six years. Class Y Shares are sold only through institutions acting for investors in a fiduciary, advisory, agency, custodial or similar capacity, and are not offered directly to retail customers. Class Y Shares are sold at net asset value with no sales charge, no redemption fee, no contingent deferred sales charge (“CDSC”) and no distribution fee. On April 30, 1998, the Fund established Class I Shares which are offered and sold only through financial intermediaries and are not offered directly to retail customers. Class I Shares are sold at net asset value with no sales charge and no redemption fee or CDSC, although a financial intermediary may charge a fee for effecting a purchase or other transaction on behalf of its customers. Class I Shares may carry a distribution and a service fee. As of the report date, there were no Class I Shares outstanding. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America for investment companies.
a) | Portfolio valuation: Municipal securities which have remaining maturities of more than 60 days are valued each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services. In the case of securities for which market quotations are readily available, securities are valued by the pricing service at the mean of bid and asked quotations. |
If a market quotation or a valuation from the pricing service is not readily available, the security is valued at fair value determined in good faith under procedures established by and under the general supervision of the Board of Trustees. Securities which mature in 60 days or less are 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 Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions |
18
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2011 (unaudited)
(unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access. Level 2 – Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data. Level 3 – Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Fund’s own assumptions about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available. The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following is a summary of the valuation inputs, representing 100% of the Fund’s investments, used to value the Fund’s net assets as of June 30, 2011: |
Valuation Inputs | Investments in Securities | ||||
Level 1 – Quoted Prices | $ | — | |||
Level 2 – Other Significant Observable Inputs — Municipal Bonds* | 266,751,353 | ||||
Level 3 – Significant Unobservable Inputs | — | ||||
Total | $ | 266,751,353 |
* See schedule of investments for a detailed listing of securities.
c) | Subsequent events: In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date these financial statements were issued. |
d) | Securities transactions and related investment income: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. |
Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue and market discount. | |
e) | Federal income taxes: It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Fund 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 (2007-2009) or expected to be taken in the Fund’s 2010 tax returns and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. |
19
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2011 (unaudited)
f) | Multiple class allocations: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are also charged directly to such class on a daily basis. |
g) | Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates |
h) | Reclassification of capital accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. On December 31, 2010, the Fund increased undistributed net investment income by $6,338 and decreased additional paid-in capital by $6,338 due primarily to differing book/tax treatment of distributions and bond amortization. These reclassifications had no effect on net assets or net asset value per share. |
i) | Accounting pronouncements: In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) “Improving Disclosures about Fair Value Measurements” that requires additional disclosures regarding fair value measurements. Certain required disclosures are effective for interim and annual reporting periods beginning after December 15, 2010. |
In May 2011, FASB issued ASU No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements” in U.S. generally accepted accounting principles (“GAAP”) and the International Financial Reporting Standards (“IFRSs”). ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements and Disclosures, to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. ASU No. 2011-04 is effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years. Management is currently evaluating the impact these updates and amendments may have on the Fund’s financial statements. |
3. Fees and Related Party Transactions
a) Management Arrangements:
Aquila Investment Management LLC (the “Manager”), a wholly-owned subsidiary of Aquila Management Corporation, the Fund’s founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. The portfolio management of the Fund has been delegated to Sub-Adviser as described below. Under the Advisory and Administration Agreement, the Manager provides all administrative services to the Fund, other than those relating to the day-to-day portfolio management. The Manager’s services include providing the office of the Fund and all related services as well as overseeing
20
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2011 (unaudited)
the activities of the Sub-Adviser and managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor and additionally maintaining the Fund’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 0.50 of 1% on the Fund’s net assets.
Kirkpatrick Pettis Capital Management (the “Sub-Adviser”) serves as the Investment Sub-Adviser for the Fund 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 Fund, the investment program of the Fund and the composition of its portfolio, arranges for the purchases and sales of portfolio securities, and provides for daily pricing of the Fund’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 0.20 of 1% on the Fund’s net assets.
Under a Compliance Agreement with the Manager, the Manager is compensated for Chief Compliance Officer related services provided to enable the Fund 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 Fund’s Prospectus and Statement of Additional Information. b) Distribution and Service Fees:
The Fund 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 Fund 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 Fund, 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 Fund’s shares or servicing of shareholder accounts. While the Board of Trustees and shareholders approved an amendment to the Fund’s Distribution Plan applicable to Class A Shares which permits the Fund to make distribution fee payments at the rate of up to 0.15 of 1% on the entire net assets represented by Class A Shares, the Fund currently makes payment of this distribution fee at the annual rate of 0.05 of 1%. For the six months ended June 30, 2011, distribution fees on Class A Shares amounted to $51,925 of which the Distributor retained $1,920.
Under another part of the Plan, the Fund 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 Fund’s Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Fund’s average net assets represented by Class C Shares and for the six months ended June 30, 2011, amounted to $93,282. In addition, under a Shareholder Services Plan, the Fund 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 1% of the Fund’s average net assets represented by Class C Shares and for the six months ended June 30, 2011,
21
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2011 (unaudited)
amounted to $31,094. The total of these payments with respect to Class C Shares amounted to $124,376 of which the Distributor retained $17,533.
Specific details about the Plans are more fully defined in the Fund’s Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Fund’s shares. Through agreements between the Distributor and various brokerage and advisory firms (“intermediaries”), the Fund’s shares are sold primarily through the facilities of these intermediaries having offices within Colorado, with the bulk of any sales commissions inuring to such intermediaries. For the six months ended June 30, 2011, total commissions on sales of Class A Shares amounted to $108,595 of which the Distributor received $22,751.
c) Other Related Party Transactions:
On June 1, 2011, Bingham McCutchen LLP replaced Butzel Long PC (“Butzel”) as counsel to the Fund. During the period January 1, 2011 to May 31, 2011, the Fund incurred $35,596 of legal fees allocable to Butzel for legal services in conjunction with the Fund’s ongoing operations. During this period, the Fund’s former Secretary was Of Counsel to Butzel.
4. Purchases and Sales of Securities
During the six months ended June 30, 2011, purchases of securities and proceeds from the sales of securities aggregated $8,729,115 and $17,145,544, respectively.
At June 30, 2011, the aggregate tax cost for all securities was $259,754,707. At June 30, 2011, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $8,701,031 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $1,704,385 for a net unrealized appreciation of $6,996,646.
5. Portfolio Orientation
Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Colorado, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Colorado and whatever effects these may have upon Colorado issuers’ ability to meet their obligations.
6. Expenses
The Fund has negotiated an expense offset arrangement with its custodian wherein it receives credit toward the reduction of custodian fees and other Fund 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.
22
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2011 (unaudited)
7. Capital Share Transactions
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended | ||||||||||||||||
June 30, 2011 | Year Ended | |||||||||||||||
(unaudited) | December 31, 2010 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Class A Shares: | ||||||||||||||||
Proceeds from shares sold | 870,263 | $ | 8,873,711 | 2,627,817 | $ | 27,489,572 | ||||||||||
Reinvested distributions | 240,535 | 2,454,911 | 482,245 | 5,039,165 | ||||||||||||
Cost of shares redeemed | (1,826,695 | ) | (18,533,153 | ) | (2,547,611 | ) | (26,506,999 | ) | ||||||||
Net change | (715,897 | ) | (7,204,531 | ) | 562,451 | 6,021,738 | ||||||||||
Class C Shares: | ||||||||||||||||
Proceeds from shares sold | 264,934 | 2,696,148 | 1,655,215 | 17,288,195 | ||||||||||||
Reinvested distributions | 25,022 | 254,813 | 44,886 | 468,241 | ||||||||||||
Cost of shares redeemed | (389,893 | ) | (3,952,497 | ) | (576,250 | ) | (5,963,087 | ) | ||||||||
Net change | (99,937 | ) | (1,001,536 | ) | 1,123,851 | 11,793,349 | ||||||||||
Class Y Shares: | ||||||||||||||||
Proceeds from shares sold | 643,465 | 6,565,918 | 3,334,401 | 34,980,124 | ||||||||||||
Reinvested distributions | 27,742 | 283,064 | 70,116 | 735,545 | ||||||||||||
Cost of shares redeemed | (668,659 | ) | (6,815,954 | ) | (2,301,529 | ) | (23,969,994 | ) | ||||||||
Net change | 2,548 | 33,028 | 1,102,988 | 11,745,675 | ||||||||||||
Total transactions in Fund shares | (813,286 | ) | $ | (8,173,039 | ) | 2,789,290 | $ | 29,560,762 |
8. Trustees’ Fees and Expenses
At June 30, 2011 there were 9 Trustees, one of whom is affiliated with the Manager and is not paid any fees. The total amount of Trustees’ service fees (for carrying out their responsibilities) and attendance fees paid during the six months ended June 30, 2011 was $47,215. Attendance fees are paid to those in attendance at regularly scheduled quarterly Board Meetings and meetings of the independent Trustees held prior to each quarterly Board Meeting, as well as additional meetings (such as Audit, Nominating, Shareholder and special meetings). Trustees are reimbursed for their expenses such as travel, accommodations and meals incurred in connection with attendance at Board Meetings and the Annual Meeting of Shareholders. For the six months ended June 30, 2011, such meeting-related expenses amounted to $11,323.
23
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2011 (unaudited)
9. Securities Traded on a When-Issued Basis
The Fund may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Fund 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 Fund at the time of entering into the transaction. Beginning on the date the Fund 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 Fund 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 Fund 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 Colorado income taxes. Due to the distribution levels maintained by the Fund and the differences between financial statement reporting and Federal income tax reporting requirements, distributions made by the Fund may not be the same as the Fund’s net investment income, and/or net realized securities gains. At December 31, 2010, the Fund had a capital loss carryover of $55,212 that expires in 2017.
The tax character of distributions: | ||||||||
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Net tax-exempt income | $ | 10,520,475 | $ | 8,837,255 | ||||
Ordinary income | – | 94,758 | ||||||
$ | 10,520,475 | $ | 8,932,013 |
As of December 31, 2010 the components of distributable earnings on a tax basis were as follows:
Undistributed tax-exempt income | $ | 407,161 | ||
Unrealized appreciation | 1,944,945 | |||
Other temporary differences | (462,373 | ) | ||
$ | 1,889,733 |
24
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 2011 (unaudited)
The difference between book basis and tax basis undistributed income is due to the timing difference in recognizing dividends paid.
11. Tax Information
The Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was enacted on December 22, 2010. The Modernization Act amends several tax provisions impacting mutual funds. In general, the amendments are effective for fiscal years after enactment. The Modernization Act provides several benefits, including the unlimited carryover of future capital losses versus the prior eight year limitation. Relevant information regarding the impact of the Modernization Act, if any, will be contained within the Federal Tax Status of Distributions section of the financial statements for the fiscal year ending December 31, 2011.
12. Ongoing Development
The three major credit rating agencies (Standard & Poor’s, Moody’s and Fitch) have downgraded or eliminated ratings of the majority of the municipal bond insurance companies since December 2007 due to loss of capital from investments in subprime mortgages. As such, only a few are now deemed to be investment grade. Thus, while certain bonds still have insurance, some are no longer rated based upon the ratings of their insurers. Furthermore, because the ability of many of the Fund’s insurers to pay claims has been downgraded, the protection of such insurance has been diminished, and there is no assurance that some of them may be relied upon for payment.
25
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
Class A | ||||||||||||||||||||||||
Six Months | ||||||||||||||||||||||||
Ended | Year Ended December 31, | |||||||||||||||||||||||
6/30/11 | ||||||||||||||||||||||||
(unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||
Net asset value, beginning of period | $ | 10.14 | $ | 10.39 | $ | 9.88 | $ | 10.23 | $ | 10.32 | $ | 10.42 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income | 0.19 | (1) | 0.40 | (1) | 0.40 | (1) | 0.40 | (1) | 0.39 | (1) | 0.39 | (2) | ||||||||||||
Net gain (loss) on securities (both realized | ||||||||||||||||||||||||
and unrealized) | 0.17 | (0.25 | ) | 0.52 | (0.34 | ) | (0.07 | ) | (0.07 | ) | ||||||||||||||
Total from investment operations | 0.36 | 0.15 | 0.92 | 0.06 | 0.32 | 0.32 | ||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||
Dividends from net investment income | (0.19 | ) | (0.40 | ) | (0.41 | ) | (0.41 | ) | (0.41 | ) | (0.42 | ) | ||||||||||||
Distributions from capital gains | – | – | – | – | – | – | ||||||||||||||||||
Total distributions | (0.19 | ) | (0.40 | ) | (0.41 | ) | (0.41 | ) | (0.41 | ) | (0.42 | ) | ||||||||||||
Net asset value, end of period | $ | 10.31 | $ | 10.14 | $ | 10.39 | $ | 9.88 | $ | 10.23 | $ | 10.32 | ||||||||||||
Total return (not reflecting sales charge) | 3.62 | %(3) | 1.38 | % | 9.42 | % | 0.57 | % | 3.21 | % | 3.11 | % | ||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 209 | $ | 213 | $ | 213 | $ | 183 | $ | 185 | $ | 198 | ||||||||||||
Ratio of expenses to average net assets | 0.74 | %(4) | 0.73 | % | 0.77 | % | 0.80 | % | 0.80 | % | 0.79 | % | ||||||||||||
Ratio of net investment income to average | ||||||||||||||||||||||||
net assets | 3.85 | %(4) | 3.81 | % | 3.94 | % | 3.90 | % | 3.80 | % | 3.76 | % | ||||||||||||
Portfolio turnover rate | 3.29 | %(3) | 14.44 | % | 11.73 | % | 24.63 | % | 8.77 | % | 7.48 | % | ||||||||||||
The expense ratios after giving effect to the expense offset for uninvested cash balances were: | ||||||||||||||||||||||||
Ratio of expenses to average net assets | 0.74 | %(4) | 0.73 | % | 0.77 | % | 0.79 | % | 0.79 | % | 0.78 | % |
________________
(1) | Per share amounts have been calculated using the daily average shares method . |
(2) | Per share amounts have been calculated using the monthly average shares method |
(3) | Not annualized . |
(4) | Annualized. |
See accompanying notes to financial statements.
26
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS (continued)
For a share outstanding throughout each period
Class C | Class Y | |||||||||||||||||||||||||||||||||||||||||||||||
Six Months | Six Months | |||||||||||||||||||||||||||||||||||||||||||||||
Ended | Year Ended December 31, | Ended | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||
6/30/11 | 6/30/11 | |||||||||||||||||||||||||||||||||||||||||||||||
(unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 | (unaudited) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.12 | $ | 10.37 | $ | 9.86 | $ | 10.21 | $ | 10.30 | $ | 10.40 | $ | 10.16 | $ | 10.41. | $ | 9.90 | $ | 10.25 | $ | 10.35 | $ | 10.44 | ||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net investment income | 0.15 | (1) | 0.30 | (1) | 0.30 | (1) | 0.30 | (1) | 0.29 | (1) | 0.29 | (2) | 0.20 | (1) | 0.40 | (1) | 0.41 | (1) | 0.40 | (1) | 0.40 | (1) | 0.40 | (2) | ||||||||||||||||||||||||
Net gain (loss) on securities (both | ||||||||||||||||||||||||||||||||||||||||||||||||
realized and unrealized) | 0.17 | (0.25 | ) | 0.52 | (0.34 | ) | (0.06 | ) | (0.07 | ) | 0.17 | (0.25 | ) | 0.51 | (0.33 | ) | (0.08 | ) | (0.07 | ) | ||||||||||||||||||||||||||||
Total from investment operations | 0.32 | 0.05 | 0.82 | (0.04 | ) | 0.23 | 0.22 | 0.37 | 0.15 | 0.92 | 0.07 | 0.32 | 0.33 | |||||||||||||||||||||||||||||||||||
Less distributions (note 10): | ||||||||||||||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.15 | ) | (0.30 | ) | (0.31 | ) | (0.31 | ) | (0.32 | ) | (0.32 | ) | (0.20 | ) | (0.40 | ) | (0.41 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | ||||||||||||||||||||||||
Distributions from capital gains | – | – | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
Total distributions | (0.15 | ) | (0.30 | ) | (0.31 | ) | (0.31 | ) | (0.32 | ) | (0.32 | ) | (0.20 | ) | (0.40 | ) | (0.41 | ) | (0.42 | ) | (0.42 | ) | (0.42 | ) | ||||||||||||||||||||||||
Net asset value, end of period | $ | 10.29 | $ | 10.12. | $ | 10.37 | $ | 9.86 | $ | 10.21 | $ | 10.30 | $ | 10.33 | $ | 10.16 | $ | 10.41 | $ | 9.90 | $ | 10.25 | $ | 10.35 | ||||||||||||||||||||||||
Total return | 3.14 | %(3)(4) | 0.42 | %(3) | 8.40 | %(3) | (0.39 | )%(3) | 2.24 | %(3) | 2.14 | %(3) | 3.64 | %(4) | 1.44 | % | 9.47 | % | 0.63 | % | 3.17 | % | 3.26 | % | ||||||||||||||||||||||||
Ratios/supplemental data | ||||||||||||||||||||||||||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 25 | $ | 26 | $ | 14 | $ | 8 | $ | 11 | $ | 12 | $ | 35 | $ | 34 | $ | 24 | $ | 11 | $ | 6 | $ | 6 | ||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.69 | %(5) | 1.67 | % | 1.71 | % | 1.75 | % | 1.75 | % | 1.74 | % | 0.69 | %(5) | 0.67 | % | 0.72 | % | 0.75 | % | 0.75 | % | 0.75 | % | ||||||||||||||||||||||||
Ratio of net investment income to | ||||||||||||||||||||||||||||||||||||||||||||||||
average net assets | 2.89 | %(5) | 2.83 | % | 2.95 | % | 2.95 | % | 2.85 | % | 2.81 | % | 3.89 | %(5) | 3.85 | % | 3.97 | % | 3.96 | % | 3.84 | % | 3.82 | % | ||||||||||||||||||||||||
Portfolio turnover rate | 3.29 | %(4) | 14.44 | % | 11.73 | % | 24.63 | % | 8.77 | % | 7.48 | % | 3.29 | %(4) | 14.44 | % | 11.73 | % | 24.63 | % | 8.77 | % | 7.48 | % | ||||||||||||||||||||||||
The expense ratios after giving effect to the expense offset for uninvested cash balances were: | ||||||||||||||||||||||||||||||||||||||||||||||||
Ratio of expenses to average net assets | 1.69 | %(5) | 1.67 | % | 1.71 | % | 1.74 | % | 1.74 | % | 1.73 | % | 0.69 | %(5) | 0.67 | % | 0.72 | % | 0.74 | % | 0.73 | % | 0.74 | % |
________________
(1) | Per share amounts have been calculated using the daily average shares method . |
(2) | Per share amounts have been calculated using the monthly average shares method . |
(3) | Not reflecting CDSC . |
(4) | Not annualized . |
(5) | Annualized. |
See accompanying notes to financial statements.
27
Additional Information (unaudited)
Renewal of the Advisory and Administration Agreement and the Sub-Advisory Agreement
Renewal until April 30, 2012 of the Advisory and Administration Agreement (the “Advisory Agreement”) between the Fund and the Manager and the Sub-Advisory Agreement (the “Sub-Advisory Agreement”) between the Manager and Kirkpatrick Pettis Capital Management, Inc. (the “Sub-Adviser”) was approved by the Board of Trustees and the independent Trustees in March, 2011. 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:
· | Copies of the agreements to be renewed; |
· | A term sheet describing the material terms of the agreements; |
· | The Annual Report of the Fund for the year ended December 31, 2010; |
· | 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 Fund, 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 |
· | Quarterly materials reviewed at prior meetings on the Fund’s performance, operations, portfolio and compliance. |
The Trustees acted on the Advisory and Administration Agreement and the Sub-Advisory Agreement separately but they considered each in conjunction with the other to determine the agreements’ combined effects on the Fund. 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 Fund. The Board considered the nature and extent of the Manager’s supervision of third-party service providers, including the Fund’s shareholder servicing agent and custodian.
The Manager has arranged for the Sub-Adviser to provide local management of the Fund’s portfolio. The Trustees noted that the Sub-Adviser employed Mr. Christopher Johns as portfolio manager for the Fund, and had provided facilities for credit analysis of the Fund’s portfolio securities. Mr. Johns, based in Denver, has provided local information regarding specific holdings in the Fund’s portfolio. The portfolio manager has also been available and has met with the brokerage and financial planner community and with investors and prospective investors to provide them with information generally about the Fund’s portfolio, with which to assess the Fund as an investment vehicle for residents of Colorado 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 Fund, given that its purpose is to provide shareholders with as high a level of current income exempt from Colorado state and regular Federal income taxes as is consistent with preservation of capital. It noted that compared to other Colorado state-specific municipal bond funds, the portfolio of the Fund 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 Fund 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.
28
The investment performance of the Fund, the Manager and the Sub-Adviser.
The Board reviewed each aspect of the Fund’s performance and compared its performance with that of its local competitors, peer group (i.e., Morningstar single-state intermediate tax-free municipal bond funds nationwide) averages and with a benchmark index. It was noted that the materials provided by the Manager indicated that the Fund had investment performance measured by total return that was generally comparable overall to that of its Morningstar peer group and its competitors, compared to which the Fund outperformed in some periods and in others it underperformed, with annualized rates of return explained in part by the Fund’s generally higher-quality portfolio and generally shorter average maturities. Furthermore, the Trustees noted that in the past year the Fund’s net asset value generally fluctuated modestly compared to the local Colorado competitors.
The Board concluded that the performance of the Fund was competitive 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 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 Fund.
The information provided in connection with renewal contained expense data for the Fund and its local competitors and Morningstar peer group as well as data for single-state tax-free municipal bond funds nationwide, including data for 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 Fund.
The Board compared the expense and fee data with respect to the Fund to similar data about other funds that it found to be relevant. The Board concluded that the overall expenses of the Fund and the fees paid were generally similar to and were reasonable as compared to those being paid by other single-state tax-free municipal bond funds for a comparable asset size.
The Board considered that the foregoing indicated the appropriateness of the costs of the services to the Fund, 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 Fund grows.
Data provided to the Trustees showed that the Fund’s asset size had increased in the most recent fiscal year; however they observed that the extraordinary recent turbulence in the municipal bond market might make it difficult to achieve substantial growth in assets in the near future. The Trustees noted that the materials indicate that the Fund’s fees are already generally comparable to those of its peers, including those with breakpoints. Evaluation of this factor indicated to the Board that the Advisory Agreement and 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 Fund.
The Board observed that, as is generally true of most fund complexes, the Manager and Sub-Adviser and their affiliates, by providing services to a number of funds or other investment clients including the Fund, 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 Sub-Adviser and their affiliates, it also makes their services available to the Fund at favorable levels of quality and cost which are more advantageous to the Fund than would otherwise have been possible.
29
Analysis of Expenses (unaudited)
As a shareholder of the Fund, 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 Fund expenses. The table below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund 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 January 1, 2011 and held for the six months ended June 30, 2011.
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 June 30, 2011 | ||||
Actual | ||||
Total Return | Beginning | Ending | Expenses | |
Without | Account | Account | Paid During | |
Sales Charges(1) | Value | Value | the Period(2) | |
Class A | 3.62% | $1,000.00 | $1,036.20 | $3.74 |
Class C | 3.14% | $1,000.00 | $1,031.40 | $8.51 |
Class Y | 3.64% | $1,000.00 | $1,036.40 | $3.48 |
(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 0.74%, 1.69% and 0.69% for the Fund’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
30
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 Fund’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 Fund and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Fund 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 June 30, 2011 | ||||
Hypothetical | ||||
Annualized | Beginning | Ending | Expenses | |
Total | Account | Account | Paid During | |
Return | Value | Value | the Period(1) | |
Class A | 5.00% | $1,000.00 | $1,021.12 | $3.71 |
Class C | 5.00% | $1,000.00 | $1,016.41 | $8.45 |
Class Y | 5.00% | $1,000.00 | $1,021.37 | $3.46 |
(1) | Expenses are equal to the annualized expense ratio of 0.74%, 1.69% and 0.69% for the Fund’s Class A, C and Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
31
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 Fund’s entire list of portfolio securities twice a year in the semi-annual and annual reports you receive. Additionally, under Fund policies, the Manager publicly discloses the complete schedule of the Fund’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 Fund’s portfolio holdings schedule for the most recently completed period by visiting the Fund’s website at www.aquilafunds.com. The Fund may also disclose other portfolio holdings as of a specified date (currently the Fund 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 approximately the 5th business day following the month end). This information remains on the website until the next such posting. Whenever you wish to see a listing of your Fund’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 Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarter 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 Fund 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, 2011 with respect to which the Fund 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.
32
Shareholder Meeting Results (unaudited)
The Annual Meeting of Shareholders of Tax-Free Fund of Colorado (the “Fund”) was held on June 29, 2011. The holders of shares representing 89% 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 are presented below).
1. | To elect Trustees. |
Dollar Amount of Votes | |||||
Trustee | For | Withheld | |||
Tucker Hart Adams | $239,201,399 | $2,539,167 | |||
Ernest Calderón | 239,722,668 | 2,019,897 | |||
Thomas A. Christopher | 239,654,709 | 2,087,846 | |||
Gary C. Cornia | 239,654,709 | 2,087,846 | |||
Grady Gammage, Jr. | 239,520,549 | 2,222,006 | |||
Diana P. Herrmann | 237,934,230 | 3,808,326 | |||
Lyle W. Hillyard | 239,631,405 | 2,111,150 | |||
John C. Lucking | 239,156,114 | 2,586,441 | |||
Anne J. Mills | 239,042,013 | 2,700,553 |
2. | To ratify the selection of Tait, Weller & Baker LLP as the Fund’s independent registered public accounting firm. |
Dollar Amount of Votes | ||||
For | Against | Abstain | ||
$237,955,531 | $1,252,225 | $2,534,799 |
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 calendar year ended December 31, 2010, $10,520,475 of dividends paid by Tax-Free Fund of Colorado, constituting 100% of total dividends paid during calendar year 2010, were exempt-interest dividends.
Prior to February 15, 2011, shareholders were mailed the approriate tax form(s) which contained information on the status of distributions paid for the 2010 calendar year.
Prior to February 15, 2012, shareholders will be mailed the approriate tax form(s) which will contain information on the status of distributions paid for the 2011 calendar year.
33
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
KIRKPATRICK PETTIS CAPITAL MANAGEMENT
1600 Broadway, Suite 1100
Denver, Colorado 80202
Board of Trustees
Anne J. Mills, Chair
Tucker Hart Adams
Ernest Calderón
Thomas A. Christopher
Gary C. Cornia
Grady Gammage, Jr.
Diana P. Herrmann
Lyle W. Hillyard
John C. Lucking
Officers
Diana P. Herrmann, President
Charles E. Childs, III, Executive Vice President and Secretary
Marie E. Aro, Senior Vice President
Paul G. O’Brien, Senior Vice President
Alan R. Stockman, Senior Vice President
Robert S. Driessen, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and Treasurer
Distributor
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
Transfer and Shareholder Servicing Agent
BNY MELLON
4400 Computer Drive
Westborough, Massachusetts 01581
Custodian
JPMORGAN CHASE BANK, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
Further information is contained in the Prospectus,
which must precede or accompany this report.
ITEM 2. | CODE OF ETHICS. |
Not applicable.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Included in Item 1 above
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
The Board of Directors of the Registrant has adopted a Nominating Committee Charter which provides that the Nominating Committee (the 'Committee') may consider and evaluate nominee candidates properly submitted by shareholders if a vacancy among the Independent Trustees of the Registrant occurs and if, based on the Board's then current size, composition and structure, the Committee determines that the vacancy should be filled. The Committee will consider candidates submitted by shareholders on the same basis as it considers and evaluates candidates recommended by other sources. A copy of the qualifications and procedures that must be met or followed by shareholders to properly submit a nominee candidate to the Committee may be obtained by submitting a request in writing to the Secretary of the Registrant.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing of this report, the registrant's chief financial and executive officers have concluded that the disclosure controls and procedures of the registrant are appropriately designed to ensure that information required to be disclosed in the registrant's reports that are filed under the Securities Exchange Act of 1934 are accumulated and communicated to registrant's management, including its principal executive officer(s) and principal financial officer(s), to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the Securities and Exchange Commission.
(b) There have been no significant changes in registrant's internal controls or in other factors that could significantly affect registrant's internal controls subsequent to the date of the most recent evaluation, including no significant deficiencies or material weaknesses that required corrective action.
ITEM 12. | EXHIBITS. |
(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TAX-FREE FUND OF COLORADO
By: | /s/ Diana P. Herrmann | |
President and Trustee September 9, 2011 | ||
By: | /s/ Joseph P. DiMaggio | |
Chief Financial Officer and Treasurer September 9, 2011 |
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 President and Trustee September 9, 2011 | ||
By: | /s/ Joseph P. DiMaggio | |
Joseph P. DiMaggio Chief Financial Officer and Treasurer September 9, 2011 |
TAX-FREE FUND OF COLORADO
EXHIBIT INDEX
(a) (2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial officer as required by Rule 30a-2(b) of the Investment Company Act of 1940.