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 811-5047
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
Date of reporting period: 12/31/03
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
[Logo of the Tax-Free Fund of Colorado: a square with silhouettes of two
mountains and a rising sun]
SERVING COLORADO INVESTORS FOR MORE THAN 15 YEARS
TAX-FREE FUND OF COLORADO
ANNUAL REPORT
MANAGEMENT DISCUSSION
2003 REVIEW
Investing in the fixed-income markets in 2003 proved to be a very
interesting proposition. The year began innocently enough with a low interest
rate environment, concerns about the strength of the economic recovery, and an
orderly supply and demand relationship for bonds. Interest rates continued to
decline slightly until June, when investor expectations seemed to change
dramatically. The yield on the 10-year Treasury reached a low of about 3.10% in
June as investors appeared to be concerned about deflation and the potential for
non-traditional actions by the Federal Reserve to keep rates low and spur on
economic activity. When the economic gloom and doom scenarios did not
materialize, we saw a very sharp rise in interest rates in the June to August
period. Stronger economic statistics and the realization that our budget deficit
will likely grow as the Treasury issues more debt to fund various domestic
projects as well as supporting military conflicts overseas and possible
declining domestic tax collections caused interest rates on the 10-year Treasury
to rise by more than 1.5% in a very short period of time. This marked one of the
sharpest rises in interest rates in a two-month period on record.
The last four months of the year showed a more orderly trend of declining
interest rates as it became apparent that the overall national economy was
improving and that the pickup in manufacturing activity was being offset by
increased productivity, a lower number of jobs and very moderate inflation.
According to The BOND BUYER newspaper, the municipal bond market set a
record in 2003 in terms of net volume. Total long-term bond issuance increased
to $382 billion, a 6.7% jump from the record issuance the previous year.
We have made mention in the past few years of the lower price volatility of
municipal bonds versus Treasury securities. This relationship continued in 2003.
While we saw extreme price savings in the Treasury market, 10 year municipal
bond rates only rose by about 0.70 to 0.80 of 1%, or about half as much as the
corresponding Treasury. We believe that the favorable risk/return
characteristics of municipal bonds have, and will, continue to serve investors
well.
We have seen some signs of recovery in the Colorado economy. The employment
levels in Colorado were hurt a little worse than the rest of the country due to
our concentration of telecommunications and high tech industries in this state.
The Governor's Office of State Planning and Budgeting is forecasting employment
growth of 1.9% for 2004. Construction activity in both residential and
non-residential sectors has, in fact, slowed its descent but will, we believe,
still probably be lower in 2004 versus 2003. Retail sales have grown slightly
from the previous year and are forecast to improve in 2004. New municipal bond
issuance declined by about 11% from 2002 as higher interest rates in the middle
of the year and fiscal concerns by local issuers curtailed additional
borrowings.
The portfolio characteristics of Tax-Free Fund of Colorado remained fairly
defensive throughout the year. A year ago we described our investment strategy
as "wait and see" and it seems that we are still waiting. On December 31, 2003,
the portfolio of Tax-Free Fund of Colorado was still very high in credit quality
with approximately 98% invested in AAA or AA securities. The weighted average
maturity of 8.9 years on that date tended to be on the shorter side than what it
has been in the past. The Fund continued to hold on to bonds with higher
interest rates, which were purchased when market rates were higher than they are
today. The Fund maintained broad diversification with over 160 different issues
spread among 20 counties in Colorado. Our strategy resulted in a 4.32% total
return for our Class A investors in 2003.
2004 STRATEGY
Last year the general consensus at the beginning of the year was that
interest rates would move higher during the year. This consensus was correct,
but only for a short period of time. Interest rates spiked higher during two
months in the middle of the year and then ended up at about the same levels as
they began the year. This year, the general belief is that interest rates will
increase slightly later on in the year. We believe that it is still prudent to
limit risk in any way that we can. The Fund's intermediate maturity, higher
coupon securities should hold their value very well even if interest rates begin
to rise.
We also plan to maintain our position in high credit quality bonds. This
will help us avoid issuers with temporary budget problems while we are waiting
for the state economy to recover. In addition, the fact that yields on the
highest quality municipal bonds are still very similar to lower investment grade
bonds, allows us to provide excellent risk adjusted returns. As we enter our
18th year of operation, it will remain our goal to seek to provide above average
double-exempt income and stable share price to our investors.
PERFORMANCE REPORT
The following graph illustrates the value of $10,000 invested in the Class
A shares of Tax-Free Fund of Colorado for the 10-year period ended December 31,
2003 as compared with 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 Lehman Index does not include any operating
expenses nor sales charges and being nationally oriented, does not reflect state
specific bond market performance.
[Graphic of a line chart with the following information:]
Lehman Brothers
Quality Intermediate Fund's Class a Shares
Municipal Bond Index With Sales Charge Without Sales Charge Cost of Living Index
$10,000 $ 9,600 $10,000 $10,000
$ 9,727 $ 9,230 $ 9,615 $10,267
$11,069 $10,445 $10,881 $10,528
$11,541 $10,869 $11,323 $10,878
$12,386 $11,639 $12,126 $11,063
$13,129 $12,206 $12,716 $11,241
$13,167 $12,092 $12,598 $11,543
$14,303 $13,096 $13,643 $11,934
$15,092 $13,692 $14,264 $12,119
$16,485 $14,891 $15,514 $12,407
$17,250 $15,650 $16,304 $12,641
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2003
---------------------------------------
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
------ ------- -------- ---------
Class A (5/21/87)
With Sales Charge ......... 0.15% 4.24% 4.58% 6.17%
Without Sales Charge ...... 4.32% 5.09% 5.01% 6.43%
Class C (4/30/96)
With CDSC ................. 2.33% 4.10% n/a 4.46%
Without CDSC .............. 3.33% 4.10% n/a 4.46%
Class Y (4/30/96)
No Sales Charge ........... 4.37% 5.14% n/a 5.78%
Lehman Index ................. 4.64% 5.61% 5.60% 6.56%(Class A)
4.64% 5.61% n/a 5.97%(Class C&Y)
Total return figures shown for the Fund 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
classes' income may be subject to federal and state income taxes. Past
performance is not predictive of future investment results.
PRIVACY NOTICE (UNAUDITED)
OUR PRIVACY POLICY. In providing services to you as an individual who owns or is
considering investing in shares of a fund of the Aquila(SM) Group of Funds, we
collect certain nonpublic 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 a fund.
INFORMATION WE COLLECT. "Nonpublic personal information" is personally
identifiable financial information about you as an individual or your family.
The kinds of nonpublic 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 nonpublic personal information about you to
companies that provide necessary services to your fund, such as the fund's
transfer agent, distributor, investment adviser or sub-adviser and to our
affiliates, as permitted or required by law, or as authorized by you. We also
may disclose this information to another fund of the Aquila(SM) Group of Funds
or its distributor, or to the broker-dealer that holds your fund shares, under
agreements that permit them to use the information only to provide you
information about your fund, other funds in the Aquila(SM) Group of Funds or new
services we are offering which may be of interest to you. Any other use is
strictly prohibited. We do not sell information about you or any of our fund
shareholders to anyone.
HOW WE SAFEGUARD YOUR INFORMATION. We restrict access to nonpublic 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 nonpublic
personal information we have about you.
If you have any questions regarding our Privacy Policy, please contact us at
1-800-437-1020.
[Logo of KPMG LLP: four solid rectangles with the letters KPMG in front of them]
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Tax-Free Fund of Colorado:
We have audited the accompanying statement of assets and liabilities of
Tax-Free Fund of Colorado, including the statement of investments, as of
December 31, 2003, 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 Fund'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 auditing standards generally
accepted in the United States of America. 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. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of December 31, 2003, by
correspondence with the custodian. As to securities sold but not yet delivered,
we performed other appropriate auditing procedures. 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 Fund of Colorado as of December 31, 2003, 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.
KPMG LLP
New York, New York
February 13, 2004
TAX-FREE FUND OF COLORADO
STATEMENT OF INVESTMENTS
DECEMBER 31, 2003
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (36.3%) S&P VALUE
- ---------- ------------------------------------------------------- -------- ------------
CITY & COUNTY (2.2%)
-------------------------------------------------------
Denver, Colorado City and County Art Museum
$2,000,000 5.00%, 08/01/15 .................................... Aa1/AA+ $ 2,190,000
Denver, Colorado City & County Excise Tax Revenue
1,000,000 5.00%, 09/01/11 FSA Insured ........................ Aaa/AAA 1,120,000
2,260,000 5.00%, 09/01/12 FSA Insured ........................ Aaa/AAA 2,500,125
------------
5,810,125
------------
METROPOLITAN DISTRICT (6.5%)
-------------------------------------------------------
Arapahoe, Colorado Park & Recreation District
1,070,000 5.00%, 12/01/17 FGIC Insured ....................... Aaa/NR 1,154,263
Castle Pines, Colorado Metropolitan District
1,060,000 5.50%, 12/01/07 FSA Insured ........................ Aaa/AAA 1,195,150
Foothills, Colorado Park & Recreational District
1,310,000 5.00%, 12/01/12 FSA Insured ........................ Aaa/NR 1,462,287
1,325,000 5.00%, 12/01/13 FSA Insured ........................ Aaa/NR 1,467,438
1,850,000 5.00%, 12/01/17 MBIA Insured ....................... Aaa/NR 1,995,687
Highlands Ranch, Colorado Metropolitan District
#1, Refunding
1,530,000 6.25%, 09/01/06 MBIA Insured ....................... Aaa/AAA 1,541,337
1,000,000 5.75%, 09/01/08 AMBAC Insured ...................... Aaa/AAA 1,143,750
1,730,000 5.75%, 09/01/09 AMBAC Insured ...................... Aaa/AAA 2,006,800
Interstate South, Colorado Metropolitan District
2,165,000 5.75%, 12/01/09 LOC: US Bank ....................... NR/AA- 2,265,131
South Suburban, Colorado Park & Recreational District
1,365,000 5.125%, 12/15/09 FGIC Insured ...................... Aaa/AAA 1,518,563
Westglenn, Colorado Metropolitan District
1,000,000 6.25%, 12/01/08 Pre-Refunded ....................... NR/A+ 1,020,830
Westglenn, Colorado Metropolitan District Jefferson
County Refunding
450,000 5.65%, 12/01/04 ETM ................................ NR/A+ 457,425
------------
17,228,661
------------
SCHOOL DISTRICTS (27.6%)
-------------------------------------------------------
Adams & Arapahoe Counties, Colorado School
District 28J
4,000,000 5.00%, 12/01/16 FSA Insured ........................ Aaa/AAA 4,380,000
Adams County, Colorado School District #12
$1,255,000 5.625%, 12/15/08 FGIC Insured ...................... Aaa/AAA $ 1,436,975
2,000,000 5.00%, 12/15/12 MBIA Insured ....................... Aaa/AAA 2,232,500
Adams County, Colorado School District #14
1,275,000 5.75%, 12/01/08 FSA Insured ........................ Aaa/AAA 1,461,469
Arapahoe County, Colorado Cherry Creek School
District #5
1,000,000 5.50%, 12/15/08 .................................... Aa2/AA 1,142,500
2,760,000 5.50%, 12/15/11 .................................... Aa2/AA 3,156,750
2,750,000 5.50%, 12/15/12 .................................... Aa2/AA 3,128,125
Boulder Valley, Colorado School District
1,215,000 5.50%, 12/01/08 FGIC Insured ....................... Aaa/AAA 1,365,356
Clear Creek, Colorado School District
1,000,000 5.00%, 12/01/16 FSA Insured ........................ Aaa/AAA 1,086,250
Denver, Colorado City & County School District #1
1,000,000 5.60%, 06/01/08 .................................... Aa3/AA- 1,133,750
Douglas & Elbert Counties, Colorado School District
# Re-1, Series 1992
2,000,000 5.25%, 12/15/11 FGIC Insured ....................... Aaa/AAA 2,252,500
El Paso County, Colorado School District #2 Harrison
1,000,000 5.00%, 12/01/15, MBIA Insured ...................... Aaa/NR 1,097,500
El Paso County, Colorado School District #11
1,330,000 6.25%, 12/01/08 .................................... Aa3/AA- 1,567,738
El Paso County, Colorado School District #20
1,000,000 6.15%, 12/15/08 MBIA Insured ....................... Aaa/AAA 1,171,250
1,500,000 5.00%, 12/15/14 FGIC Insured ....................... Aaa/NR 1,661,250
El Paso County, Colorado School District #38
1,110,000 5.70%, 12/01/12 .................................... Aa3/NR 1,307,025
El Paso County, Colorado School District #49
1,500,000 5.50%, 12/01/13 FSA Insured ........................ Aaa/AAA 1,749,375
1,000,000 5.25%, 12/01/14 FGIC Insured ....................... Aaa/AAA 1,117,500
1,795,000 5.00%, 12/01/15 FSA Insured ........................ Aaa/AAA 1,987,962
Fremont County, Colorado School District #001
Canon City
1,680,000 5.00%, 12/01/17 MBIA Insured ....................... Aaa/NR 1,827,000
Garfield County, Colorado School District
1,250,000 5.00%, 12/01/17 FSA Insured ........................ Aaa/NR 1,348,438
Jefferson County, Colorado School District # R-1
$3,000,000 5.50%, 12/15/09 FGIC Insured ....................... Aaa/AAA $ 3,468,750
2,340,000 5.25%, 12/15/11 FGIC Insured ....................... Aaa/AAA 2,632,500
1,000,000 5.50%, 12/15/13 FGIC Insured ....................... Aaa/AAA 1,156,250
2,500,000 4.00%, 12/15/14 FSA Insured ........................ Aaa/AAA 2,603,125
La Plata County, Colorado School District #9
1,500,000 5.00%, 11/01/18 MBIA Insured ....................... Aaa/NR 1,605,000
Larimer County, Colorado School District #R1
Poudre Refunding Series A
2,100,000 5.25%, 12/15/11 .................................... Aa3/AA- 2,336,250
Larimer, Weld & Boulder Counties, Colorado School
District #R-2J Thompson Refunding Series 2003
2,000,000 4.375%, 12/15/14 FSA Insured ....................... Aaa/NR 2,150,000
Larimer, Weld & Boulder Counties, Colorado
Thompson S.D.
2,000,000 5.90%, 12/15/05 .................................... A1/AA- 2,084,260
Mesa County, Colorado School District #51
1,065,000 6.00%, 12/01/06 MBIA Insured ....................... Aaa/AAA 1,192,800
1,000,000 5.20%, 12/01/09 MBIA Insured ....................... Aaa/AAA 1,110,000
Pueblo County, Colorado School District # 70
1,040,000 5.50%, 12/01/09 AMBAC Insured ...................... Aaa/AAA 1,159,600
1,000,000 5.00%, 12/01/15 FGIC Insured ....................... Aaa/AAA 1,088,750
3,440,000 5.00%, 12/01/16 FGIC Insured ....................... Aaa/AAA 3,710,900
Weld & Adams Counties, Colorado School District 3J
1,000,000 5.50%, 12/15/10 AMBAC Insured Pre-Refunded ......... Aaa/AAA 1,158,750
Weld County, Colorado School District # 2
1,315,000 5.00%, 12/01/15 FSA Insured ........................ Aaa/AAA 1,443,213
Weld County, Colorado School District # 6
1,195,000 5.00%, 12/01/15 FSA Insured ........................ Aaa/AAA 1,301,056
Weld County, Colorado School District #6 Greeley
Refunding
1,695,000 5.00%, 12/01/16 FSA Insured ........................ Aaa/AAA 1,853,906
Weld County, Colorado School District #8
1,115,000 5.00%, 12/01/15 FSA Insured ........................ Aaa/AAA 1,223,713
1,385,000 5.25%, 12/01/17 FSA Insured ........................ Aaa/AAA 1,537,350
------------
72,427,386
------------
Total General Obligation Bonds .................. 95,466,172
------------
REVENUE BOND (62.5%)
-------------------------------------------------------
ELECTRIC (3.1%)
-------------------------------------------------------
Colorado Springs, Colorado Utilities Revenue
$1,660,000 5.00%, 11/15/17 .................................... Aa2/AA $ 1,794,875
Colorado Springs, Colorado Utilities Revenue
Subordinated Lien Improvement Series A
1,095,000 5.00%, 11/15/16 .................................... Aa2/AA 1,196,288
1,000,000 5.00%, 11/15/17 .................................... Aa2/AA 1,080,000
Moffat County, Colorado Pollution Control
2,125,000 5.625%, 11/01/06 AMBAC Insured ..................... Aaa/AAA 2,350,781
Platte River, Colorado Power Authority
1,500,000 6.00%, 06/01/07 MBIA Insured ....................... Aaa/AAA 1,698,750
------------
8,120,694
------------
HIGHER EDUCATION (9.8%)
-------------------------------------------------------
Boulder County, Colorado Development
Revenue UCAR
1,130,000 5.00%, 09/01/17 AMBAC Insured ...................... Aaa/AAA 1,226,050
Boulder County, Colorado UCAR Revenue
1,760,000 5.00%, 09/01/16 MBIA Insured ....................... Aaa/AAA 1,909,600
City of Aurora, Colorado Educational Development
Refunding Bonds Series 1994
1,580,000 6.00%, 10/15/07 .................................... NR/BBB 1,634,621
Colorado Educational & Cultural Facility Authority
Johnson & Wales
860,000 5.00%, 04/01/18 XLCI Insured ....................... Aaa/AAA 908,375
Colorado Educational & Cultural Facility Authority
University of Colorado Foundation Project
2,110,000 5.00%, 07/01/17 AMBAC Insured ...................... Aaa/AAA 2,270,887
1,865,000 5.375%, 07/01/18 AMBAC Insured ..................... Aaa/AAA 2,063,156
Colorado Post Secondary Educational Facility
1,170,000 5.50%, 03/01/08 MBIA Insured ....................... Aaa/AAA 1,319,175
Colorado State Colleges Board Trustees Auxiliary
System Revenue Refunding Series B
1,035,000 5.00%, 05/15/15 MBIA Insured ....................... Aaa/AAA 1,141,088
Colorado State University System
1,530,000 5.00%, 03/01/17 AMBAC Insured ...................... Aaa/NR 1,654,313
University of Colorado Enterprise System
1,000,000 5.00%, 06/01/11 .................................... Aa3/AA- 1,122,500
2,325,000 5.00%, 06/01/15 AMBAC Insured ...................... Aaa/AAA 2,540,062
1,735,000 5.00%, 06/01/16 .................................... Aa3/AA- 1,888,981
1,000,000 5.25%, 06/01/17 FGIC Insured ....................... Aaa/AAA 1,115,000
University of Northern Colorado Auxiliary Facilities
$1,500,000 5.75%, 06/01/07 MBIA Insured Pre-Refunded .......... Aaa/AAA $ 1,543,485
1,745,000 5.75%, 06/01/08 MBIA Insured ....................... Aaa/AAA 1,963,125
1,390,000 5.00%, 06/01/15 AMBAC Insured ..................... Aaa/AAA 1,506,413
------------
25,806,831
------------
HOSPITAL (4.7%)
-------------------------------------------------------
Colorado Health Facilities Authority Revenue,
Boulder Community Hospital Refunding
1,410,000 5.65%, 10/01/06 MBIA Insured ....................... Aaa/AAA 1,478,921
Colorado Health Facility Authority Hospital
Revenue, Catholic Health
1,000,000 5.375%, 12/01/09 ................................... Aa2/AA 1,091,250
Colorado Health Facility Authority Hospital
Revenue, North Colorado Medical Center
1,440,000 5.60%, 05/15/05 MBIA Insured ....................... Aaa/AAA 1,476,490
Colorado Health Facility Authority Hospital
Revenue, Sisters of Charity-Leavenworth
1,000,000 5.50%, 12/01/08 MBIA Insured ....................... Aaa/AAA 1,128,750
1,500,000 5.25%, 12/01/10 MBIA Insured ....................... Aaa/AAA 1,666,875
Colorado Health Facility Authority Sisters of Charity
Health Care
1,000,000 6.25%, 05/15/09 AMBAC Insured, ETM ................. Aaa/AAA 1,175,000
Colorado Health Facility Community Provider
Pooled Loan Revenue
195,000 7.20%, 07/15/05 FSA Insured ........................ Aaa/AAA 195,546
Colorado Springs, Colorado Hospital Revenue
1,460,000 5.50%, 12/15/06 MBIA Insured ....................... Aaa/AAA 1,591,400
Poudre Valley, Colorado Hospital District, Refunding
1,000,000 5.375%, 11/15/07 ................................... Aa/NR 1,004,400
University Colorado Hospital Authority
Hospital Revenue
1,475,000 5.50%, 11/15/07 AMBAC Insured ...................... Aaa/NR 1,655,687
------------
12,464,319
------------
HOUSING (3.0%)
-------------------------------------------------------
Adams County, Colorado Multi-Family Housing
Revenue, Brittany Station Series A
1,600,000 5.40%, 09/01/25 FNMA Insured ....................... NR/AAA 1,684,000
Colorado Housing Finance Authority
$ 915,000 5.00%, 08/01/13 Series 2001 ........................ A1/A+ $ 947,025
1,380,000 6.05%, 10/01/16 Series 1999A3 ...................... Aa2/AA+ 1,420,889
45,000 6.125%, 11/01/23 Series 1998D3 ..................... Aa2/NR 48,431
Colorado Housing Finance Authority, SFM
10,000 6.00%, 12/01/04 Series 1994C ....................... Aa2/NR 10,054
360,000 5.625%, 06/01/10 Series 1995D ...................... Aa2/NR 369,000
135,000 5.75%, 11/01/10 Series 1996A ....................... Aa2/A+ 135,861
75,000 6.25%, 12/01/12 Series 1994C ....................... Aa2/NR 75,068
Colorado Housing Finance Authority, Single Family
Program 2000C3
245,000 5.70%, 10/01/22 .................................... Aa2/AA 257,556
Colorado Housing Finance Authority, Single Family
Program Sub. 2000D
425,000 5.40%, 10/01/12 .................................... A1/A+ 444,656
Denver, Colorado Single Family Mortgage Revenue
285,000 5.00%, 11/01/15 GNMA Insured ....................... NR/AAA 297,825
Littleton, Colorado Assisted Living Building Authority,
Amity Plaza Project Multi-Family Housing
Revenue Bond Series 1994
540,000 6.10%, 03/01/06 .................................... NR/A+ 548,462
Snowmass Village, Colorado Multi-Family Revenue
Refunding
1,500,000 6.30%, 12/15/08 FSA Insured ........................ Aaa/AAA 1,520,550
------------
7,759,377
------------
LEASE (7.0%)
-------------------------------------------------------
Aurora, Colorado COP
2,105,000 5.25%, 12/01/13 AMBAC Insured ...................... Aaa/AAA 2,344,444
Broomfield, Colorado COP
2,500,000 5.10%, 12/01/12 AMBAC Insured ...................... Aaa/NR 2,771,875
Denver, Colorado City and County COP Roslyn Fire
1,835,000 5.00%, 12/01/15 .................................... Aa2/AA 2,000,150
El Paso County, Colorado COP
1,100,000 5.25%, 12/01/09 MBIA Insured ....................... Aaa/AAA 1,254,000
El Paso County, Colorado COP Judicial Building
1,760,000 5.00%, 12/01/16 AMBAC Insured ...................... Aaa/AAA 1,911,800
El Paso County, Colorado COP Pikes Peak Regional
Development Authority
1,925,000 5.00%, 12/01/18 AMBAC Insured ...................... Aaa/AAA 2,071,781
Fremont County, Colorado COP Refunding and
Improvement Series A
$2,075,000 5.00%, 12/15/18 MBIA Insured ....................... Aaa/AAA $ 2,235,812
Lakewood, Colorado COP
1,440,000 5.20%, 12/01/13 AMBAC Insured ...................... Aaa/AAA 1,594,800
Northern Colorado Water Conservancy District
1,000,000 5.00%, 10/01/15 MBIA Insured ....................... Aaa/AAA 1,096,250
Westminster, Colorado COP
1,055,000 5.35%, 09/01/11 MBIA Insured ....................... Aaa/AAA 1,197,425
------------
18,478,337
------------
SALES TAX (11.7%)
-------------------------------------------------------
City of Boulder, Colorado
1,045,000 5.25%, 08/15/10 AMBAC Insured ...................... Aaa/AAA 1,173,013
Boulder, Colorado Open Space Acquisition
1,250,000 5.50%, 08/15/12 .................................... Aa1/AA+ 1,414,062
Boulder County, Colorado Open Space
Capital Improvement
3,065,000 5.00%, 07/15/16 MBIA Insured ....................... Aaa/AAA 3,321,694
1,630,000 5.00%, 07/15/17 MBIA Insured ....................... Aaa/AAA 1,754,288
Boulder County, Colorado Open Space & Use Tax
Revenue Bonds Series 1994
1,740,000 5.75%, 12/15/04, FGIC Insured ...................... Aaa/AAA 1,815,568
Boulder County, Colorado Sales & Use Tax Open
Space Series A
1,000,000 5.45%, 12/15/12 FGIC Insured ....................... Aaa/AAA 1,133,750
City & County of Denver, Colorado Excise Tax Revenue
2,000,000 5.375%, 09/01/10 FSA Insured ....................... Aaa/AAA 2,265,000
Colorado Springs, Colorado Sales & Use Tax
Revenue Service Sales
1,320,000 5.00%, 12/01/12 .................................... A1/AA 1,447,050
Douglas County, Colorado Sales & Use Tax Open
Space Revenue
1,780,000 5.50%, 10/15/12 FSA Insured ........................ Aaa/AAA 2,013,625
Golden, Colorado Sales & Use Tax
1,265,000 5.00%, 12/01/12 AMBAC Insured ...................... Aaa/AAA 1,412,056
Jefferson County, Colorado Open Space Sales Tax
1,245,000 5.00%, 11/01/11 FGIC Insured ....................... Aaa/AAA 1,383,506
1,600,000 5.00%, 11/01/13 AMBAC Insured ...................... Aaa/AAA 1,770,000
1,080,000 5.00%, 11/01/14 AMBAC Insured ...................... Aaa/AAA 1,183,950
Lakewood, Colorado Sales & Use Tax Revenue
$1,040,000 5.25%, 12/01/09 .................................... NR/AA $ 1,180,400
Larimer County, Colorado Sales Tax Revenue Bond
1,000,000 5.50%, 12/15/12 AMBAC Insured ...................... Aaa/AAA 1,133,750
Longmont, Colorado Sales & Use Tax
1,875,000 5.50%, 11/15/14 .................................... NR/AA 2,137,500
Thornton, Colorado Sales Tax
1,000,000 5.00%, 09/01/14 FSA Insured ........................ Aaa/AAA 1,093,750
Westminster, Colorado Sales Tax Revenue
1,175,000 5.50%, 12/01/07 FGIC Insured ....................... Aaa/AAA 1,324,813
1,710,000 5.00%, 12/01/17 AMBAC Insured ...................... NR/AAA 1,844,662
------------
30,802,437
------------
TRANSPORTATION (5.0%)
-------------------------------------------------------
Arapahoe County, Colorado E-470 Vehicle
Registration Revenue Bonds
1,000,000 5.45%, 08/31/07 MBIA Insured Pre-Refunded .......... Aaa/AAA 1,097,500
Colorado Department of Transportation Revenue
1,565,000 5.00%, 06/15/15 MBIA Insured ....................... Aaa/AAA 1,758,669
Colorado Department of Transportation-
Transportation Revenue Anticipation Note
1,000,000 6.00%, 06/15/13 AMBAC Insured Pre-Refunded ......... Aaa/AAA 1,195,000
Northwest Parkway, Colorado Public Highway
Authority Series A
2,515,000 5.15%, 06/15/14 AMBAC Insured ...................... Aaa/AAA 2,810,512
Regional Transportation District Colorado COP
1,190,000 5.00%, 06/01/15 AMBAC Insured ...................... Aaa/AAA 1,298,588
1,510,000 4.85%, 06/01/18 AMBAC Insured ...................... Aaa/AAA 1,594,937
Regional Transportation District Colorado Sales
Tax Revenue
2,000,000 5.00%, 11/01/13 FGIC Insured ....................... Aaa/AAA 2,205,000
1,000,000 5.00%, 11/01/16 FGIC Insured ....................... Aaa/AAA 1,076,250
------------
13,036,456
------------
WATER & SEWER (15.3%)
-------------------------------------------------------
Aurora, Colorado Water Improvement Revenue First
Lien Series A
1,155,000 5.00%, 08/01/16 MBIA Insured ....................... Aaa/NR 1,261,838
Boulder, Colorado Water & Sewer Revenue
1,000,000 5.40%, 12/01/14 .................................... Aa2/AA+ 1,122,500
Broomfield, Colorado Sewer and Waste Water Revenue
1,985,000 5.00%, 12/01/15 AMBAC Insured ...................... Aaa/NR 2,176,056
1,000,000 5.00%, 12/01/16 AMBAC Insured ...................... Aaa/NR 1,086,250
Broomfield, Colorado Water Activity Enterprise
$1,500,000 5.30%, 12/01/12 MBIA Insured ....................... Aaa/NR $ 1,693,125
1,730,000 5.25%, 12/01/13 MBIA Insured ....................... Aaa/NR 1,939,762
2,190,000 5.00%, 12/01/16 MBIA Insured ....................... Aaa/NR 2,378,887
2,290,000 5.00%, 12/01/17 .................................... Aaa/NR 2,470,337
Centennial, Colorado Water & Sewer District
1,750,000 5.80%, 12/01/07 FSA Insured ........................ Aaa/AAA 1,903,125
Colorado Clean Water Revenue
1,000,000 5.375%, 09/01/10 ................................... Aaa/AAA 1,125,000
Colorado Metro Wastewater Reclamation District
1,270,000 5.25%, 04/01/09 .................................... Aa2/AA 1,409,700
Colorado Water Resource & Power Development
Authority
215,000 6.00%, 09/01/06 .................................... Aaa/AAA 217,217
1,000,000 5.50%, 09/01/09 .................................... Aaa/AAA 1,123,750
1,635,000 5.00%, 09/01/12 .................................... Aaa/AAA 1,820,981
1,000,000 5.55%, 11/01/13 FGIC Insured ....................... Aaa/AAA 1,137,500
Denver, Colorado City and County Wastewater
Revenue
1,560,000 5.00%, 11/01/15 FGIC Insured ....................... Aaa/AAA 1,712,100
Denver, Colorado City & County Water Board
2,570,000 4.75%, 12/01/17 FSA Insured ........................ Aaa/AAA 2,730,625
1,885,000 4.75%, 12/01/18 FSA Insured ........................ Aaa/AAA 1,986,319
Lafayette, Colorado Water Revenue
1,625,000 5.00%, 12/01/17 MBIA Insured ....................... Aaa/AAA 1,765,156
Left Hand, Colorado Water District, Series 1996
1,530,000 5.75%, 11/15/08 MBIA Insured ....................... Aaa/AAA 1,688,738
Northglenn, Colorado Water & Sewer
1,010,000 5.75%, 12/01/06 FSA Insured ........................ Aaa/AAA 1,123,625
Pueblo, Colorado Board Water Works
1,000,000 5.50%, 11/01/10 FSA Insured ........................ Aaa/AAA 1,161,250
Thornton, Colorado, Refunding
2,000,000 5.60%, 12/01/06 FSA Insured ........................ Aaa/AAA 2,217,500
Ute, Colorado Water Conservancy District
1,570,000 5.50, 06/15/12 MBIA Insured ........................ Aaa/AAA 1,766,250
Westminster, Colorado Water & Wastewater Utility
Revenue
1,000,000 5.70%, 12/01/04 AMBAC Insured ...................... Aaa/AAA 1,041,200
------------
40,058,791
------------
MISCELLANEOUS REVENUE (2.9%)
-------------------------------------------------------
Denver, Colorado City & County Helen Bonfils Project
$2,275,000 5.875%, 12/01/09 ................................... NR/AA- $ 2,556,531
Denver, Colorado Convention Center Hotel
1,500,000 4.00%, 12/01/14 XLCI Insured ....................... Aaa/AAA 1,533,750
South Suburban, Colorado Park & Recreational District
1,000,000 6.00%, 11/01/07 .................................... Baa3/NR 1,103,750
Thornton, Colorado Development Authority
1,230,000 5.75%, 12/01/06 MBIA Insured ....................... Aaa/AAA 1,368,375
Westminster, Colorado Golf Course Activity
1,000,000 5.40%, 12/01/13 Asset Guaranty Insured ............. NR/AA 1,085,000
------------
7,647,406
------------
Total Revenue Bonds ............................. 164,174,648
------------
Total Investments (cost $242,504,571**) ............... 98.8% 259,640,820
Other assets less liabilities ......................... 1.2 3,048,345
------ ------------
Net Assets ............................................ 100.0% $262,689,165
====== ============
* Any security not rated (NR) 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 was
to be assigned by a rating service.
** See note 4.
PORTFOLIO ABBREVIATIONS:
------------------------------------------------
AMBAC - American Municipal Bond Assurance Corp.
COP - Certificates of Participation
ETM - Escrowed to Maturity
FGIC - Financial Guaranty Insurance Co.
FNMA - Federal Housing Administration
FSA - Financial Security Assurance
GNMA - Government National Mortgage Association
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance
SFM - Single Family Mortgage
UCAR - University Corporation for Atmospheric Research
XLCI - XL Capital Assurance, Inc.
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
ASSETS
Investments at value (cost $242,504,571) .................... $259,640,820
Cash ........................................................ 1,506,962
Interest receivable ......................................... 1,718,980
Receivable for Fund shares sold ............................. 310,702
Receivable for investment securities sold ................... 138,099
------------
Total assets ................................................ 263,315,563
------------
LIABILITIES
Payable for Fund shares redeemed ............................ 187,198
Dividends payable ........................................... 236,840
Management fee payable ...................................... 110,760
Distribution fees payable ................................... 48,410
Accrued expenses ............................................ 43,190
------------
Total liabilities ........................................... 626,398
------------
NET ASSETS ..................................................... $262,689,165
============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of
shares, par value $.01 per share ......................... $ 242,384
Additional paid-in capital .................................. 245,294,530
Net unrealized appreciation on investments (note 4) ......... 17,136,249
Overdistributed net realized gain on investments ............ (146)
Undistributed net investment income ......................... 16,148
------------
$262,689,165
============
CLASS A
Net Assets .................................................. $233,109,356
============
Capital shares outstanding .................................. 21,508,866
============
Net asset value and redemption price per share .............. $ 10.84
============
Offering price per share (100/98 of $10.84 adjusted
to nearest cent) (note 3) ................................ $ 11.06
============
CLASS C
Net Assets .................................................. $ 15,819,817
============
Capital shares outstanding .................................. 1,462,526
============
Net asset value and offering price per share ................ $ 10.82
============
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) ...................... $ 10.82*
============
CLASS Y
Net Assets .................................................. $ 13,759,992
============
Capital shares outstanding .................................. 1,266,964
============
Net asset value, offering and redemption price per share .... $ 10.86
============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
INVESTMENT INCOME:
Interest income ......................................... $11,287,249
Expenses:
Management fee (note 3) ................................. $1,240,722
Distribution and service fees (note 3) .................. 242,842
Transfer and shareholder servicing agent fees ........... 142,645
Trustees' fees and expenses (note 8) .................... 82,462
Shareholders' reports and proxy statements .............. 66,189
Legal fees .............................................. 61,597
Auditing and tax fees ................................... 25,912
Custodian fees .......................................... 25,742
Registration fees and dues .............................. 19,154
Insurance ............................................... 11,758
Miscellaneous ........................................... 39,172
----------
Total expenses .......................................... 1,958,195
Expenses paid indirectly (note 6) ....................... (7,635)
----------
Net expenses ............................................ 1,950,560
-----------
Net investment income ................................... 9,336,689
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ... 18,155
Change in unrealized appreciation on investments ........ 941,222
----------
Net realized and unrealized gain (loss) on investments... 959,377
-----------
Net change in net assets resulting from operations....... $10,296,066
===========
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
OPERATIONS:
Net investment income ................................... $ 9,336,689 $ 8,460,610
Net realized gain (loss) from securities transactions ... 18,155 156,615
Change in unrealized appreciation on investments ........ 941,222 10,045,867
------------ ------------
Change in net assets from operations ................. 10,296,066 18,663,092
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 10):
Class A Shares:
Net investment income ................................... (9,078,557) (8,388,584)
Class C Shares:
Net investment income ................................... (401,241) (161,987)
Class I Shares:
Net investment income ................................... (50)+ --
Class Y Shares:
Net investment income ................................... (432,274) (276,796)
------------ ------------
Change in net assets from distributions .............. (9,912,122) (8,827,367)
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from shares sold ............................... 52,284,613 45,269,037
Reinvested dividends and distributions .................. 5,865,102 5,281,641
Cost of shares redeemed ................................. (27,630,404) (21,843,527)
------------ ------------
Change in net assets from capital share transactions .... 30,519,311 28,707,151
------------ ------------
Change in net assets ................................. 30,903,255 38,542,876
NET ASSETS:
Beginning of period ..................................... 231,785,910 193,243,034
------------ ------------
End of period* .......................................... $262,689,165 $231,785,910
============ ============
* Includes undistributed net investment income of: $ 16,148 $ 11,470
============ ============
- ----------
+ For the period April 2, 2003 to July 8, 2003.
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS
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 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 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 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 and
service fee. As of the report date no Class I Shares were 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 at fair value 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 at the mean of bid and asked quotations and, in the case of
other securities, at fair value determined under procedures established by
and under the general supervision of the Board of Trustees. Securities
which mature in 60 days or less are valued at amortized cost if their term
to maturity at purchase is 60 days or less, or by amortizing their
unrealized appreciation or depreciation on the 61st day prior to maturity,
if their term to maturity at purchase exceeds 60 days.
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses from
securities transactions are reported on the identified cost basis. Interest
income is recorded daily on the accrual basis and is adjusted for
amortization of premium and accretion of original issue and market
discount.
c) FEDERAL INCOME TAXES: It is the policy of the Fund 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.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are
allocated daily to each class of shares based on the relative net assets of
each class. Class-specific expenses, which include distribution and service
fees and any other items that are specifically attributed to a particular
class, are charged directly to such class.
e) USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those
estimates.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Aquila Management Corporation (the "Manager"), the Fund's founder and
sponsor, serves as the Manager for the Fund under an Advisory and Administration
Agreement with the Fund. Refer to note 11 for Subsequent Event footnote. The
portfolio management of the Fund has been delegated to a 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 the
activities of the Sub-Adviser and 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% on the Fund's net assets.
Kirkpatrick Pettis Investment Management, Inc. (the "Sub-Adviser"), a
wholly-owned subsidiary of KFS Corporation, a wholly-owned subsidiary of Mutual
of Omaha Insurance Company, 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 average net assets.
Specific details as to the effect of the Fund's payments under its
Distribution Plan, as described below, on the above management fees and 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 service
fee payments to broker-dealers or others ("Qualified Recipients") selected by
Aquila Distributors, Inc. (the "Distributor"), including, but not limited to,
any principal underwriter of the 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. The Fund currently makes payment of this
distribution fee at the annual rate of 0.05% of the Fund's average net assets
represented by Class A Shares. The Board of Trustees and shareholders approved
an amendment to the Fund's Distribution Plan applicable to Class A Shares which
will permit the Fund to make service fee payments at the rate of up to 0.15 of
1% on the entire net assets represented by Class A Shares. For the year ended
December 31, 2003, distribution fees on Class A Shares amounted to $112,266 of
which the Distributor retained $4,333.
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
year ended December 31, 2003, amounted to $97,930. 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 the Fund's average net assets represented by Class C
Shares and for the year ended December 31, 2003 amounted to $32,643. The total
of these payments with respect to Class C Shares amounted to $130,573 of which
the Distributor retained $15,359.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class I Shares to Qualified Recipients. Class I payments, under
the Plan, may not exceed for any fiscal year of the Fund a rate (currently
0.25%), set from time to time by the Board of Trustees, of not more than 0.25%
of the average annual net assets represented by the Class I Shares. In addition,
Class I has a Shareholder Services Plan under which it may pay service fees
(currently 0.15%) of not more than 0.25% of the average annual net assets
represented by Class I Shares. That is, the total payments under both plans will
not exceed 0.50% of such net assets. For the period April 2, 2003 through July
8, 2003, these payments were made at the average annual rate of 0.40% of such
net assets and amounted to $5 of which $3 related to the Plan and $2 related to
the Shareholder Services Plan.
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 broker-dealer firms ("dealers"), the Fund's shares are sold primarily
through the facilities of these dealers having offices within Colorado, with the
bulk of sales commissions inuring to such dealers. For the year ended December
31, 2003, total commissions on sales of Class A Shares amounted to $895,062 of
which the Distributor received $161,446. For the period January 1, 2003 through
October 20, 2003, the maximum sales charge on Class A Shares was 4%. For the
period October 21, 2003 through December 31, 2003, the maximum sales charge on
Class A Shares was 2%. Beginning January 1, 2004, the maximum sales charge on
Class A Shares is 4%.
C) OTHER RELATED PARTY TRANSACTIONS:
For the year ended December 31, 2003, the Fund incurred $60,094 of legal
fees allocable to Hollyer Brady Smith & Hines LLP, counsel to the Fund, for
legal services in conjunction with the Fund's ongoing operations. The Secretary
of the Fund is a Partner of Hollyer Brady Smith & Hines LLP.
4. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 2003, purchases of securities and
proceeds from the sales of securities aggregated $45,474,562 and $15,123,159,
respectively.
At December 31, 2003, the aggregate tax cost for all securities was
$242,488,569. At December 31, 2003 the aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax cost
amounted to $17,337,551 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$185,300 for a net unrealized appreciation of $17,152,251.
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. It is the general intention of the Fund to invest, to the
extent practicable, some or all of cash balances in income-producing assets
rather than leave cash on deposit.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
CLASS A SHARES:
Proceeds from shares sold ........ 3,047,540 $ 33,045,064 2,861,228 $ 30,423,801
Reinvested distributions ......... 509,390 5,502,495 486,558 5,156,250
Cost of shares redeemed .......... (1,943,417) (20,966,281) (1,582,400) (16,725,358)
---------- ------------ ---------- ------------
Net change .................... 1,613,513 17,581,278 1,765,386 18,854,693
---------- ------------ ---------- ------------
CLASS C SHARES:
Proceeds from shares sold ........ 789,815 8,539,708 696,460 7,376,485
Reinvested distributions ......... 22,651 244,197 10,218 108,404
Cost of shares redeemed .......... (193,704) (2,076,304) (48,328) (514,095)
---------- ------------ ---------- ------------
Net change .................... 618,762 6,707,601 658,350 6,970,794
---------- ------------ ---------- ------------
CLASS I SHARES:
Proceeds from shares sold ........ 463 5,000 -- --
Reinvested distributions ......... 4 46 -- --
Cost of shares redeemed .......... (467) (5,101) -- --
---------- ------------ ---------- ------------
Net change .................... --* (55)* -- --
---------- ------------ ---------- ------------
CLASS Y SHARES:
Proceeds from shares sold ........ 990,596 10,694,841 701,513 7,468,751
Reinvested distributions ......... 10,962 118,364 1,591 16,987
Cost of shares redeemed .......... (424,903) (4,582,718) (430,013) (4,604,074)
---------- ------------ ---------- ------------
Net change .................... 576,655 6,230,487 273,091 2,881,664
---------- ------------ ---------- ------------
Total transactions in Fund shares ... 2,808,930 $ 30,519,311 2,696,827 $ 28,707,151
========== ============ ========== ============
* For the period April 2, 2003 to July 8, 2003.
8. TRUSTEES' FEES AND EXPENSES
During the fiscal year there were seven Trustees, two of whom are
affiliated with the Manager and are not paid any trustee fees. Each Trustees'
fees paid during the year were at the average annual rate of $7,250 for carrying
out responsibilities and attendance at regularly scheduled Board Meetings. A
meeting of the independent trustees is held prior to each quarterly Board
Meeting for which each attendee was paid an average fee of $125. If additional
or special meetings are scheduled for the Fund, separate meeting fees are paid
for each such meeting to those Trustees in attendance. The Fund also reimburses
the Trustees for expenses such as travel, accomodations, and meals incurred in
connection with attendance at regularly scheduled or special Board Meetings and
at the Annual Meeting and Outreach Meeting of Shareholders. For the fiscal year
ended December 31, 2003 such reimbursements averaged approximately $5,400 per
Trustee.
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 amount 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. DISTRIBUTIONS
The Fund declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share, in cash,
or in a combination of both, at the shareholder's option. Net realized capital
gains, if any, are distributed annually and are taxable.
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.
However, 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. In this
regard, the Fund credited distributions in excess of net investment income in
the amount of $580,112, debited additional paid in capital in the amount of
$561,957 and accumulated net realized gain on investments $18,155 at December
31, 2003. This adjustment had no impact on the Fund's aggregate net assets at
December 31, 2003. Further, a small portion of the dividends may, under some
circumstances, be subject to taxes at ordinary income and/or capital gain rates.
Tax character of distributions paid by the Fund:
YEAR ENDED DECEMBER 31,
2003 2002
---------- -----------
Net tax-exempt income $9,331,870 $ 8,460,078
Ordinary income 562,097 210,674
Capital gain 18,155 156,615
---------- -----------
$9,912,122 $ 8,827,367
========== ===========
As of December 31, 2003, the components of distributable earnings on a tax
basis were as follows:
Unrealized appreciation $17,152,251
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to premium/discount adjustments.
11. SUBSEQUENT EVENT
Effective January 1, 2004, Aquila Management Corporation, founder of the
Fund, assigned its Advisory and Administration Agreement and Sub-Advisory
Agreement to its wholly-owned subsidiary, Aquila Investment Management LLC,
which will continue the management of the Fund. The transfer was made for
reasons of corporate and tax planning and will have no effect on the management
of the Fund or the fees being paid. These changes will not affect the
sub-advisory arrangements with the Fund's Sub-Adviser, Kirkpatrick Pettis
Investment Management, Inc., which provides the Fund with local advisory
services.
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A
----------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
Net asset value, beginning of period ..................... $10.82 $10.32 $10.31 $9.98 $10.63
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income+ ................................ 0.41 0.43 0.45 0.46 0.46
Net gain (loss) on securities (both realized
and unrealized) .................................... 0.05 0.52 0.02 0.35 (0.55)
------ ------ ------ ------ ------
Total from investment operations ...................... 0.46 0.95 0.47 0.81 (0.09)
------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income .................. (0.44) (0.45) (0.46) (0.48) (0.48)
Distributions from capital gains ...................... -- -- -- -- (0.08)
------ ------ ------ ------ ------
Total distributions ...................................... (0.44) (0.45) (0.46) (0.48) (0.56)
------ ------ ------ ------ ------
Net asset value, end of period ........................... $10.84 $10.82 $10.32 $10.31 $ 9.98
====== ====== ====== ====== ======
Total return (not reflecting sales charge) ............... 4.32% 9.36% 4.64% 8.30% (0.84)%
Ratios/supplemental data
Net assets, end of period (in thousands) ............. $233,109 $215,195 $187,022 $179,816 $190,698
Ratio of expenses to average net assets ............... 0.74% 0.75% 0.76% 0.78% 0.76%
Ratio of net investment income to average net assets .. 3.81% 4.05% 4.27% 4.53% 4.41%
Portfolio turnover rate ............................... 6.16% 6.95% 14.56% 22.45% 13.08%
The expense ratios after giving effect to the expense offset for uninvested cash
balances were:
Ratio of expenses to average net assets ............... 0.74% 0.74% 0.75% 0.77% 0.75%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
Net asset value, beginning of period .......... $10.80 $10.30 $10.29 $ 9.97 $10.61
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income+ ..................... 0.31 0.31 0.34 0.37 0.36
Net gain (loss) on securities (both
realized and unrealized) ................ 0.04 0.53 0.03 0.33 (0.54)
------ ------ ------ ------ ------
Total from investment operations ........... 0.35 0.84 0.37 0.70 (0.18)
------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ....... (0.33) (0.34) (0.36) (0.38) (0.38)
Distributions from capital gains ........... -- -- -- -- (0.08)
------ ------ ------ ------ ------
Total distributions ........................ (0.33) (0.34) (0.36) (0.38) (0.46)
------ ------ ------ ------ ------
Net asset value, end of period ................ $10.82 $10.80 $10.30 $10.29 $ 9.97
====== ====== ====== ====== ======
Total return (not reflecting sales charge) .... 3.33% 8.32% 3.64% 7.18% (1.70)%
Ratios/supplemental data
Net assets, end of period (in thousands) ... $15,820 $9,109 $1,909 $897 $1,932
Ratio of expenses to average net assets .... 1.69% 1.68% 1.69% 1.73% 1.70%
Ratio of net investment income to average
net assets .............................. 2.83% 2.99% 3.25% 3.60% 3.44%
Portfolio turnover rate .................... 6.16% 6.95% 14.56% 22.45% 13.08%
The expense ratios after giving effect to the expense offset for uninvested cash
balances were:
Ratio of expenses to average net assets .... 1.68% 1.67% 1.68% 1.72% 1.69%
CLASS Y
------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
Net asset value, beginning of period .......... $10.84 $10.33 $10.33 $10.00 $10.65
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income+ ..................... 0.42 0.44 0.45 0.46 0.46
Net gain (loss) on securities (both
realized and unrealized) ................ 0.04 0.52 0.02 0.35 (0.54)
------ ------ ------ ------ ------
Total from investment operations ........... 0.46 0.96 0.47 0.81 (0.08)
------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ....... (0.44) (0.45) (0.47) (0.48) (0.49)
Distributions from capital gains ........... -- -- -- -- (0.08)
------ ------ ------ ------ ------
Total distributions ........................ (0.44) (0.45) (0.47) (0.48) (0.57)
------ ------ ------ ------ ------
Net asset value, end of period ................ $10.86 $10.84 $10.33 $10.33 $10.00
====== ====== ====== ====== ======
Total return (not reflecting sales charge) .... 4.37% 9.50% 4.59% 8.36% (0.79)%
Ratios/supplemental data
Net assets, end of period (in thousands) ... $13,760 $7,482 $4,312 $4,417 $5,416
Ratio of expenses to average net assets .... 0.69% 0.69% 0.71% 0.73% 0.71%
Ratio of net investment income to average
net assets .............................. 3.85% 4.07% 4.32% 4.58% 4.45%
Portfolio turnover rate .................... 6.16% 6.95% 14.56% 22.45% 13.08%
The expense ratios after giving effect to the expense offset for uninvested cash
balances were:
Ratio of expenses to average net assets .... 0.69% 0.69% 0.70% 0.72% 0.70%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
See accompanying notes to financial statements.
ADDITIONAL INFORMATION (UNAUDITED)
TRUSTEES(1)
AND OFFICERS
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND 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)
Lacy B. Herrmann Chairman of the Founder and Chairman of the Board, Aquila 11 Director or trustee,
New York, NY Board of Trustees Management Corporation, the sponsoring Pimco Advisors VIT,
(05/12/29) since 1987 organization and parent of the Manager or Oppenheimer Quest
Administrator and/or Adviser or Sub-Adviser Value Funds Group,
to each fund of the Aquila(SM) Group of Oppenheimer Small
Funds,(5) Chairman and Chief Executive Cap Value Fund,
Officer and Manager of the Manager or Oppenheimer Midcap
Administrator and/or Advisor or Sub-Adviser Fund, and
to each since 2003, and Founder, Chairman of Oppenheimer
the Board of Trustees and (currently or Rochester Group of
until 1998) President of each since its Funds.
establishment, beginning in 1984; Director
of the Distributor since 1981 and formerly
Vice President or Secretary, 1981-1998;
Trustee Emeritus, Brown University and the
Hopkins School; active in university, school
and charitable organizations.
Diana P. Herrmann Trustee since Vice Chair of Aquila Management Corporation, 6 None
New York, NY 2000, President Founder of the Aquila(SM) Group of Funds and
(02/25/58) since 1999, and parent of the Manager, since 2004, President
Vice Chair and Chief Operating Officer since 1997, a
since 2004 Director since 1984, Secretary since 1986
and previously its Executive Vice President,
Senior Vice President or Vice President,
1986-1997; Vice Chair since 2004 and
President, Chief Operating Officer and
Manager of the Manager since 2003; Vice
Chair, President, Senior Vice President or
Executive Vice President of funds in the
Aquila(SM) Group of Funds since 1986;
Director of the Distributor since 1997;
trustee, Reserve Money-Market Funds, 1999-
2000 and Reserve Private Equity Series,
1998-2000; active in mutual fund and trade
organizations and in charitable and
volunteer organizations.
NON-INTERESTED TRUSTEES
Tucker Hart Adams Trustee since President, The Adams Group, Inc., an 2 Director, Touch
Colorado Springs, CO 1989 economic consulting firm, since 1989; America, Colorado
(01/11/38) formerly Chief Economist, United Banks of Health Facilities
Colorado; currently or formerly active with Authority, Avista
numerous professional and community Laboratories, Inc.
organizations. and Mortgage
Analysis Computer
Corp.
Gary C. Cornia Trustee since Professor, Marriott School of Management, 4 None
Orem, UT 2000 Brigham Young University, 1980 - present;
(06/24/48) President, the National Tax Association;
Chair of the Executive Committee, the
International Center for Land Policy Studies
and Training Institute, Taipei, Taiwan;
formerly Senior Visiting Fellow, Lincoln
Institute of Land Policy, 2003; Associate
Dean, Marriott School of Management, Brigham
Young University, 1991- 2000; Chair, Utah
Governor's Tax Review Committee, 1993-2002;
member, Governor's Tax Review Committee
since 2003; Faculty Associate, the Land
Reform Training Institute, Taipei, Taiwan
and The Lincoln Institute of Land Policy,
Cambridge, Massachusetts.
John C. Lucking Trustee since President, Econ-Linc, an economic consulting 2 Director, Sanu Resources
Phoenix, AZ 2000 firm, since 1995; formerly Consulting
(05/20/43) Economist, Bank One Arizona and Chief
Economist, Valley National Bank; member,
Arizona's Joint Legislative Budget Committee
Economic Advisory Panel and the Western Blue
Chip Economic Forecast Panel; Board,
Northern Arizona University Foundation since
1997; member, various historical, civic and
economic associations.
Anne J. Mills Trustee since President, Loring Consulting Company since 4 None
Castle Rock, CO 1987 2001; Vice President for Business Affairs,
(12/23/38) Ottawa University, 1992-2001; IBM
Corporation, 1965-1991; Budget Review
Officer, the American Baptist Churches/USA,
1994-1997; director, the American Baptist
Foundation; Trustee, Ottawa University; and
Trustee Emerita, Brown University.
J. William Weeks Trustee since Retired; limited partner and investor in 2 None
Palm Beach, FL 1995 various real estate partnerships since 1988;
(06/22/27) formerly Senior Vice President or Vice
President of the Aquila Bond Funds; and Vice
President of the Distributor.
OFFICERS
Charles E. Childs, III Executive Vice Executive Vice President of all Funds since N/A N/A
New York, NY President since 2003; Senior Vice President, corporate
(04/01/57) 2003 development, formerly 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 Money-Market Funds since
1988.
Stephen J. Caridi Senior Vice Vice President of the Distributor since N/A N/A
New York, NY President since 1995; Vice President, Hawaiian Tax-Free
(05/06/61) 2004 Trust since 1998; Senior Vice President,
Narragansett Insured Tax-Free Income Fund
since 1998, Vice President 1996-1997; Senior
Vice President, Tax-Free Fund of Colorado
since 2004; Assistant Vice President,
Tax-Free Fund For Utah since 1993.
James M. McCullough Senior Vice Senior Vice President or Vice President of N/A N/A
Portland, OR President since Aquila Rocky Mountain Equity Fund and four
(06/11/45) 1999 Aquila Bond Funds; Senior Vice President of
the Distributor since 2000; Director of
Fixed Income Institutional Sales, CIBC
Oppenheimer & Co. Inc., Seattle, WA,
1995-1999.
Jerry G. McGrew Senior Vice President of the Distributor since 1998, N/A N/A
New York, NY President since Registered Principal since 1993, Senior Vice
(06/18/44) 1997 President, 1997-1998 and Vice President,
1993-1997; Senior Vice President, Aquila
Rocky Mountain Equity Fund and five Aquila
Bond Funds since 1995; Vice President,
Churchill Cash Reserves Trust, 1995-2001.
Emily T. Rae Vice President Vice President of Aquila Rocky Mountain N/A N/A
Aurora, CO since 2002 Equity Fund and Tax-Free Fund of Colorado
(03/02/74) since 2002; investment analyst, Colorado
State Bank and Trust, 2001-02; financial
analyst, J.P. Morgan, 2000-01, senior
registered associate, Kirkpatrick Pettis,
1998-2000; registered associate, FBS
Investments (now U.S. Bancorp Piper
Jaffray), 1997-98.
John T. Volk Assistant Vice Marketing representative for the Distributor N/A N/A
New York, NY President since since 1998; mutual fund services
(04/15/71) 2002 representative, Prudential Securities,
1996-98.
Joseph P. DiMaggio Chief Financial Chief Financial Officer of the Aquila(SM) N/A N/A
New York, NY Officer since Group of Funds since 2003 and Treasurer
(11/06/56) 2003 and since 2000; Controller, Van Eck Global
Treasurer since Funds, 1993-2000.
2000
Edward M. W. Hines Secretary since Partner, Hollyer Brady Smith & Hines LLP, N/A N/A
New York, NY 1987 legal counsel to the Fund, since 1989;
(12/16/39) Secretary of the Aquila(SM)Group of Funds.
Robert W. Anderson Assistant Compliance Officer of the Manager or its N/A N/A
New York, NY Secretary since predecessor and current parent since 1998
(08/23/40) 2000 and Assistant Secretary of the Aquila(SM)
Group of Funds since 2000; trustee, Alpha
Strategies Fund since July, 2002;
Consultant, The Wadsworth Group, 1995-1998.
John M. Herndon Assistant Assistant Secretary of the Aquila(SM) Group N/A N/A
New York, NY Secretary since of Funds since 1995 and Vice President of
(12/17/39) 1995 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 the Aquila(SM) Group N/A N/A
New York, NY Treasurer since of Funds since 2000; Assistant Vice
(11/02/66) 2000 President of the Manager or its predecessor
and current parent since 1998; Fund
Accountant for the Aquila(SM) Group of
Funds, 1995-1998.
- ----------
(1) The Fund'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).
(2) The mailing address of each Trustee and officer is c/o Tax-Free Fund of
Colorado, 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) Mr. Herrmann is an interested person of the Fund as that term is defined in
the 1940 Act as an officer of the Fund and 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 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. Each is also an
interested person as a member of the immediate family of the other.
(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 Bond Funds";
Aquila Rocky Mountain Equity Fund is an equity fund; considered together, these
11 funds are called the "Aquila(SM) Group of Funds."
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, 2003, $9,331,870 of dividends paid
by Tax-Free Fund of Colorado, constituting 94.134% of total dividends paid
during calendar 2003, were exempt-interest dividends; $18,155 of total dividends
paid during calendar 2003, were capital gain dividends taxable at a rate of 15%
and the balance were ordinary dividend income.
Prior to January 31, 2004, shareholders were mailed IRS Form 1099-DIV which
contained information on the status of distributions paid for the 2003 CALENDAR
YEAR.
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquila(SM) Group of Funds
produce is automatically sent to you and all other shareholders. Specifically,
you are routinely sent the entire list of portfolio of securities of your fund
twice a year in the semi-annual and annual reports you receive. You should know,
however, that we prepare, and have available, portfolio listings at the end of
each quarter.
Whenever you may be interested in seeing a listing of your fund's portfolio
other than in your shareholder reports, please check our website
(www.aquilafunds.com) or call us at 1-800-437-1020.
FOUNDER
AQUILA MANAGEMENT CORPORATION
MANAGER
AQUILA INVESTMENT MANAGEMENT LLC
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
KIRKPATRICK PETTIS INVESTMENT
MANAGEMENT, INC.
1600 Broadway, Suite 1100
Denver, Colorado 80202
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Tucker Hart Adams
Gary C. Cornia
Diana P. Herrmann
John C. Lucking
Anne J. Mills
J. William Weeks
OFFICERS
Diana P. Herrmann, Vice Chair and President
Stephen J. Caridi, Senior Vice President
Emily T. Rae, Vice President
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
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
760 Moore Road
King of Prussia, Pennsylvania 19406
INDEPENDENT AUDITORS
KPMG LLP
757 Third Avenue
New York, New York 10017
Further information is contained in the Prospectus, which must precede or
accompany this report.
ANNUAL
REPORT
DECEMBER 31, 2003
TAX-FREE FUND
OF
COLORADO
A TAX-FREE INCOME INVESTMENT
[Logo of Tax-Free Fund of Colorado: a square with silhouettes of two mountains
and a rising sun]
[Logo of the Aquila Group of funds: an eagle's head]
ONE OF THE
AQUILA(SM) GROUP OF FUNDS
ITEM 2. CODE OF ETHICS.
(a) As of December 31, 2003 (the end of the reporting period) the
Trust has adopted a code of ethics that applies to the Fund'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 Fund'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 Fund's Code of Ethics that applies to the
Fund'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 Fund'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
areas, including 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
under the Charter.
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 $20,100 in 2003 and $19,500 in 2002.
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 $6,792
and $8,950 in 2003 and 2002, respectively, for return preparation.
d) All Other Fees - There were no additional fees plaid 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. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
ITEM 8. [RESERVED]
ITEM 9. 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 10. EXHIBITS.
(a)(1) (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 FUND OF COLORADO
By: /s/ Lacy B. Herrmann
- ---------------------------------
Chairman of the Board
March 8, 2004
By: /s/ Diana P. Herrmann
- ---------------------------------
Vice Chair and President
March 8, 2004
By: /s/ Joseph P. DiMaggio
- -----------------------------------
Chief Financial Officer
March 8, 2004
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/ Lacy B. Herrmann
- ---------------------------------
Lacy B. Herrmann
Chairman of the Board
March 8, 2004
By: /s/ Diana P. Herrmann
- ---------------------------------
Diana P. Herrmann
Vice Chair and President
March 8, 2004
By: /s/ Joseph P. DiMaggio
- -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer
March 8, 2004
TAX-FREE FUND OF COLORADO
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.