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: 12/31/04
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL
REPORT
DECEMBER 31, 2004
[Logo for Tax-Free fund of colorado:
A square with sillhouettes of two mountains and a rising sun]
TAX-FREE FUND
OF
COLORADO
A TAX-FREE INCOME INVESTMENT
[Logo of the Aquila Group of Funds: an eagle's head]
ONE OF THE
AQUILA(SM) GROUP OF FUNDS
[Logo for Tax-Free fund of colorado: A square with sillhouettes of two mountains
and a rising sun]
SERVING COLORADO INVESTORS FOR MORE THAN 15 YEARS
TAX-FREE FUND OF COLORADO
ANNUAL REPORT
MANAGEMENT DISCUSSION
2004 Review
Bond investors remained a very patient lot in 2004. Most experts predicted
a rising interest rate environment for 2004 based on the Federal Reserve's
announced intentions of raising short-term interest rates. As the overnight
Federal Funds (the Fed's) rate rose from 1.0% in June to 2.25% at the end of the
year, longer-term interest rates remained relatively unchanged. We attribute
this to excellent communication by the Fed, moderate inflation, slow Gross
National Product (GNP) growth and improving employment data. We have generally
seen the bond market behave very rationally when investors are not presented
with negative surprises. Inflation only rose by 2.3% in 2004 despite rising
energy prices, higher health care costs and larger budget deficits. These
inflationary pressures were offset by low wage growth, temperate demand for
big-ticket items and globalization of the workforce. It appears that heavier
debt burdens and low savings rates are beginning to reduce the willingness and
ability of U.S. consumers to spend. We believe this should continue to keep
inflation low.
In Colorado, we are beginning to see increasing economic strength. While
the rest of the country was recovering in late 2002 and 2003, Colorado lagged
due to employment concentrations in the hardest hit areas of the recession,
namely high tech and telecommunications. This trend has finally reversed so that
most of the economic news has been favorable in 2004. The Office of State
Planning and Budgeting is reporting that as of June 30, 2004 the State had a net
increase of 17,000 new jobs after two years of a declining labor force, the
unemployment rate has dipped below 5.0%, personal income is 5.3% higher than
2003 and the housing market is showing great strength in activity and price
performance. Retail is showing strong year-over-year growth and the tourism
industry continues to improve, benefiting from increased marketing efforts and
excellent early season snow conditions.
The supply of new issue Colorado municipal bonds was sporadic throughout
2004. The market was relatively quiet in the first half of the year and finished
with a bang as several bond issues were brought to market after being approved
in the November elections. As is the norm in Colorado, new issuance was
dominated by school district funding. There were almost $1 billion in school
bonds approved at the ballot box this year. Other notable municipal projects
approved during the year were the $3.4 billion Fastracks program to expand light
rail, $323 million for Jefferson County schools and $64 million for a mixed-use
entertainment complex, Prairie Gateway in Commerce City.
Long-time shareholders of Tax-Free Fund of Colorado will not be surprised
to read that our portfolio characteristics have remained constant with those of
last year. We believe there has not been a significant change in the risk/reward
relationships in the Colorado bond market which would necessitate a change in
our portfolio. The average maturity of the bonds in the Fund ended the year at
8.7 years. The credit quality remained exceptionally high with 99% invested in
AAA and AA
MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED)
securities. Additionally, we have maintained excellent diversification with over
160 different issues for a variety of projects within the State. The total
return for Class A investors in 2004 was 2.6%. And, of course, this return is
double tax-free to the maximum extent practicable.
2005 Strategy
Our main focus in the coming year will be to continue emphasizing strong
credit quality with our Fund's investments. The state legislature is charged
with overcoming some conflicting constitutional amendments in order to avoid
making painful budget cuts. Until these tricky issues are worked out, we believe
it will be prudent to stick with only the strongest issuers in the State. As new
money comes into the Fund, we plan to purchase bonds in the 10 to 15 year
maturity range as that is what we call the "sweet spot," where you achieve most
of the return of longer bonds without the associated risk. In the event that
interest rates should rise, we have sought to have a very liquid portfolio of
high quality, shorter-term bonds that may be sold and reinvested at higher
rates.
If interest rates remain unchanged or perhaps even decline, we will be
content to hold on to our bonds which were purchased when interest rates were
higher and enjoy the yields that they offer. In any case, you can be assured
that we will strive to deliver, as we always have and as you expect from us, a
relatively stable share price investment with above average double-exempt
income.
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,
2004 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.
Fund's Class A Shares
[Graphic of a line chart with the following information:]
Lehman Brothers
Quality
Cost Without With Intermediate
of Sales Sales Municipal
Living Charge Charge Bond Index
$10,000 $10,000 $ 9,600 $10,000
10,254 11,309 10,856 11,380
10,595 11,769 11,297 11,865
10,775 12,603 12,098 12,734
10,949 13,216 12,687 13,498
11,242 13,094 12,569 13,537
11,623 14,180 13,612 14,705
11,804 14,825 14,231 15,516
12,084 16,124 15,478 16,948
12,311 16,915 16,237 17,735
12,712 17,380 16,684 18,270
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2004
------------------------------------------
SINCE
CLASS AND INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ------------------------------ ------ ------- -------- ---------
Class A (5/21/87)
With Sales Charge.......... 0.53% 4.94% 5.25% 5.96%
Without Sales Charge....... 2.57% 5.81% 5.68% 6.20%
Class C (4/30/96)
With CDSC.................. 0.61% 4.78% n/a 4.13%
Without CDSC............... 1.60% 4.78% n/a 4.13%
Class Y (4/30/96)
No Sales Charge............ 2.73% 5.49% n/a 5.42%
COMPARATIVE INDEX
Lehman Index.................. 3.02% 6.18% 6.21% 6.35% (Class A)
5.62% (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
class's income may be subject to federal and state income taxes. Past
performance is not predictive of future investment results.
- --------------------------------------------------------------------------------
[Logo of KPMG LLP: four solid rectangles with the letters KPMG in front of them]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 schedule of investments, as of December
31, 2004, 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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 2004, by correspondence with
the custodian. 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, 2004, 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 U.S. generally accepted
accounting principles.
KPMG LLP
New York, New York
February 18, 2005
- --------------------------------------------------------------------------------
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (36.1%) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
CITY & COUNTY (2.2%)
Denver, Colorado City & County Art Museum
$ 2,000,000 5.00%, 08/01/15 ...................................... Aa1/AA+ $ 2,174,420
Denver, Colorado City & County Excise Tax Revenue
1,000,000 5.00%, 09/01/11 FSA Insured .......................... Aaa/AAA 1,098,050
2,260,000 5.00%, 09/01/12 FSA Insured .......................... Aaa/AAA 2,452,688
-------------
Total City & County 5,725,158
-------------
METROPOLITAN DISTRICT (6.0%)
Arapahoe, Colorado Park & Recreation District
1,070,000 5.00%, 12/01/17 FGIC Insured ......................... Aaa/NR 1,153,899
Castle Pines, Colorado Metropolitan District
1,060,000 5.50%, 12/01/07 FSA Insured .......................... Aaa/AAA 1,153,852
Foothills, Colorado Park & Recreational District
1,310,000 5.00%, 12/01/12 FSA Insured .......................... Aaa/NR 1,438,000
1,325,000 5.00%, 12/01/13 FSA Insured .......................... Aaa/NR 1,442,554
1,850,000 5.00%, 12/01/17 MBIA Insured ......................... Aaa/NR 1,995,058
Highlands Ranch, Colorado Metropolitan
District #1, Refunding
1,530,000 6.25%, 09/01/06 MBIA Insured ......................... Aaa/AAA 1,539,731
1,000,000 5.75%, 09/01/08 AMBAC Insured ........................ Aaa/AAA 1,111,350
1,730,000 5.75%, 09/01/09 AMBAC Insured ........................ Aaa/AAA 1,949,623
Interstate South, Colorado Metropolitan District
2,165,000 5.75%, 12/01/09 LOC: US Bank ......................... NR/AA- 2,215,769
South Suburban, Colorado Park & Recreational District
1,365,000 5.125%, 12/15/09 FGIC Insured ........................ Aaa/AAA 1,490,716
-------------
Total Metropolitan District 15,490,552
-------------
SCHOOL DISTRICTS (27.9%)
Adams County, Colorado School District #12
1,255,000 5.625%, 12/15/08 FGIC Insured ........................ Aaa/AAA 1,384,102
2,000,000 5.00%, 12/15/12 MBIA Insured ......................... Aaa/AAA 2,196,420
Adams County, Colorado School District #14
1,275,000 5.75%, 12/01/08 FSA Insured .......................... Aaa/AAA 1,409,092
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
SCHOOL DISTRICTS (CONTINUED)
Adams County, Colorado School District
#14 Refunding
$ 1,200,000 4.50%, 12/01/16 MBIA Insured ......................... Aaa/NR $ 1,282,176
Adams & Weld Counties Colorado School
District #027J (Brighton)
1,765,000 4.30%, 12/01/2019 FGIC Insured ....................... Aaa/AAA 1,796,329
Arapahoe County, Colorado Cherry Creek
School District #5
1,000,000 5.50%, 12/15/08 ...................................... Aa2/AA 1,109,220
2,760,000 5.50%, 12/15/11 ...................................... Aa2/AA 3,088,274
2,750,000 5.50%, 12/15/12 ...................................... Aa2/AA 3,067,708
Boulder Valley, Colorado School District
1,215,000 5.50%, 12/01/08 FGIC Insured ......................... Aaa/AAA 1,327,460
Clear Creek, Colorado School District
1,000,000 5.00%, 12/01/16 FSA Insured .......................... Aaa/AAA 1,081,250
Denver, Colorado City & County School District #1
Refunding Series A
1,000,000 5.60%, 06/01/08 ...................................... Aa3/AA- 1,099,890
Denver, Colorado City & County School District #1
Refunding Series C
3,000,000 4.25%, 12/01/18 FGIC Insured ......................... Aaa/AAA 3,070,620
Douglas & Elbert Counties, Colorado School
District # Re-1, Series 1992
2,000,000 5.25%, 12/15/11 FGIC Insured ......................... Aaa/AAA 2,236,520
El Paso County, Colorado School District #11
1,330,000 6.25%, 12/01/08 ...................................... Aa3/AA- 1,513,912
El Paso County, Colorado School District #20
1,000,000 6.15%, 12/15/08 MBIA Insured ......................... Aaa/AAA 1,136,680
1,500,000 5.00%, 12/15/14 FGIC Insured ......................... Aaa/NR 1,641,780
El Paso County, Colorado School District #38
1,110,000 5.70%, 12/01/12 ...................................... Aa3/NR 1,275,590
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
SCHOOL DISTRICTS (CONTINUED)
El Paso County, Colorado School District #49
$ 1,500,000 5.50%, 12/01/13 FSA Insured .......................... Aaa/AAA $ 1,704,435
1,000,000 5.25%, 12/01/14 FGIC Insured ......................... Aaa/AAA 1,101,980
1,795,000 5.00%, 12/01/15 FSA Insured .......................... Aaa/AAA 1,972,041
Fremont County, Colorado School District #001
Canon City
1,680,000 5.00%, 12/01/17 MBIA Insured ......................... Aaa/NR 1,825,757
Garfield County, Colorado School District
1,250,000 5.00%, 12/01/17 FSA Insured .......................... Aaa/NR 1,348,012
Grand County Colorado School District #002
(East Grand) Refunding & Improvement Series B
1,040,000 4.25%, 12/01/2018 FSA Insured ........................ Aaa/AAA 1,064,482
Jefferson County, Colorado School District # R-1
3,000,000 5.50%, 12/15/09 FGIC Insured ......................... Aaa/AAA 3,369,240
2,340,000 5.25%, 12/15/11 FGIC Insured ......................... Aaa/AAA 2,606,128
1,000,000 5.50%, 12/15/13 FGIC Insured ......................... Aaa/AAA 1,123,080
La Plata County, Colorado School District #9
1,500,000 5.00%, 11/01/18 MBIA Insured ......................... Aaa/NR 1,609,185
Larimer County, Colorado School District #R1
Poudre Refunding Series A
2,100,000 5.25%, 12/15/11 ...................................... Aa3/AA- 2,278,563
Larimer, Weld & Boulder Counties, Colorado School
District #R-2J Thompson Refunding Series 2003
1,000,000 4.375%, 12/15/14 FSA Insured ......................... Aaa/NR 1,062,560
Mesa County, Colorado School District #51
1,065,000 6.00%, 12/01/06 MBIA Insured ......................... Aaa/AAA 1,138,027
1,000,000 5.20%, 12/01/09 MBIA Insured ......................... Aaa/AAA 1,065,060
Mesa County Colorado Colorado School District
# 051 (Grand Junction) Series A
1,500,000 4.35%, 12/01/2019 MBIA Insured ....................... Aaa/NR 1,538,835
Pueblo County, Colorado School District #70
1,040,000 5.50%, 12/01/09 AMBAC Insured ........................ Aaa/AAA 1,122,337
1,000,000 5.00%, 12/01/15 FGIC Insured ......................... Aaa/AAA 1,079,180
3,440,000 5.00%, 12/01/16 FGIC Insured ......................... Aaa/AAA 3,688,540
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
SCHOOL DISTRICTS (CONTINUED)
Routt County, Colorado School District #2
Steamboat Springs
$ 1,580,000 4.50%, 12/01/17 FSA Insured .......................... Aaa/AAA $ 1,658,558
Teller County, Colorado School District #2
Woodland Park
1,265,000 5.00%,12/01/17 MBIA Insured .......................... Aaa/AAA 1,379,470
Weld & Adams Counties, Colorado School District #3J
1,000,000 5.50%, 12/15/10 AMBAC Insured Pre-Refunded ........... Aaa/AAA 1,129,760
Weld County, Colorado School District #2
1,315,000 5.00%, 12/01/15 FSA Insured .......................... Aaa/AAA 1,432,140
Weld County, Colorado School District #6
1,195,000 5.00%, 12/01/15 FSA Insured .......................... Aaa/AAA 1,289,620
Weld County, Colorado School District #8
1,115,000 5.00%, 12/01/15 FSA Insured .......................... Aaa/AAA 1,214,324
1,385,000 5.25%, 12/01/17 FSA Insured .......................... Aaa/AAA 1,526,949
Weld County Colorado School District #3J
1,440,000 4.35%, 12/15/2019 FSA Insured ........................ Aaa/NR 1,471,493
-------------
Total School Districts 71,516,779
-------------
Total General Obligation Bonds 92,732,489
-------------
REVENUE BONDS (63.2%)
ELECTRIC (3.1%)
Colorado Springs, Colorado Utilities Revenue
1,660,000 5.00%, 11/15/17 ...................................... Aa2/AA 1,788,351
Colorado Springs, Colorado Utilities Revenue
Subordinated Lien Improvement Series A
1,095,000 5.00%, 11/15/16 ...................................... Aa2/AA 1,195,609
1,000,000 5.00%, 11/15/17 ...................................... Aa2/AA 1,085,600
Moffat County, Colorado Pollution Control
2,125,000 5.625%, 11/01/06 AMBAC Insured ....................... Aaa/AAA 2,250,311
Platte River, Colorado Power Authority
1,500,000 6.00%, 06/01/07 MBIA Insured ......................... Aaa/AAA 1,629,855
-------------
Total Electric 7,949,726
-------------
RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
HIGHER EDUCATION (10.1%)
Boulder County, Colorado Development
Revenue UCAR
$ 1,760,000 5.00%, 09/01/16 MBIA Insured ......................... Aaa/AAA $ 1,899,075
1,130,000 5.00%, 09/01/17 AMBAC Insured ........................ Aaa/AAA 1,225,700
Colorado Educational & Cultural Facility Authority
Johnson & Wales
860,000 5.00%, 04/01/18 XLCA Insured ......................... Aaa/AAA 919,185
Colorado Educational & Cultural Facility Authority
University of Colorado Foundation Project
2,110,000 5.00%, 07/01/17 AMBAC Insured ........................ Aaa/AAA 2,267,976
1,865,000 5.375%, 07/01/18 AMBAC Insured ....................... Aaa/AAA 2,066,420
Colorado Mtn. Jr. College Dist Student Hsg. Facs.
Enterprise Revenue
1,000,000 4.50%, 06/01/18 MBIA Insured ......................... Aaa/AAA 1,042,030
Colorado Post Secondary Educational Facility
1,170,000 5.50%, 03/01/08 MBIA Insured ......................... Aaa/AAA 1,281,794
Colorado State Colleges Board Trustees Auxiliary
System Revenue Refunding Series B
1,035,000 5.00%, 05/15/15 MBIA Insured ......................... Aaa/AAA 1,131,741
Colorado State University System
1,530,000 5.00%, 03/01/17 AMBAC Insured ........................ Aaa/NR 1,653,196
University of Colorado Enterprise System
1,000,000 5.00%, 06/01/11 ...................................... Aa3/AA- 1,106,530
2,325,000 5.00%, 06/01/15 AMBAC Insured ........................ Aaa/AAA 2,520,719
1,735,000 5.00%, 06/01/16 ...................................... Aa3/AA- 1,880,948
1,000,000 5.25%, 06/01/17 FGIC Insured ......................... Aaa/AAA 1,111,830
1,000,000 4.375%, 06/01/19 FGIC Insured ........................ Aaa/AAA 1,026,750
University of Northern Colorado Auxiliary Facilities
1,365,000 5.75%, 06/01/07 MBIA Insured Pre-Refunded ............ Aaa/AAA 1,382,895
1,745,000 5.75%, 06/01/08 MBIA Insured ......................... Aaa/AAA 1,881,564
1,390,000 5.00%, 06/01/15 AMBAC Insured ........................ Aaa/AAA 1,492,985
-------------
Total Higher Education 25,891,338
-------------
RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
HOSPITAL (3.8%)
Colorado Health Facility Authority Hospital
Revenue, Catholic Health
$ 1,000,000 5.375%, 12/01/09 ..................................... Aa2/AA $ 1,092,160
Colorado Health Facility Authority Hospital Revenue,
North Colorado Medical Center
1,440,000 5.60%, 05/15/05 MBIA Insured ......................... Aaa/AAA 1,461,413
Colorado Health Facility Authority Hospital Revenue,
Sisters of Charity-Leavenworth
1,000,000 5.50%, 12/01/08 MBIA Insured ......................... Aaa/AAA 1,111,030
1,500,000 5.25%, 12/01/10 MBIA Insured ......................... Aaa/AAA 1,628,610
Colorado Health Facility Authority
Sisters of Charity - Health Care
1,000,000 6.25%, 05/15/09 AMBAC Insured, ETM ................... Aaa/AAA 1,139,790
Colorado Health Facility Community Provider Pooled
Loan Revenue
52,000 7.20%, 07/15/05 FSA Insured .......................... Aaa/AAA 52,142
Colorado Springs, Colorado Hospital Revenue
1,460,000 5.50%, 12/15/06 MBIA Insured ......................... Aaa/AAA 1,536,066
University Colorado Hospital Authority
Hospital Revenue
1,475,000 5.50%, 11/15/07 AMBAC Insured ........................ Aaa/NR 1,599,387
-------------
Total Hospital 9,620,598
-------------
HOUSING (2.6%)
Adams County, Colorado Multi-Family Housing
Revenue, Brittany Station Series A
1,600,000 5.40%, 09/01/25 FNMA Insured ......................... NR/AAA 1,627,632
Colorado Housing & Finance Authority
Multi-Family/Project Bonds
1,575,000 4.25%, 10/01/17 Class II 2004 Series A-3 ............. Aa2/AA 1,589,065
Colorado Housing Finance Authority
475,000 5.00%, 08/01/13 Series 2001 .......................... A1/A+ 491,235
955,000 6.05%, 10/01/16 Series 1999A3 ........................ Aa2/AA+ 967,272
25,000 6.125%, 11/01/23 Series 1998D3 ....................... Aa2/NR 26,840
RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
HOUSING (CONTINUED)
Colorado Housing Finance Authority,
Single Family Mortgage
$ 120,000 5.625%, 06/01/10 Series 1995D ........................ Aa2/NR $ 121,010
65,000 5.75%, 11/01/10 Series 1996A ......................... Aa2/NR 65,083
35,000 6.25%, 12/01/12 Series 1994C ......................... Aa2/NR 35,055
Colorado Housing Finance Authority,
Single Family Program 2000C3
110,000 5.70%, 10/01/22 ...................................... Aa2/AA 113,903
Colorado Housing Finance Authority, Single
Family Program Sub. 2000D
265,000 5.40%, 10/01/12 ...................................... A1/A+ 272,603
Denver, Colorado Single Family Mortgage Revenue
150,000 5.00%, 11/01/15 GNMA Insured ......................... NR/AAA 154,435
Snowmass Village, Colorado Multi-Family
Revenue Refunding
1,250,000 6.30%, 12/15/08 FSA Insured .......................... Aaa/AAA 1,253,562
-------------
Total Housing 6,717,695
-------------
LEASE (8.4%)
Aurora, Colorado COP
2,105,000 5.25%, 12/01/13 AMBAC Insured ........................ Aaa/AAA 2,301,102
Broomfield, Colorado COP
2,500,000 5.10%, 12/01/12 AMBAC Insured ........................ Aaa/NR 2,760,775
Denver, Colorado City and County COP Roslyn Fire
1,835,000 5.00%, 12/01/15 ...................................... Aa2/AA 1,981,451
El Paso County, Colorado COP
1,100,000 5.25%, 12/01/09 MBIA Insured ......................... Aaa/AAA 1,224,300
El Paso County, Colorado COP Judicial Building
1,760,000 5.00%, 12/01/16 AMBAC Insured ........................ Aaa/AAA 1,903,000
El Paso County, Colorado COP Pikes Peak Regional
Development Authority
1,925,000 5.00%, 12/01/18 AMBAC Insured ........................ Aaa/AAA 2,081,445
Fort Collins, Colorado Lease COP Series A
3,020,000 4.75%, 06/01/18 AMBAC Insured ........................ Aaa/NR 3,205,730
RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
LEASE (CONTINUED)
Fremont County, Colorado COP Refunding
and Improvement Series A
$ 2,075,000 5.00%, 12/15/18 MBIA Insured ......................... Aaa/AAA $ 2,244,278
Lakewood, Colorado COP
1,440,000 5.20%, 12/01/13 AMBAC Insured ........................ Aaa/AAA 1,566,331
Northern Colorado Water Conservancy District
1,000,000 5.00%, 10/01/15 MBIA Insured ......................... Aaa/AAA 1,087,440
Westminster, Colorado COP
1,055,000 5.35%, 09/01/11 MBIA Insured ......................... Aaa/AAA 1,176,483
-------------
Total Lease 21,532,335
-------------
SALES TAX (11.1%)
City of Boulder, Colorado
1,045,000 5.25%, 08/15/10 AMBAC Insured ........................ Aaa/AAA 1,154,046
Boulder, Colorado Open Space Acquisition
1,250,000 5.50%, 08/15/12 ...................................... Aa1/AA+ 1,390,437
Boulder County, Colorado Open Space
Capital Improvement
3,065,000 5.00%, 07/15/16 MBIA Insured ......................... Aaa/AAA 3,303,794
1,630,000 5.00%, 07/15/17 MBIA Insured ........................ Aaa/AAA 1,752,576
Boulder County, Colorado Sales & Use Tax
Open Space Series A
1,000,000 5.45%, 12/15/12 FGIC Insured ......................... Aaa/AAA 1,118,950
City & County of Denver, Colorado Excise
Tax Revenue
2,000,000 5.375%, 09/01/10 FSA Insured ......................... Aaa/AAA 2,221,400
Colorado Springs, Colorado Sales & Use Tax
Revenue Service Sales
1,320,000 5.00%, 12/01/12 ...................................... A1/AA 1,421,442
Douglas County, Colorado Sales & Use Tax
Open Space Revenue
1,780,000 5.50%, 10/15/12 FSA Insured .......................... Aaa/AAA 1,999,296
Golden, Colorado Sales & Use Tax
1,265,000 5.00%, 12/01/12 AMBAC Insured ........................ Aaa/AAA 1,388,603
RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
SALES TAX (CONTINUED)
Jefferson County, Colorado Open Space Sales Tax
$ 1,245,000 5.00%, 11/01/11 FGIC Insured ......................... Aaa/AAA $ 1,359,478
1,600,000 5.00%, 11/01/13 AMBAC Insured ........................ Aaa/AAA 1,740,400
1,080,000 5.00%, 11/01/14 AMBAC Insured ........................ Aaa/AAA 1,169,327
Lakewood, Colorado Sales & Use Tax Revenue
1,040,000 5.25%, 12/01/09 ...................................... NR/AA 1,150,479
Larimer County, Colorado Sales Tax Revenue Bond
1,000,000 5.50%, 12/15/12 AMBAC Insured ........................ Aaa/AAA 1,126,470
Longmont, Colorado Sales & Use Tax
1,875,000 5.50%, 11/15/14 ...................................... NR/AA 2,097,356
Thornton, Colorado Sales Tax
1,000,000 5.00%, 09/01/14 FSA Insured .......................... Aaa/AAA 1,080,930
Westminster, Colorado Sales Tax Revenue
1,175,000 5.50%, 12/01/07 FGIC Insured ......................... Aaa/AAA 1,279,034
1,710,000 5.00%, 12/01/17 AMBAC Insured ........................ Aaa/AAA 1,844,081
-------------
Total Sales Tax 28,598,099
-------------
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 1,052,420
Colorado Department of Transportation Revenue
1,565,000 5.00%, 06/15/15 MBIA Insured ......................... Aaa/AAA 1,737,025
Colorado Department of Transportation-Transportation
Revenue Anticipation Note
1,000,000 6.00%, 06/15/13 AMBAC Insured Pre-Refunded ........... Aaa/AAA 1,160,990
Northwest Parkway, Colorado Public Highway
Authority Series A
2,515,000 5.15%, 06/15/14 AMBAC Insured ........................ Aaa/AAA 2,774,271
Regional Transportation District Colorado COP
1,190,000 5.00%, 06/01/15 AMBAC Insured ........................ Aaa/AAA 1,287,592
1,510,000 4.85%, 06/01/18 AMBAC Insured ........................ Aaa/AAA 1,595,481
RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
TRANSPORTATION (CONTINUED)
Regional Transportation District Colorado
Sales Tax Revenue
$ 2,000,000 5.00%, 11/01/13 FGIC Insured ......................... Aaa/AAA $ 2,168,620
1,000,000 5.00%, 11/01/16 FGIC Insured ......................... Aaa/AAA 1,080,670
-------------
Total Transportation 12,857,069
-------------
WATER & SEWER (16.4%)
Boulder, Colorado Water & Sewer Revenue
1,000,000 5.40%, 12/01/14 ...................................... Aa2/AA+ 1,110,110
Broomfield, Colorado Sewer and Waste
Water Revenue
1,985,000 5.00%, 12/01/15 AMBAC Insured ........................ Aaa/NR 2,157,596
1,000,000 5.00%, 12/01/16 AMBAC Insured ........................ Aaa/NR 1,079,960
Broomfield, Colorado Water Activity Enterprise
1,500,000 5.30%, 12/01/12 MBIA Insured ......................... Aaa/NR 1,684,980
1,730,000 5.25%, 12/01/13 MBIA Insured ......................... Aaa/NR 1,905,266
2,190,000 5.00%, 12/01/16 MBIA Insured ......................... Aaa/NR 2,367,938
2,290,000 5.00%, 12/01/17 MBIA Insured ......................... Aaa/NR 2,469,559
Centennial, Colorado Water & Sewer District
1,750,000 5.80%, 12/01/07 FSA Insured .......................... Aaa/AAA 1,825,565
Colorado Clean Water Revenue
1,000,000 5.375%, 09/01/10 ..................................... Aaa/AAA 1,093,580
Colorado Metro Wastewater Reclamation District
1,270,000 5.25%, 04/01/09 ...................................... Aa2/AA 1,373,429
Colorado Water Resource & Power
Development Authority
215,000 6.00%, 09/01/06 ...................................... Aaa/AAA 215,929
1,000,000 5.50%, 09/01/09 ...................................... Aaa/AAA 1,100,100
1,635,000 5.00%, 09/01/12 ...................................... Aaa/AAA 1,795,704
1,000,000 5.55%, 11/01/13 FGIC Insured ......................... Aaa/AAA 1,123,320
2,675,000 5.00%, 09/01/16 MBIA Insured ......................... Aaa/AAA 2,932,282
1,855,000 5.00%, 09/01/17 MBIA Insured ......................... Aaa/AAA 2,027,144
RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
WATER & SEWER (CONTINUED)
Denver, Colorado City and County
Wastewater Revenue
$ 1,560,000 5.00%, 11/01/15 FGIC Insured ......................... Aaa/AAA $ 1,697,686
Lafayette, Colorado Water Revenue
1,625,000 5.00%, 12/01/17 MBIA Insured ......................... Aaa/AAA 1,765,985
Left Hand, Colorado Water District
Revenue Refunding
1,190,000 4.50%, 05/15/15 FSA Insured .......................... Aaa/NR 1,269,159
Left Hand, Colorado Water District, Series 1996
1,530,000 5.75%, 11/15/08 MBIA Insured ......................... Aaa/AAA 1,628,180
Northglenn, Colorado Water & Sewer
1,010,000 5.75%, 12/01/06 FSA Insured .......................... Aaa/AAA 1,075,549
Pueblo, Colorado Board Water Works
1,000,000 5.50%, 11/01/10 FSA Insured .......................... Aaa/AAA 1,133,170
Thornton, Colorado, Refunding
2,000,000 5.60%, 12/01/06 FSA Insured .......................... Aaa/AAA 2,124,240
Thornton, Colorado Water Enterprise Revenue
1,445,000 4.50%, 12/01/18 MBIA Insured ......................... Aaa/AAA 1,508,378
Ute, Colorado Water Conservancy District
1,570,000 5.50%, 06/15/12 MBIA Insured ......................... Aaa/AAA 1,757,411
Widefield, Colorado Water & Sanitation District
Water & Sewer Refunding & Improvement
1,870,000 4.50%, 12/01/19 MBIA Insured ......................... Aaa/AAA 1,941,135
-------------
Total Water & Sewer 42,163,355
-------------
MISCELLANEOUS REVENUE (2.7%)
Denver, Colorado City & County Helen
Bonfils Project
2,275,000 5.875%, 12/01/09 ..................................... NR/AA- 2,474,813
South Suburban, Colorado Park &
Recreational District
1,000,000 6.00%, 11/01/07 ...................................... Baa3/NR 1,066,290
RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ------------ ------------------------------------------------------ -------- -------------
MISCELLANEOUS REVENUE (CONTINUED)
Thornton, Colorado Development Authority
$ 1,230,000 5.75%, 12/01/06 MBIA Insured ......................... Aaa/AAA $ 1,309,827
Thornton, Colorado Development Authority Tax
Increment North Washington Street Urban
Renewal Project
1,040,000 4.50%, 12/01/18 MBIA Insured ......................... Aaa/AAA 1,081,288
Westminster, Colorado Golf Course Activity
1,000,000 5.40%, 12/01/13 Asset Guaranty Insured ............... NR/AA 1,070,680
-------------
Total Miscellaneous Revenue 7,002,898
-------------
Total Revenue Bonds 162,333,113
-------------
Total Investments (cost $240,799,568*) ............... 99.3% 255,065,602
Other assets less liabilities ........................ 0.7 1,822,394
----- -------------
Net Assets ........................................... 100.0% $ 256,887,996
===== =============
* See note 4.
Portfolio Distribution By Quality Rating (unaudited)
Highest rating(1) .................................... 82.4%
Second highest rating(2) ............................. 16.9
Third highest rating(3) .............................. 0.3
Fourth highest rating(4) ............................. 0.4
-----
100.0%
=====
(1) Aaa of Moody's or AAA of A&P.
(2) Aa of Moody's or AA of S&P.
(3) A of Moody's or S&P
(4) Baa of Moody's or BBB of S&P
PORTFOLIO ABBREVIATIONS:
-------------------------------------------------------
AMBAC - American Municipal Bond Assurance Corp.
COP - Certificates of Participation
ETM - Escrowed to Maturity
FGIC - Financial Guaranty Insurance Co.
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance
GNMA - Government National Mortgage Association
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance
NR - Not Rated
SFM - Single Family Mortgage
UCAR - University Corporation for Atmospheric Research
XLCA - XL Capital Assurance
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
ASSETS
Investments at value (cost $240,799,568) ................................................ $ 255,065,602
Cash .................................................................................... 498,014
Interest receivable ..................................................................... 1,805,462
Receivable for Fund shares sold ......................................................... 49,046
Other assets ............................................................................ 20,613
-------------
Total assets ............................................................................ 257,438,737
-------------
LIABILITIES
Payable for Fund shares redeemed ........................................................ 160,941
Dividends payable ....................................................................... 159,100
Management fee payable .................................................................. 108,972
Distribution and service fees payable ................................................... 44,276
Accrued expenses ........................................................................ 77,452
-------------
Total liabilities ....................................................................... 550,741
-------------
NET ASSETS ................................................................................. $ 256,887,996
-------------
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $.01 per share ...... $ 240,467
Additional paid-in capital .............................................................. 242,722,752
Net unrealized appreciation on investments (note 4) ..................................... 14,266,034
Net realized loss on investments ........................................................ (360,202)
Undistributed net investment income ..................................................... 18,945
-------------
$ 256,887,996
=============
CLASS A
Net Assets .............................................................................. $ 226,070,200
=============
Capital shares outstanding .............................................................. 21,162,142
=============
Net asset value and redemption price per share .......................................... $ 10.68
=============
Offering price per share (100/96 of $10.68 adjusted to nearest cent) (note 3) ........... $ 11.13
=============
CLASS C
Net Assets .............................................................................. $ 15,210,250
=============
Capital shares outstanding .............................................................. 1,426,609
=============
Net asset value and offering price per share ............................................ $ 10.66
=============
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) ........................................... $ 10.66*
=============
CLASS Y
Net Assets .............................................................................. $ 15,607,546
=============
Capital shares outstanding .............................................................. 1,457,902
=============
Net asset value, offering and redemption price per share ................................ $ 10.71
=============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
INVESTMENT INCOME:
Interest income ............................................ $ 11,697,539
Expenses:
Management fee (note 3) .................................... $ 1,295,974
Distribution and service fees (note 3) ..................... 268,155
Transfer and shareholder servicing agent fees .............. 169,750
Trustees' fees and expenses (note 8) ....................... 94,060
Shareholders' reports and proxy statements ................. 71,129
Legal fees ................................................. 51,872
Auditing and tax fees ...................................... 33,814
Custodian fees ............................................. 25,802
Insurance .................................................. 15,505
Registration fees and dues ................................. 13,044
Chief compliance officer (note 3) .......................... 1,136
Miscellaneous .............................................. 43,192
------------
Total expenses ............................................. 2,083,433
Expenses paid indirectly (note 6) .......................... (13,963)
------------
Net expenses ............................................... 2,069,470
------------
Net investment income ...................................... 9,628,069
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ...... (360,056)
Change in unrealized appreciation on investments ........... (2,870,215)
------------
Net realized and unrealized gain (loss) on investments ..... (3,230,271)
------------
Net change in net assets resulting from operations ......... $ 6,397,798
============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
OPERATIONS:
Net investment income .................................... $ 9,628,069 $ 9,336,689
Net realized gain (loss) from securities transactions .... (360,056) 18,155
Change in unrealized appreciation on investments ......... (2,870,215) 941,222
------------- -------------
Change in net assets from operations ................... 6,397,798 10,296,066
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (note 10):
Class A Shares:
Net investment income .................................... (9,247,370) (9,078,557)
Class C Shares:
Net investment income .................................... (472,310) (401,241)
Class I Shares:
Net investment income .................................... -- (50)+
Class Y Shares:
Net investment income .................................... (588,272) (432,274)
------------- -------------
Change in net assets from distributions ................ (10,307,952) (9,912,122)
------------- -------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold ................................ 26,103,958 52,284,613
Reinvested dividends and distributions ................... 6,078,032 5,865,102
Cost of shares redeemed .................................. (34,073,005) (27,630,404)
------------- -------------
Change in net assets from capital share transactions ..... (1,891,015) 30,519,311
------------- -------------
Change in net assets ................................... (5,801,169) 30,903,255
NET ASSETS:
Beginning of period ...................................... 262,689,165 231,785,910
------------- -------------
End of period* ........................................... $ 256,887,996 $ 262,689,165
============= =============
* Includes undistributed net investment income of: ....... $ 18,945 $ 16,148
============= =============
- ----------
+ 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 by the pricing service at the mean of bid and asked quotations.
If market quotations or a valuation from the pricing service is not
readily available, the security is valued at fair value determined 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) MULTIPLE CLASS ALLOCATIONS: All income, expenses (other than
class-specific expenses), and realized and unrealized gains or losses are
allocated daily to each class of shares based on the relative net assets
of each class. Class-specific expenses, which include distribution and
service fees and any other items that are specifically attributed to a
particular class, are charged directly to such class.
e) USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of increases and decreases in net assets from
operations during the reporting period. Actual results could differ from
those estimates.
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 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 managing relationships
with all the various support organizations to theFund 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 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.
On December 31, 2004, the Sub-Adviser's corporate parent was sold to the
Davidson Companies. The Manager and Kirkpatrick Pettis Capital Management, Inc.
(the "New Sub-Adviser"), an affiliate of the Sub-Adviser and a wholly-owned
subsidiary of the Davidson Companies, with approval of the Board of Trustees of
the Fund, have negotiated a new sub-advisory agreement (the "New Sub-Advisory
Agreement") with the same fee structure as the former sub-advisory agreement and
same personnel. The New Sub-Advisory Agreement, which became effective upon the
sale, is subject to shareholder approval.
Under the October 1, 2004, 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 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 1% 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, 2004, distribution fees on Class A Shares amounted to
$114,712 of which the Distributor retained $3,970.
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, 2004, amounted to $115,082. 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 year ended December 31, 2004 amounted to $38,361.
The total of these payments with respect to Class C Shares amounted to $153,443
of which the Distributor retained $23,097.
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, 2004, total commissions on sales of Class AShares amounted to $454,688 of
which the Distributor received $81,840.
c) OTHER RELATED PARTY TRANSACTIONS:
For the year ended December 31, 2004, the Fund incurred $50,867 of legal
fees allocable to Hollyer Brady Barrett & 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 Barrett & Hines LLP.
4. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 2004, purchases of securities and
proceeds from the sales of securities aggregated $32,215,860 and $32,886,313,
respectively.
At December 31, 2004, the aggregate tax cost for all securities was
$240,780,769. At December 31, 2004 the aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax cost
amounted to $14,311,424 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$26,591 for a net unrealized appreciation of $14,284,833.
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, 2004 DECEMBER 31, 2003
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
CLASS A SHARES:
Proceeds from shares sold ........ 1,760,071 $ 18,949,465 3,047,540 $ 33,045,064
Reinvested distributions ......... 516,057 5,531,026 509,390 5,502,495
Cost of shares redeemed .......... (2,622,852) (28,078,616) (1,943,417) (20,966,281)
------------ ------------ ------------ ------------
Net change .................... (346,724) (3,598,125) 1,613,513 17,581,278
------------ ------------ ------------ ------------
CLASS C SHARES:
Proceeds from shares sold ........ 370,611 3,973,438 789,815 8,539,708
Reinvested distributions ......... 24,433 261,462 22,651 244,197
Cost of shares redeemed .......... (430,961) (4,581,119) (193,704) (2,076,304)
------------ ------------ ------------ ------------
Net change .................... (35,917) (346,219) 618,762 6,707,601
------------ ------------ ------------ ------------
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 ........ 296,183 3,181,055 990,596 10,694,841
Reinvested distributions ......... 26,651 285,544 10,962 118,364
Cost of shares redeemed .......... (131,896) (1,413,270) (424,903) (4,582,718)
------------ ------------ ------------ ------------
Net change .................... 190,938 2,053,329 576,655 6,230,487
------------ ------------ ------------ ------------
Total transactions in Fund shares ... (191,703) $ (1,891,015) 2,808,930 $ 30,519,311
============ ============ ============ ============
* For the period April 2, 2003 to July 8, 2003.
8. TRUSTEES' FEES AND EXPENSES
During the fiscal year ended December 31, 2004, there were eight Trustees,
two of whom are affiliated with the Manager and are not paid any trustee fees.
Each Trustees' fee paid during the year was at the annual rate of $8,900 for
carrying out responsibilities and attendance at regularly scheduled Board
Meetings. A meeting of the independent trustees and audit committee is held
prior to each quarterly Board Meeting for which each attendee was paid a fee of
$300. 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, accommodations,
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, 2004 such reimbursements
averaged approximately $4,700 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. INCOME TAX INFORMATION AND 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 $682,680 and debited additional paid-in capital in the amount of
$682,680 at December 31, 2004. This adjustment had no impact on the Fund's
aggregate net assets at December 31, 2004. Further, a small portion of the
dividends may, under some circumstances, be subject to taxes at ordinary income
and/or capital gain rates.
At December 31, 2004, the Fund had a capital loss carryover of $360,056
which expires on December 31, 2012. This carryover is available to offset future
net realized gains on securities transactions to the extent provided for in the
Internal Revenue Code. To the extent that this loss carryover is used to offse
future realized capital gains, it is probable the gains so offset will not be
distributed.
The tax character of distributions:
YEAR ENDED DECEMBER 31,
2004 2003
------------ ------------
Net tax-exempt income $ 9,625,055 $ 9,331,870
Ordinary income 682,897 562,097
Capital gain 0 18,155
------------ ------------
$ 10,307,952 $ 9,912,122
============ ============
As of December 31, 2004, the components of distributable earnings on a tax basis
were as follows:
Unrealized appreciation $ 14,284,833
Accumulated net realized loss (360,056)
------------
$ 13,924,777
============
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to premium/discount adjustments.
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
Net asset value, beginning of period ........................ $ 10.84 $ 10.82 $ 10.32 $ 10.31 $ 9.98
Income (loss) from investment operations:
Net investment income+ ................................... 0.40 0.41 0.43 0.45 0.46
Net gain (loss) on securities (both realized
and unrealized) ....................................... (0.13) 0.05 0.52 0.02 0.35
-------- -------- -------- -------- --------
Total from investment operations ......................... 0.27 0.46 0.95 0.47 0.81
-------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ..................... (0.43) (0.44) (0.45) (0.46) (0.48)
Distributions from capital gains ......................... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ...................................... (0.43) (0.44) (0.45) (0.46) (0.48)
-------- -------- -------- -------- --------
Net asset value, end of period .............................. $ 10.68 $ 10.84 $ 10.82 $ 10.32 $ 10.31
======== ======== ======== ======== ========
Total return (not reflecting sales charge) .................. 2.57% 4.32% 9.36% 4.64% 8.30%
Ratios/supplemental data
Net assets, end of period (in thousands) ................. $226,070 $233,109 $215,195 $187,022 $179,816
Ratio of expenses to average net assets .................. 0.75% 0.74% 0.75% 0.76% 0.78%
Ratio of net investment income to average net assets ..... 3.76% 3.81% 4.05% 4.27% 4.53%
Portfolio turnover rate .................................. 12.55% 6.16% 6.95% 14.56% 22.45%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets .................. 0.74% 0.74% 0.74% 0.75% 0.77%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
See accompanying notes to financial statements.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
Net asset value, beginning of period ................. $ 10.82 $ 10.80 $ 10.30 $ 10.29 $ 9.97
Income (loss) from investment operations:
Net investment income+ ............................ 0.30 0.31 0.31 0.34 0.37
Net gain (loss) on securities (both
realized and unrealized) ........................ (0.13) 0.04 0.53 0.03 0.33
------- ------- ------- ------- -------
Total from investment operations .................. 0.17 0.35 0.84 0.37 0.70
------- ------- ------- ------- -------
Less distributions (note 10):
Dividends from net investment income .............. (0.33) (0.33) (0.34) (0.36) (0.38)
Distributions from capital gains .................. -- -- -- -- --
------- ------- ------- ------- -------
Total distributions ............................... (0.33) (0.33) (0.34) (0.36) (0.38)
------- ------- ------- ------- -------
Net asset value, end of period ....................... $ 10.66 $ 10.82 $ 10.80 $ 10.30 $ 10.29
======= ======= ======= ======= =======
Total return (not reflecting sales charge) ........... 1.60% 3.33% 8.32% 3.64% 7.18%
Ratios/supplemental data
Net assets, end of period (in thousands) .......... $15,210 $15,820 $ 9,109 $ 1,909 $ 897
Ratio of expenses to average net assets ........... 1.70% 1.69% 1.68% 1.69% 1.73%
Ratio of net investment income to average
net assets ...................................... 2.81% 2.83% 2.99% 3.25% 3.60%
Portfolio turnover rate ........................... 12.55% 6.16% 6.95% 14.56% 22.45%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ........... 1.69% 1.68% 1.67% 1.68% 1.72%
Class Y
-------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
Net asset value, beginning of period ................. $ 10.86 $ 10.84 $ 10.33 $ 10.33 $ 10.00
Income (loss) from investment operations:
Net investment income+ ............................ 0.41 0.42 0.44 0.45 0.46
Net gain (loss) on securities (both
realized and unrealized) ........................ (0.12) 0.04 0.52 0.02 0.35
------- ------- ------- ------- -------
Total from investment operations .................. 0.29 0.46 0.96 0.47 0.81
------- ------- ------- ------- -------
Less distributions (note 10):
Dividends from net investment income .............. (0.44) (0.44) (0.45) (0.47) (0.48)
Distributions from capital gains .................. -- -- -- -- --
------- ------- ------- ------- -------
Total distributions ............................... (0.44) (0.44) (0.45) (0.47) (0.48)
------- ------- ------- ------- -------
Net asset value, end of period ....................... $ 10.71 $ 10.86 $ 10.84 $ 10.33 $ 10.33
======= ======= ======= ======= =======
Total return (not reflecting sales charge) ........... 2.73% 4.37% 9.50% 4.59% 8.36%
Ratios/supplemental data
Net assets, end of period (in thousands) .......... $15,608 $13,760 $ 7,482 $ 4,312 $ 4,417
Ratio of expenses to average net assets ........... 0.70% 0.69% 0.69% 0.71% 0.73%
Ratio of net investment income to average
net assets ...................................... 3.81% 3.85% 4.07% 4.32% 4.58%
Portfolio turnover rate ........................... 12.55% 6.16% 6.95% 14.56% 22.45%
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% 0.69% 0.70% 0.72%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
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 tables below are 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 tables below are based on an investment of $1,000 invested on July 1,
2004 and held for the six months ended December 31, 2004.
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".
FOR THE SIX MONTHS ENDED DECEMBER 31, 2004
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 3.88% $1,000.00 $1,038.80 $3.84
- --------------------------------------------------------------------------------
Class C 3.39% $1,000.00 $1,033.90 $8.69
- --------------------------------------------------------------------------------
Class Y 4.00% $1,000.00 $1,040.00 $3.59
- --------------------------------------------------------------------------------
(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 0.75%, 1.70% AND
0.70% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio and an assumed rate of
return of 5.00% per year before expenses, which is not the 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.
FOR THE SIX MONTHS ENDED DECEMBER 31, 2004
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.37 $3.81
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,016.59 $8.62
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,021.62 $3.56
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.75%, 1.70% AND
0.70% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 2004, $9,625,055 of dividends
paid by Tax-Free Fund of Colorado, constituting 93.38% of total dividends paid
during calendar 2004, were exempt-interest dividends and the balance were
ordinary dividend income.
Prior to January 31, 2005, shareholders were mailed IRS Form 1099-DIV
which contained information on the status of distributions paid for the 2004
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 securities of your Fund
twice a year in the semi-annual and annual reports you receive. Additionally, we
prepare, and have available, portfolio listings at the end of each quarter.
Whenever you may be interested in seeing a listing of your Fund's portfolio
other than in your shareholder reports, please check our website
(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 quarters 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, DC or by calling 800-SEC-0330.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROXY VOTING RECORD. 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, 2004 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 http://www.sec.gov.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
Information about
Trustees(1) and Officers
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND AND PRINCIPAL COMPLEX(4) (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(5)
Lacy B. Herrmann(6) Founder and Founder and Chairman of the Board, Aquila 12 Director or trustee,
New York, NY Chairman of Management Corporation, the sponsoring Pimco Advisors VIT,
(05/12/29) the Board organization and parent of the Manager or Oppenheimer Quest
of Trustees Administrator and/or Adviser or Sub-Adviser Value Funds Group,
since 1987 to each fund of the Aquila(sm) Group of Oppenheimer Small Cap
Funds,(7) Chairman of the Manager or Value Fund,
Administrator and/or Adviser or Sub-Adviser Oppenheimer Midcap
to each since 2004, and Founder, Chairman of Fund, and Oppenheimer
the Board of Trustees, Trustee and (currently Rochester Group of
or until 1998) President of each since its Funds.
establishment, beginning in 1984, except
Chairman of the Board of Trustees of Hawaiian
Tax-Free Trust, Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets
Trust and Pacific Capital U.S. Government
Securities Cash Assets Trust through 2003,
Trustee until 2004 and Chairman of the Board,
Emeritus since 2004; 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 and Chief Executive Officer of 10 None
New York, NY 2000 and Aquila Management Corporation, Founder of the
(02/25/58) President Aquila(sm) Group of Funds and parent of
since 1999 Aquila Investment Management LLC, Manager,
since 2004, President and Chief Operating
Officer since 1997, a Director since 1984,
Secretary since 1986 and previously its
Executive Vice President, Senior Vice
President or Vice President, 1986-1997; Chief
Executive Officer and Vice Chair since 2004
and President, Chief Operating Officer and
Manager of the Manager since 2003; Vice
Chair, President, Executive Vice President or
Senior 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; Governor, Investment Company
Institute (2004) and head of its Small Funds
Committee since 2004; active in charitable
and volunteer organizations.
NON-INTERESTED TRUSTEES
Tucker Hart Adams Trustee President, The Adams Group, Inc., an economic 2 Director, Touch
Colorado Springs, CO since 1989 consulting firm, since 1989; formerly Chief America, Colorado
(01/11/38) Economist, United Banks of Colorado; Health Facilities
currently or formerly active with numerous Authority and Mortgage
professional and community organizations. Analysis Computer
Corp.
Thomas A. Christopher Trustee Vice President of Robinson, Hughes & 2 None
Danville, KY since 2004 Christopher, C.P.A.s, P.S.C., since 1977;
(12/19/47) President, A Good Place for Fun, Inc., a
sports facility, since 1987.
Gary C. Cornia Trustee Director, Romney Institute of Public 4 None
Orem, UT since 2000 Management, Marriott School of Management,
(06/24/48) Brigham Young University, 2004 - present;
Professor, Marriott School of Management,
1980 - present; Past President, the National
Tax Association; Fellow, Lincoln Institute of
Land Policy, 2002-2003; Associate Dean,
Marriott School of Management, Brigham Young
University, 1991-2000; Utah Governor's Tax
Review Committee since 1993.
John C. Lucking Trustee President, Econ-Linc, an economic consulting 3 Director, Sanu Resources
Phoenix, AZ since 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 member,
Northern Arizona University Foundation since
1997; member, various historical, civic and
economic associations.
Anne J. Mills(6) Trustee President, Loring Consulting Company since 4 None
Castle Rock, CO since 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 Retired; limited partner and investor in 2 None
Palm Beach, FL since 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 in the N/A N/A
New York, NY President since Aquila(sm) Group of Funds and the Manager
(04/01/57) 2003 since 2003; Senior Vice President, corporate
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 Aquila Money-Market Funds,
1988-2003.
Stephen J. Caridi Senior Vice Vice President of the Distributor since 1995; N/A N/A
New York, NY President Vice President, Hawaiian Tax-Free Trust since
(05/06/61) since 2004 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 Aquila Rocky Mountain Equity Fund and four
(06/11/45) since 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 Registered Principal since 1993, Senior Vice
(06/18/44) since 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 Marketing representative for the Distributor N/A N/A
New York, NY Vice President since 1998; mutual fund services
(04/15/71) since 2002 representative, Prudential Securities,
1996-98.
Edward M. W. Hines Secretary Partner, Hollyer Brady Smith & Hines LLP, N/A N/A
New York, NY since 1987 legal counsel to the Fund, since 1989;
(12/16/39) Secretary of the Aquila(sm) Group of Funds.
Robert W. Anderson Chief Chief Compliance Officer of the Fund, the N/A N/A
New York, NY Compliance Manager and the Distributor since 2004,
(08/23/40) Officer since Compliance Officer of the Manager or its
2004 and predecessor and current parent since 1998 and
Assistant Assistant Secretary of the Aquila(sm) Group
Secretary of Funds since 2000; Consultant, The
since 2000 Wadsworth Group, 1995-1998.
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 since
(11/06/56) 2003 and 2000; Controller, Van Eck Global Funds,
Treasurer 1993-2000.
since 2000
Edward M. W. Hines Secretary Partner, Hollyer Brady Barrett & Hines LLP, N/A N/A
New York, NY since 1987 legal counsel to the Fund, since 1989;
(12/16/39) Secretary of the Aquila(sm) Group of Funds.
John M. Herndon Assistant Assistant Secretary of the Aquila(sm) Group N/A N/A
New York, NY Secretary of Funds since 1995 and Vice President of the
(12/17/39) since 1995 three Aquila Money-Market Funds since 1990;
Vice President of the Manager or its
predecessor and current parent since 1990.
Lori A. Vindigni Assistant Assistant Treasurer of the Aquila(sm) Group N/A N/A
New York, NY Treasurer of Funds since 2000; Assistant Vice President
(11/02/66) since 2000 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/oTax-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) Includes certain Aquila-sponsored funds that are dormant and have no
public shareholders.
(5) Mr. Herrmann and Ms. Herrmann are interested persons of the Fund, as that
term is defined in the 1940 Act, as officers of the Fund and through their
affiliations with both the Manager and the Distributor. Each is also an
interested person as a member of the immediate family of the other.
(6) Effective January 1, 2005, Ms. Mills became Chair and Mr. Herrmann became
Chairman Emeritus, continuing as Trustee.
(7) 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, which do not include the
dormant funds described in footnote 4, are called the "Aquila(sm) Group of
Funds."
- --------------------------------------------------------------------------------
PRIVACY NOTICES (UNAUDITED)
TAX-FREE FUND OF COLORADO
OUR PRIVACY POLICY. In providing services to you as an individual who owns or is
considering investing in shares of the Fund 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 us, such as the Fund's transfer
agent, distributor, investment adviser or sub-adviser, as permitted or required
by law, or as authorized by you. Any other use is strictly prohibited. We do not
sell information about you or any of our fund shareholders to anyone.
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.
AQUILA DISTRIBUTORS, INC.
AQUILA INVESTMENT MANAGEMENT LLC
This Privacy Policy also has been adopted by Aquila Distributors, Inc. and
Aquila Investment Management LLC and applies to all nonpublic information about
you that each of these companies may obtain in connection with services provided
to the Fund or to you as a shareholder of the Fund.
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FOUNDER
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, INC.
1600 Broadway, Suite 1100
Denver, Colorado 80202
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman (thru 12/31/04)
Anne J. Mills, Chair (effective 1/01/05)
Tucker Hart Adams
Thomas A. Christopher
Gary C. Cornia
Diana P. Herrmann
John C. Lucking
J. William Weeks
OFFICERS
Diana P. Herrmann, 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 REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
757 Third Avenue
New York, New York 10017
Further information is contained in the Prospectus, which must precede or
accompany this report.
ITEM 2. CODE OF ETHICS.
(a) As of December 31, 2004 (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" 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 $22,110 in 2004 and $20,100 in 2003.
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 $8,945
and $6,792 in 2003 and 2004, respectively, for return preparation.
d) All Other Fees - There were no additional fees paid for audit and non-
audit services other than those disclosed in a) thorough c) above.
e)(1) Currently, the audit committee of the Registrant pre-approves audit
services and fees on an engagement-by-engagement basis
e)(2) None of the services described in b) through d) above were approved
by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X, all were pre-approved on an engagement-by-engagement basis.
f) No applicable.
g) There were no non-audit services fees billed by the Registrant's accountant
to the Registrant's investment adviser or distributor over the past two years.
h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
905: Not applicable.
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/ Diana P. Herrmann
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President and Trustee
February 28, 2005
By: /s/ Joseph P. DiMaggio
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Chief Financial Officer and Treasurer
February 28, 2005
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
February 28, 2005
By: /s/ Joseph P. DiMaggio
- -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
February 28, 2005
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.