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: 06/30/06
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMI-ANNUAL
REPORT
JUNE 30, 2006
[LOGO OF 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: ONE OF THE
AN EAGLE'S HEAD] AQUILA(SM) GROUP OF FUNDS
[LOGO OF TAX-FREE FUND OF COLORADO:
A SQUARE WITH SILHOUETTES OF TWO
MOUNTAINS AND A RISING SUN]
SERVING COLORADO INVESTORS FOR ALMOST TWO DECADES
TAX-FREE FUND OF COLORADO
"BUILT TO RIDE THE WAVES"
August, 2006
Dear Fellow Shareholder:
As you are no doubt aware, the financial markets have certainly had their
fair share of crests and troughs recently - one day the markets are up, and the
next day, they are down. Riding these waves is not always easy for investors.
The management of Tax-Free Fund of Colorado understands investors'
apprehension when it comes to fluctuations with your hard-earned investment
monies. And, this concern is especially pertinent as it relates to saving for
and funding your retirement.
With this very real and inevitable concern in mind, Tax-Free Fund of
Colorado has endeavored to structure the Fund to "ride the waves" with the least
upset to investors as possible. How do we go about seeking to accomplish this?
INVESTMENT QUALITY
No matter what quality rating exists with a security, it will still be
subject to market fluctuations. However, our experience has been that
top-quality ratings do not fluctuate as much as lower quality ratings.
Furthermore, when they do fluctuate, they tend to fluctuate less and return to
their base market price at a quicker rate than lower-grade securities.
In accordance with the Fund's prospectus, Tax-Free Fund of Colorado can
only purchase investment-grade securities - those within the top four credit
quality ratings - AAA, AA, A and Baa. In point of practice, however, we have
consistently sought to have the bulk of the portfolio securities invested within
the top two grades - AAA and AA. On June 30, 2006, 98.5% of the portfolio
consisted of AAA and AA rated securities.
INTERMEDIATE MATURITY
As we have emphasized in the past, long-term bonds tend to produce a
higher return than short-term bonds. However, such longer maturity bonds also
tend to experience a higher degree of volatility in their price.
Tax-Free Fund of Colorado balances out longer-term maturities by having a
portion of the Fund's investments in shorter-term maturities. Through utilizing
a blend of maturities - both shorter-term and longer-term - Tax-Free Fund of
Colorado attempts to provide a satisfactory level of return without subjecting
the share price to excessive swings as interest rates increase and decrease. We
feel that this focus on keeping the average of maturities relatively
intermediate in term takes the best that each
NOT A PART OF THE SEMI-ANNUAL REPORT
investment has to offer - gaining stability from the shorter-term maturities and
higher yields from the longer-term maturities.
DIVERSIFICATION OF THE PORTFOLIO
To the maximum extent possible, Tax-Free Fund of Colorado strives to
invest in as many projects as possible throughout the state. The portfolio might
be comprised of a school district bond in Denver, a transportation bond in Grand
Junction and a housing bond in Springfield. In this way, we strive to ensure
that no one project, type of project, or area of the State can have any
significant adverse influence upon your investment in the Fund.
TAX-FREE INCOME
No matter what return Tax-Free Fund of Colorado provides, it must be
remembered that you would have to earn significantly more from a taxable
investment in order to be equal to what you get to keep from a tax-free
investment.
As an example, you would have to earn 6.5%* on a taxable investment in
order to equal the tax-free level of 4%.
Keep this illustration in mind the next time you examine the yield that
Tax-Free Fund of Colorado offers you. You will find that a 3%, 4% or 5% tax-free
yield looks considerably more attractive to you when you consider the
implications of taxes.
SUMMARY
The Fund uses this combination of quality, maturity, and diversification
as it seeks to provide you with as high a level of tax-free income as is
consistent with preservation of capital.
As we are sure you are aware, there is no way to take ALL the waves out of
investing. But, you can rest assured that Tax-Free Fund of Colorado continually
strives to do its very best to make sure your ride is as smooth as possible.
Sincerely,
/s/ Diana P. Herrmann /s/ Lacy B. Herrmann
Diana P. Herrmann Lacy B. Herrmann
President Founder and Chairman Emeritus
* For illustration purposes only - assumes a 35% Federal and 4.63% state
tax-rate. This does not represent past or future performance of any investment.
NOT A PART OF THE SEMI-ANNUAL REPORT
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS
JUNE 30, 2006 (UNAUDITED)
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (36.0%) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
CITY & COUNTY (1.8%)
Denver, Colorado City & County Art Museum
$ 2,000,000 5.000%, 08/01/15 ....................................... Aa1/AA+ $ 2,087,060
Pueblo County, Colorado Pueblo Library
District Refunding
2,135,000 4.250%, 11/01/19 ....................................... Aaa/NR 2,094,435
-------------
Total City & County 4,181,495
-------------
METROPOLITAN DISTRICT (4.6%)
Arapahoe, Colorado Park & Recreation District
1,070,000 5.000%, 12/01/17 FGIC Insured .......................... Aaa/NR 1,111,495
Castle Pines, Colorado Metropolitan District
1,060,000 5.500%, 12/01/07 FSA Insured ........................... Aaa/AAA 1,084,200
Foothills, Colorado Park & Recreational District
1,310,000 5.000%, 12/01/12 FSA Insured ........................... Aaa/NR 1,371,740
1,325,000 5.000%, 12/01/13 FSA Insured ........................... Aaa/NR 1,382,214
Highlands Ranch, Colorado Metropolitan
District #1, Refunding
1,000,000 5.750%, 09/01/08 AMBAC Insured ......................... Aaa/AAA 1,037,580
1,730,000 5.750%, 09/01/09 AMBAC Insured ......................... Aaa/AAA 1,820,842
North Metro Fire Rescue District Colorado
1,200,000 4.625%, 12/01/20 AMBAC Insured ......................... NR/AAA 1,219,284
South Suburban, Colorado Park &
Recreational District
1,365,000 5.125%, 12/15/09 FGIC Insured .......................... Aaa/AAA 1,405,472
-------------
Total Metropolitan District 10,432,827
-------------
SCHOOL DISTRICTS (29.6%)
Adams County, Colorado School District #12
(Adams 12 Five Star Schools)
1,255,000 5.625%, 12/15/08 FGIC Insured Pre-Refunded ............. Aaa/AAA 1,300,305
1,170,000 5.000%, 12/15/12 MBIA Insured .......................... Aaa/AAA 1,225,517
830,000 5.000%, 12/15/12 MBIA Insured Pre-Refunded ............. Aaa/AAA 872,280
Adams County 12 Five Star Schools, Colorado
Refunding Series B
2,000,000 4.250%, 12/15/19 FSA Insured ........................... Aaa/AAA 1,971,760
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
SCHOOL DISTRICTS (CONTINUED)
Adams County 12 Five Star Schools, Colorado
Refunding
$ 2,000,000 4.500%, 12/15/20 MBIA Insured .......................... Aaa/AAA $ 1,993,640
Adams County, Colorado School District #14
1,275,000 5.750%, 12/01/08 FSA Insured Pre-Refunded .............. Aaa/AAA 1,322,290
Adams & Weld Counties, Colorado School
District #027J (Brighton)
1,600,000 4.375%, 12/01/19 FSA Insured ........................... Aaa/AAA 1,573,648
1,765,000 4.300%, 12/01/19 FGIC Insured .......................... Aaa/AAA 1,748,974
Arapahoe County, Colorado Cherry Creek
School District #5
1,000,000 5.500%, 12/15/08 ....................................... Aa2/AA 1,038,310
2,760,000 5.500%, 12/15/11 ....................................... Aa2/AA 2,897,255
2,750,000 5.500%, 12/15/12 ....................................... Aa2/AA 2,886,757
Boulder Valley, Colorado School District
1,215,000 5.500%, 12/01/08 FGIC Insured .......................... Aaa/AAA 1,254,439
Clear Creek, Colorado School District
1,000,000 5.000%, 12/01/16 FSA Insured ........................... Aaa/AAA 1,041,620
Denver, Colorado City & County School District #1
Refunding Series A
1,000,000 5.600%, 06/01/08 ....................................... Aa3/AA- 1,031,960
Denver, Colorado City & County School District #1
Refunding Series C
2,400,000 4.250%, 12/01/18 FGIC Insured .......................... Aaa/AAA 2,377,104
Douglas & Elbert Counties, Colorado School
District # Re-1, Series 1992
2,000,000 5.250%, 12/15/11 FGIC Insured .......................... Aaa/AAA 2,086,780
El Paso County, Colorado School District #11
1,330,000 6.250%, 12/01/08 ....................................... Aa3/AA- 1,399,719
El Paso County, Colorado School District #20
1,000,000 6.150%, 12/15/08 MBIA Insured .......................... Aaa/AAA 1,054,040
1,500,000 5.000%, 12/15/14 FGIC Insured .......................... Aaa/NR 1,574,850
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
SCHOOL DISTRICTS (CONTINUED)
El Paso County, Colorado School District #38
$ 1,110,000 5.700%, 12/01/12 Pre-Refunded .......................... Aa3/NR $ 1,189,609
El Paso County, Colorado School District #49
1,500,000 5.500%, 12/01/13 FSA Insured ........................... Aaa/AAA 1,633,860
1,000,000 5.250%, 12/01/14 FGIC Insured .......................... Aaa/AAA 1,062,650
Garfield County, Colorado School District
1,250,000 5.000%, 12/01/17 FSA Insured ........................... Aaa/NR 1,298,475
Grand County, Colorado School District #002
(East Grand) Refunding & Improvement Series B
1,040,000 4.250%, 12/01/18 FSA Insured ........................... Aaa/AAA 1,030,078
Jefferson County, Colorado School District # R-1
3,000,000 5.500%, 12/15/09 FGIC Insured Pre-Refunded ............. Aaa/AAA 3,146,580
2,340,000 5.250%, 12/15/11 FGIC Insured .......................... Aaa/AAA 2,440,807
1,000,000 5.500%, 12/15/13 FGIC Insured Pre-Refunded ............. Aaa/AAA 1,048,860
La Plata County, Colorado School District #9
1,500,000 5.000%, 11/01/18 MBIA Insured .......................... Aaa/NR 1,582,095
2,245,000 4.250%, 11/01/18 MBIA Insured .......................... Aaa/NR 2,223,650
Larimer County, Colorado School District #R1
Poudre Refunding Series A
2,100,000 5.250%, 12/15/11 ....................................... Aa3/AA- 2,164,386
Mesa County, Colorado School District #51
1,065,000 6.000%, 12/01/06 MBIA Insured .......................... Aaa/AAA 1,074,457
1,000,000 5.200%, 12/01/09 MBIA Insured Pre-Refunded ............. Aaa/AAA 1,015,930
1,500,000 4.350%, 12/01/19 MBIA Insured .......................... Aaa/NR 1,493,910
Pueblo County, Colorado School District #70
1,040,000 5.500%, 12/01/09 AMBAC Insured ......................... Aaa/AAA 1,063,889
1,000,000 5.000%, 12/01/15 FGIC Insured .......................... Aaa/AAA 1,041,210
3,440,000 5.000%, 12/01/16 FGIC Insured .......................... Aaa/AAA 3,571,649
Teller County, Colorado School District #2
Woodland Park
1,265,000 5.000%, 12/01/17 MBIA Insured .......................... Aaa/AAA 1,326,846
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
SCHOOL DISTRICTS (CONTINUED)
Weld & Adams Counties, Colorado School District #3J
$ 1,000,000 5.500%, 12/15/10 AMBAC Insured Pre-Refunded ............ Aaa/AAA $ 1,051,370
Weld County, Colorado School District #2
1,315,000 5.000%, 12/01/15 FSA Insured ........................... Aaa/AAA 1,374,228
Weld County, Colorado School District #3J
1,440,000 4.350%, 12/15/19 FSA Insured ........................... Aaa/NR 1,434,168
Weld County, Colorado School District #6
1,195,000 5.000%, 12/01/15 FSA Insured ........................... Aaa/AAA 1,255,467
Weld County, Colorado School District #8
1,115,000 5.000%, 12/01/15 FSA Insured ........................... Aaa/AAA 1,165,220
1,385,000 5.250%, 12/01/17 FSA Insured ........................... Aaa/AAA 1,464,250
-------------
Total School Districts 67,804,892
-------------
Total General Obligation Bonds 82,419,214
-------------
REVENUE BONDS (63.4%)
ELECTRIC (2.8%)
Colorado Springs, Colorado Utilities Revenue
1,660,000 5.000%, 11/15/17 ....................................... Aa2/AA 1,731,463
Colorado Springs, Colorado Utilities Revenue
Subordinated Lien Improvement Series A
1,000,000 5.000%, 11/15/17 ....................................... Aa2/AA 1,045,630
Moffat County, Colorado Pollution Control
2,125,000 5.625%, 11/01/06 AMBAC Insured ......................... Aaa/AAA 2,137,049
Platte River, Colorado Power Authority
1,500,000 6.000%, 06/01/07 MBIA Insured .......................... Aaa/AAA 1,528,950
-------------
Total Electric 6,443,092
-------------
HIGHER EDUCATION (10.3%)
Boulder, Colorado Development Revenue UCAR
1,760,000 5.000%, 09/01/16 MBIA Insured .......................... Aaa/AAA 1,830,717
1,130,000 5.000%, 09/01/17 AMBAC Insured ......................... Aaa/AAA 1,178,194
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
HIGHER EDUCATION (CONTINUED)
Colorado Educational & Cultural Facility
Authority Johnson & Wales
$ 860,000 5.000%, 04/01/18 XLCA Insured .......................... Aaa/AAA $ 887,210
Colorado Educational & Cultural Facility Authority
University of Colorado Foundation Project
2,110,000 5.000%, 07/01/17 AMBAC Insured ......................... Aaa/AAA 2,187,205
1,865,000 5.375%, 07/01/18 AMBAC Insured ......................... Aaa/AAA 1,977,888
Colorado Educational & Cultural Facility Authority
Refunding University of Denver Project Series B
1,050,000 4.500%, 03/01/19 FGIC Insured .......................... Aaa/AAA 1,050,756
Colorado Mountain Jr. College District Student
Housing Facilities Enterprise Revenue
1,000,000 4.500%, 06/01/18 MBIA Insured .......................... Aaa/AAA 1,009,900
Colorado Post Secondary Educational Facility
1,170,000 5.500%, 03/01/08 MBIA Insured .......................... Aaa/AAA 1,200,946
Colorado State University System
1,530,000 5.000%, 03/01/17 AMBAC Insured ......................... Aaa/NR 1,591,307
University of Colorado Enterprise System
1,000,000 5.000%, 06/01/11 ....................................... Aa3/AA- 1,045,440
2,325,000 5.000%, 06/01/15 AMBAC Insured ......................... Aaa/AAA 2,428,672
1,735,000 5.000%, 06/01/16 ....................................... Aa3/AA- 1,808,911
1,000,000 5.250%, 06/01/17 FGIC Insured .......................... Aaa/AAA 1,064,160
1,000,000 4.375%, 06/01/19 FGIC Insured .......................... Aaa/AAA 998,500
University of Northern Colorado Auxiliary Facilities
1,745,000 5.750%, 06/01/08 MBIA Insured .......................... Aaa/AAA 1,788,817
1,390,000 5.000%, 06/01/15 AMBAC Insured ......................... Aaa/AAA 1,442,500
-------------
Total Higher Education 23,491,123
-------------
HOSPITALS (3.1%)
Colorado Health Facility Authority Hospital
Revenue, Catholic Health
1,000,000 5.375%, 12/01/09 ....................................... Aa2/AA 1,036,050
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
HOSPITALS (CONTINUED)
Colorado Health Facility Authority Hospital
Revenue, Sisters of Charity-Leavenworth
$ 1,000,000 5.500%, 12/01/08 MBIA Insured .......................... Aaa/AAA $ 1,036,090
1,500,000 5.250%, 12/01/10 MBIA Insured .......................... Aaa/AAA 1,549,545
Colorado Health Facility Authority Sisters of
Charity-Health Care
1,000,000 6.250%, 05/15/09 AMBAC Insured, ETM .................... Aaa/AAA 1,061,250
Park Hospital District Larimer County, Colorado
Limited Tax Revenue
1,010,000 4.500%, 01/01/21 Assured Guaranty Insured .............. Aa1/AAA 999,395
University Colorado Hospital Authority
Hospital Revenue
1,475,000 5.500%, 11/15/07 AMBAC Insured ......................... Aaa/NR 1,505,651
-------------
Total Hospitals 7,187,981
-------------
HOUSING (1.3%)
Colorado Housing & Finance Authority
300,000 5.000%, 08/01/13 Series 2001 ........................... A1/A+ 301,512
580,000 6.050%, 10/01/16 Series 1999A3 ......................... Aa2/AA+ 597,354
15,000 6.125%, 11/01/23 Series 1998D3 ......................... Aa2/NR 15,533
Colorado Housing & Finance Authority
Multi-Family/Project Bonds
1,575,000 4.250%, 10/01/17 Class II 2004 Series .................. A-3 Aa2/AA 1,565,597
Colorado Housing & Finance Authority, Single
Family Mortgage
45,000 5.625%, 06/01/10 Series 1995D .......................... Aa2/NR 45,141
35,000 5.750%, 11/01/10 Series 1996A .......................... Aa2/A+ 35,022
Colorado Housing & Finance Authority, Single
Family Mortgage 2000C3
55,000 5.700%, 10/01/22 ....................................... Aa2/AA 55,195
Colorado Housing Finance Authority, Single Family
Mortgage Subordinated 2000D
145,000 5.400%, 10/01/12 ....................................... A1/A+ 145,687
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
HOUSING (CONTINUED)
Denver, Colorado Single Family Mortgage Revenue
$ 100,000 5.000%, 11/01/15 GNMA Insured .......................... NR/AAA $ 101,136
-------------
Total Housing 2,862,177
-------------
LEASE (10.1%)
Arapahoe County, Colorado COP Refunding
1,000,000 4.250%, 02/15/19 AMBAC Insured ......................... Aaa/AAA 977,040
Aurora, Colorado COP
2,105,000 5.250%, 12/01/13 AMBAC Insured ......................... Aaa/AAA 2,217,996
Broomfield, Colorado COP
2,500,000 5.100%, 12/01/12 AMBAC Insured ......................... Aaa/NR 2,613,000
Denver, Colorado City and County COP Roslyn Fire
1,835,000 5.000%, 12/01/15 ....................................... Aa2/AA 1,907,923
El Paso County, Colorado COP
1,100,000 5.250%, 12/01/09 MBIA Insured .......................... Aaa/AAA 1,146,497
El Paso County, Colorado COP Judicial Building
1,760,000 5.000%, 12/01/16 AMBAC Insured ......................... Aaa/AAA 1,828,253
El Paso County, Colorado COP Pikes Peak Regional
Development Authority
1,925,000 5.000%, 12/01/18 AMBAC Insured ......................... Aaa/AAA 2,003,386
Fort Collins, Colorado Lease COP Series A
3,020,000 4.750%, 06/01/18 AMBAC Insured ......................... Aaa/NR 3,099,939
Fremont County, Colorado COP Refunding and
Improvement Series A
2,075,000 5.000%, 12/15/18 MBIA Insured .......................... Aaa/AAA 2,159,909
Golden, Colorado COP
1,575,000 4.375%, 12/01/20 FGIC Insured .......................... Aaa/AAA 1,549,312
Lakewood, Colorado COP
1,440,000 5.200%, 12/01/13 AMBAC Insured ......................... Aaa/AAA 1,514,405
Northern Colorado Water Conservancy District COP
1,000,000 5.000%, 10/01/15 MBIA Insured .......................... Aaa/AAA 1,043,990
Westminster, Colorado COP
1,055,000 5.350%, 09/01/11 MBIA Insured .......................... Aaa/AAA 1,110,535
-------------
Total Lease 23,172,185
-------------
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
SALES TAX (14.6%)
Boulder, Colorado
$ 1,045,000 5.250%, 08/15/10 AMBAC Insured ......................... Aaa/AAA $ 1,086,497
Boulder, Colorado Open Space Acquisition
1,250,000 5.500%, 08/15/12 ....................................... Aa1/AA+ 1,322,762
Boulder, Colorado Open Space Capital Improvement
3,065,000 5.000%, 07/15/16 MBIA Insured .......................... Aaa/AAA 3,202,588
1,630,000 5.000%, 07/15/17 MBIA Insured .......................... Aaa/AAA 1,698,753
Boulder, Colorado Sales & Use Tax Open Space
Series A
1,000,000 5.450%, 12/15/12 FGIC Insured .......................... Aaa/AAA 1,058,530
City & County of Denver, Colorado Excise
Tax Revenue
2,000,000 5.375%, 09/01/10 FSA Insured ........................... Aaa/AAA 2,088,420
Colorado Springs, Colorado Sales & Use Tax
Revenue Service Sales
1,320,000 5.000%, 12/01/12 ....................................... A1/AA 1,363,256
Denver, Colorado City & County Excise Tax Revenue
1,000,000 5.000%, 09/01/11 FSA Insured ........................... Aaa/AAA 1,044,180
2,260,000 5.000%, 09/01/12 FSA Insured ........................... Aaa/AAA 2,359,847
Douglas County, Colorado Sales & Use Tax Open
Space Revenue
1,780,000 5.500%, 10/15/12 FSA Insured ........................... Aaa/AAA 1,888,883
Golden, Colorado Sales & Use Tax
1,265,000 5.000%, 12/01/12 AMBAC Insured ......................... Aaa/AAA 1,324,619
Greeley, Colorado Sales & Use Tax Revenue
1,445,000 4.250%, 10/01/18 MBIA Insured .......................... Aaa/AAA 1,431,316
1,435,000 4.000%, 10/01/19 MBIA Insured .......................... Aaa/AAA 1,365,503
Jefferson County, Colorado Open Space Sales Tax
1,245,000 5.000%, 11/01/11 FGIC Insured .......................... Aaa/AAA 1,287,579
1,600,000 5.000%, 11/01/13 AMBAC Insured ......................... Aaa/AAA 1,668,112
1,080,000 5.000%, 11/01/14 AMBAC Insured ......................... Aaa/AAA 1,122,833
1,695,000 4.000%, 11/01/18 AMBAC Insured ......................... Aaa/AAA 1,624,217
Lakewood, Colorado Sales & Use Tax Revenue
1,040,000 5.250%, 12/01/09 ....................................... NR/AA 1,082,952
Larimer County, Colorado Sales Tax Revenue Bond
1,000,000 5.500%, 12/15/12 AMBAC Insured ......................... Aaa/AAA 1,063,390
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
SALES TAX (CONTINUED)
Longmont, Colorado Sales & Use Tax
$ 1,875,000 5.500%, 11/15/14 ....................................... NR/AA $ 1,993,313
Thornton, Colorado Sales Tax
1,000,000 5.000%, 09/01/14 FSA Insured ........................... Aaa/AAA 1,038,550
Westminster, Colorado Sales Tax Revenue
1,175,000 5.500%, 12/01/07 FGIC Insured .......................... Aaa/AAA 1,201,825
-------------
Total Sales Tax 33,317,925
-------------
TRANSPORTATION (4.2%)
Colorado Department of Transportation-Tax
Revenue Anticipation Note
1,000,000 6.000%, 06/15/13 AMBAC Insured Pre-Refunded ............ Aaa/AAA 1,079,930
Northwest Parkway, Colorado Public Highway
Authority Series A
2,515,000 5.150%, 06/15/14 AMBAC Insured ......................... Aaa/AAA 2,655,966
Regional Transportation District, Colorado COP
1,190,000 5.000%, 06/01/15 AMBAC Insured ......................... Aaa/AAA 1,243,062
1,510,000 4.850%, 06/01/18 AMBAC Insured ......................... Aaa/AAA 1,548,867
Regional Transportation District, Colorado Sales
Tax Revenue
2,000,000 5.000%, 11/01/13 FGIC Insured .......................... Aaa/AAA 2,085,140
1,000,000 5.000%, 11/01/16 FGIC Insured Pre-Refunded ............. Aaa/AAA 1,051,340
-------------
Total Transportation 9,664,305
-------------
WATER & SEWER (14.2%)
Boulder, Colorado Water & Sewer Revenue
1,000,000 5.400%, 12/01/14 ....................................... Aa2/AA+ 1,057,620
Boulder, Colorado Water & Sewer Revenue Series C
2,420,000 4.500%, 12/01/18 ....................................... Aa2/AA+ 2,434,665
Broomfield, Colorado Sewer and Waste Water Revenue
1,985,000 5.000%, 12/01/15 AMBAC Insured ......................... Aaa/NR 2,080,081
1,000,000 5.000%, 12/01/16 AMBAC Insured ......................... Aaa/NR 1,044,470
Broomfield, Colorado Water Activity Enterprise
1,500,000 5.300%, 12/01/12 MBIA Insured .......................... Aaa/NR 1,594,920
1,730,000 5.250%, 12/01/13 MBIA Insured .......................... Aaa/NR 1,827,382
Colorado Clean Water Revenue
830,000 5.375%, 09/01/10 Pre-Refunded .......................... Aaa/AAA 857,083
170,000 5.375%, 09/01/10 ....................................... Aaa/AAA 175,227
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
WATER & SEWER (CONTINUED)
Colorado Metro Wastewater Reclamation District
$ 1,270,000 5.250%, 04/01/09 ....................................... Aa2/AA $ 1,298,867
Colorado Water Resource & Power
Development Authority
215,000 6.000%, 09/01/06 ....................................... Aaa/AAA 215,342
1,000,000 5.550%, 11/01/13 FGIC Insured .......................... Aaa/AAA 1,062,090
2,675,000 5.000%, 09/01/16 MBIA Insured .......................... Aaa/AAA 2,811,880
1,855,000 5.000%, 09/01/17 MBIA Insured .......................... Aaa/AAA 1,943,409
1,595,000 4.000%, 09/01/19 ....................................... Aaa/AAA 1,504,835
Colorado Water Resource & Power Development
Authority Clean Water Revenue Series A
1,375,000 5.000%, 09/01/12 Pre-Refunded .......................... Aaa/AAA 1,441,646
260,000 5.000%, 09/01/12 ....................................... Aaa/AAA 272,480
Colorado Water Resource & Power Development
Authority Clean Water Revenue Series B
820,000 5.500%, 09/01/09 Pre-Refunded .......................... Aaa/AAA 848,856
180,000 5.500%, 09/01/09 ....................................... Aaa/AAA 186,145
Denver, Colorado City and County
Wastewater Revenue
1,560,000 5.000%, 11/01/15 FGIC Insured .......................... Aaa/AAA 1,629,436
Left Hand, Colorado Water District, Series 1996
1,000,000 5.750%, 11/15/08 MBIA Insured Pre-Refunded ............. Aaa/AAA 1,007,140
Northglenn, Colorado Water & Sewer
1,010,000 5.750%, 12/01/06 FSA Insured ........................... Aaa/AAA 1,017,929
Pueblo, Colorado Board Water Works
1,000,000 5.500%, 11/01/10 FSA Insured ........................... Aaa/AAA 1,062,980
Thornton, Colorado Refunding
2,000,000 5.600%, 12/01/06 FSA Insured ........................... Aaa/AAA 2,014,520
Thornton, Colorado Water Enterprise Revenue
1,445,000 4.500%, 12/01/18 MBIA Insured .......................... Aaa/AAA 1,460,071
Ute, Colorado Water Conservancy District
1,570,000 5.500%, 06/15/12 MBIA Insured .......................... Aaa/AAA 1,659,160
-------------
Total Water & Sewer 32,508,234
-------------
MISCELLANEOUS REVENUE (2.8%)
Denver, Colorado City & County Helen Bonfils Project
2,275,000 5.875%, 12/01/09 ....................................... NR/A+ 2,336,289
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- ----------- -------------------------------------------------------- --------- -------------
MISCELLANEOUS REVENUE (CONTINUED)
South Suburban, Colorado Park & Recreational District
$ 685,000 6.000%, 11/01/07 ....................................... Baa2/NR $ 694,111
Thornton, Colorado Development Authority
1,230,000 5.750%, 12/01/06 MBIA Insured .......................... Aaa/AAA 1,239,705
Thornton, Colorado Development Authority Tax
Increment North Washington Street Urban
Renewal Project
1,040,000 4.500%, 12/01/18 MBIA Insured .......................... Aaa/AAA 1,050,847
Westminster, Colorado Golf Course Activity
1,000,000 5.400%, 12/01/13 Radian Group, Inc. Insured ............ NR/AA 1,034,070
-------------
Total Miscellaneous Revenue 6,355,022
-------------
Total Revenue Bonds 145,002,044
-------------
Total Investments (cost $223,779,249*) ................. 99.4% 227,421,258
Other assets less liabilities .......................... 0.6 1,469,829
--------- -------------
Net Assets ............................................. 100.0% $ 228,891,087
========= =============
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED) PORTFOLIO
-------------------------------------------------------- ---------
Aaa of Moody's or AAA of S&P ........................... 82.1%
Aa of Moody's or AA of S&P ............................. 16.4
A of Moody's or S&P .................................... 1.2
Baa of Moody's or BBB of S&P ........................... 0.3
---------
100.0%
=========
* See note 4.
PORTFOLIO ABBREVIATIONS:
- --------------------------------------------------------------------------------
AMBAC - American Municipal Bond Assurance Corp.
COP - Certificates of Participation
ETM - Escrowed to Maturity
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance
GNMA - Government National Mortgage Association
MBIA - Municipal Bond Investors Assurance
NR - Not Rated
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
JUNE 30, 2006 (UNAUDITED)
ASSETS
Investments at value (cost $223,779,249) .......................................... $ 227,421,258
Receivable for investment securities sold ......................................... 3,294,436
Interest receivable ............................................................... 1,697,752
Receivable for Fund shares sold ................................................... 26,724
Other assets ...................................................................... 22,545
-------------
Total assets ...................................................................... 232,462,715
-------------
LIABILITIES
Cash overdraft .................................................................... 2,954,056
Dividends payable ................................................................. 214,719
Payable for Fund shares redeemed .................................................. 199,819
Management fee payable ............................................................ 101,886
Distribution and service fees payable ............................................. 38,922
Accrued expenses .................................................................. 62,226
-------------
Total liabilities ................................................................. 3,571,628
-------------
NET ASSETS .......................................................................... $ 228,891,087
=============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share $ 224,486
Additional paid-in capital ........................................................ 225,620,884
Net unrealized appreciation on investments (note 4) ............................... 3,642,009
Net realized loss on investments .................................................. (304,630)
Overdistributed net investment income ............................................. (291,662)
-------------
$ 228,891,087
=============
CLASS A
Net Assets ........................................................................ $ 204,416,618
=============
Capital shares outstanding ........................................................ 20,048,493
=============
Net asset value and redemption price per share .................................... $ 10.20
=============
Offering price per share (100/96 of $10.20 adjusted to nearest cent) .............. $ 10.63
=============
CLASS C
Net Assets ........................................................................ $ 11,924,387
=============
Capital shares outstanding ........................................................ 1,171,820
=============
Net asset value and offering price per share ...................................... $ 10.18
=============
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) ...................................... $ 10.18*
=============
CLASS Y
Net Assets ........................................................................ $ 12,550,082
=============
Capital shares outstanding ........................................................ 1,228,257
=============
Net asset value, offering and redemption price per share .......................... $ 10.22
=============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
INVESTMENT INCOME:
Interest income ...................................... $ 5,480,078
Expenses:
Management fee (note 3) .............................. $ 600,616
Distribution and service fees (note 3) ............... 116,104
Transfer and shareholder servicing agent fees ........ 96,949
Trustees' fees and expenses (note 8) ................. 68,596
Legal fees (note 3) .................................. 35,978
Shareholders' reports and proxy statements ........... 31,873
Custodian fees ....................................... 20,424
Registration fees and dues ........................... 11,063
Auditing and tax fees ................................ 9,472
Insurance ............................................ 8,067
Chief compliance officer (note 3) .................... 2,278
Miscellaneous ........................................ 22,792
--------------
Total expenses ....................................... 1,024,212
Expenses paid indirectly (note 6) .................... (8,903)
--------------
Net expenses ......................................... 1,015,309
--------------
Net investment income ................................ 4,464,769
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions (59,291)
Change in unrealized appreciation on investments ..... (4,864,003)
--------------
Net realized and unrealized gain (loss) on investments (4,923,294)
--------------
Net change in net assets resulting from operations ... $ (458,525)
==============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended
June 30, 2006 Year Ended
(unaudited) December 31, 2005
---------------- -----------------
OPERATIONS:
Net investment income ................................... $ 4,464,769 $ 9,287,999
Net realized gain (loss) from securities transactions ... (59,291) 114,717
Change in unrealized appreciation on investments ........ (4,864,003) (5,760,022)
------------- -------------
Change in net assets from operations .................. (458,525) 3,642,694
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (note 10):
Class A Shares:
Net investment income ................................... (4,302,434) (8,882,147)
Class C Shares:
Net investment income ................................... (192,941) (433,040)
Class Y Shares:
Net investment income ................................... (285,145) (625,839)
------------- -------------
Change in net assets from distributions ............... (4,780,520) (9,941,026)
------------- -------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold ............................... 8,482,376 21,108,886
Reinvested dividends and distributions .................. 2,709,502 5,684,989
Cost of shares redeemed ................................. (22,846,756) (31,598,529)
------------- -------------
Change in net assets from capital share transactions .... (11,654,878) (4,804,654)
------------- -------------
Change in net assets .................................. (16,893,923) (11,102,986)
NET ASSETS:
Beginning of period ..................................... 245,785,010 256,887,996
------------- -------------
End of period* .......................................... $ 228,891,087 $ 245,785,010
============= =============
* Includes (overdistributed) undistributed net investment
income of: ............................................ $ (291,662) $ 24,089
============= =============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2006 (UNAUDITED)
1. ORGANIZATION
Tax-Free Fund of Colorado (the "Fund"), a non-diversified, open-end
investment company, was organized in February, 1987 as a Massachusetts business
trust and commenced operations on May 21, 1987. The Fund is authorized to issue
an unlimited number of shares and, since its inception to April 30, 1996,
offered only one class of shares. On that date, the Fund began offering two
additional classes of shares, Class C and Class Y shares. All shares outstanding
prior to that date were designated as Class A shares and are sold 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 in good
faith under procedures established by and under the general supervision of
the Board of
Trustees. Securities which mature in 60 days or less are valued at
amortized cost if their term to maturity at purchase is 60 days or less,
or by amortizing their unrealized appreciation or depreciation on the 61st
day prior to maturity, if their term to maturity at purchase exceeds 60
days.
b) 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.
f) RECLASSIFICATION OF CAPITAL ACCOUNTS: Accounting principles generally
accepted in the United States of America require that certain components
of net assets relating to permanent differences be reclassified between
financial and tax reporting. These reclassifications have no effect on net
assets or net asset value per share. On December 31, 2005 the Fund
increased undistributed net investment income by $658,171, increased
accumulated net realized gain on investments by $146 and decreased
additional paid-in capital by $658,317 due primarily to differing book/tax
treatment of distributions and bond amortization.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Aquila Investment Management LLC (the "Manager"), a wholly-owned
subsidiary of Aquila Management Corporation, the 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 the Fund such as the
shareholder servicing agent, custodian, legal counsel, auditors and distributor
and additionally maintaining the Fund's accounting books and records. For its
services, the Manager is entitled to receive a fee which is payable monthly and
computed as of the close of business each day at the annual rate of 0.50 of 1%
on the Fund's average net assets.
Kirkpatrick Pettis Capital Management, Inc. (the "Sub-Adviser"), a
wholly-owned subsidiary of the Davidson Companies, 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.
Under a Compliance Agreement with the Manager, the Manager is compensated
for Chief Compliance Officer related services provided to enable the Fund to
comply with Rule 38a-1 of the Investment Company Act of 1940.
Specific details as to the 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 permits 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 six months ended June 30, 2006, distribution fees on Class A Shares amounted
to $53,430 of which the Distributor retained $1,736.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Fund's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Fund's average net assets represented by Class C Shares and for the
six months ended June 30, 2006, amounted to $47,006. In addition, under a
Shareholder Services Plan, the Fund is authorized to make service fee payments
with respect to Class C Shares to Qualified Recipients for providing personal
services and/or maintenance of shareholder accounts. These payments are made at
the annual rate of 0.25 of 1% of the Fund's average net assets represented by
Class C Shares and for the six months ended June 30, 2006 amounted to $15,668.
The total of these payments with respect to Class C Shares amounted to $62,674
of which the Distributor retained $14,147.
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 six months ended June
30, 2006, total commissions on sales of Class A Shares amounted to $137,789 of
which the Distributor received $25,436.
c) OTHER RELATED PARTY TRANSACTIONS:
For the six months ended June 30, 2006, the Fund incurred $34,740 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 at that firm.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended June 30, 2006, purchases of securities and
proceeds from the sales of securities aggregated $9,528,419 and $19,942,323,
respectively.
At June 30, 2006, the aggregate tax cost for all securities was
$223,752,469. At June 30, 2006 the aggregate gross unrealized appreciation for
all securities in which there is an excess of market value over tax cost
amounted to $4,792,798 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$1,124,009 for a net unrealized appreciation of $3,668,789.
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, its cash balances in income-producing assets rather than
leave cash uninvested.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
Six Months Ended
June 30, 2006 Year Ended
(unaudited) December 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES:
Proceeds from shares sold ..... 643,872 $ 6,649,430 1,666,823 $ 17,582,759
Reinvested distributions ...... 246,601 2,546,948 489,086 5,154,342
Cost of shares redeemed ....... (1,769,403) (18,224,562) (2,390,628) (25,145,318)
------------ ------------ ------------ ------------
Net change .................. (878,930) (9,028,184) (234,719) (2,408,217)
------------ ------------ ------------ ------------
CLASS C SHARES:
Proceeds from shares sold ..... 83,576 860,071 150,827 1,588,430
Reinvested distributions ...... 9,376 96,661 21,343 224,529
Cost of shares redeemed ....... (171,163) (1,765,190) (348,748) (3,664,214)
------------ ------------ ------------ ------------
Net change .................. (78,211) (808,458) (176,578) (1,851,255)
------------ ------------ ------------ ------------
CLASS Y SHARES:
Proceeds from shares sold ..... 93,951 972,875 182,878 1,937,697
Reinvested distributions ...... 6,389 65,893 28,938 306,118
Cost of shares redeemed ....... (276,787) (2,857,004) (265,014) (2,788,997)
------------ ------------ ------------ ------------
Net change .................. (176,447) (1,818,236) (53,198) (545,182)
------------ ------------ ------------ ------------
Total transactions in Fund shares (1,133,588) $(11,654,878) (464,495) $ (4,804,654)
============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES
At June 30, 2006 there were 7 Trustees, one of which is affiliated with
the Manager and is not paid any fees. The total amount of Trustees' service and
attendance fees paid during the 6 months ended June 30, 2006 was $51,110, to
cover carrying out their responsibilities and attendance at regularly scheduled
quarterly Board Meetings and meetings of the Independent Trustees held prior to
each quarterly Board Meeting. When additional or special meetings are held, the
meeting fees are paid to those Trustees in attendance. Trustees are reimbursed
for their expenses such as travel, accommodations and meals incurred in
connection with attendance at Board Meetings and the Annual Meeting of
Shareholders. For the six months ended June 30, 2006, such meeting-related
expenses amounted to $17,486.
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. At
December 31, 2005, the Fund had a capital loss carryover of $245,339 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 offset
future realized capital gains, it is probable the gains so offset will not be
distributed.
The tax character of distributions:
Year Ended December 31,
2005 2004
----------- -----------
Net tax-exempt income $ 9,394,426 $ 9,625,055
Ordinary income 546,600 682,897
----------- -----------
$ 9,941,026 $10,307,952
=========== ===========
As of December 31, 2005, the components of distributable earnings on a tax
basis were as follows:
Unrealized appreciation $ 8,530,102
Accumulated net realized loss (245,339)
-----------
$ 8,284,763
===========
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
-----------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/06 ------------------------------------------------------------------
(unaudited) 2005 2004 2003 2002 2001
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period ......... $ 10.42 $ 10.68 $ 10.84 $ 10.82 $ 10.32 $ 10.31
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income+ ..................... 0.20 0.39 0.40 0.41 0.43 0.45
Net gain (loss) on securities (both realized
and unrealized) .......................... (0.21) (0.23) (0.13) 0.05 0.52 0.02
-------- -------- -------- -------- -------- --------
Total from investment operations ........... (0.01) 0.16 0.27 0.46 0.95 0.47
-------- -------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ....... (0.21) (0.42) (0.43) (0.44) (0.45) (0.46)
Distributions from capital gains ........... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions ........................ (0.21) (0.42) (0.43) (0.44) (0.45) (0.46)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ............... $ 10.20 $ 10.42 $ 10.68 $ 10.84 $ 10.82 $ 10.32
======== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) ... (0.14)%* 1.53% 2.57% 4.32% 9.36% 4.64%
Ratios/supplemental data
Net assets, end of period (in thousands) ... $204,417 $218,111 $226,070 $233,109 $215,195 $187,022
Ratio of expenses to average net assets .... 0.81%** 0.79% 0.75% 0.74% 0.75% 0.76%
Ratio of net investment income to average
net assets ............................... 3.76%** 3.73% 3.76% 3.81% 4.05% 4.27%
Portfolio turnover rate .................... 4.03%* 10.57% 12.55 6.16% 6.95% 14.56%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets .... 0.80%** 0.79% 0.74% 0.74% 0.74% 0.75%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
* Not annualized.
** Annualized.
See accompanying notes to financial statements.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class C
---------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/06 ----------------------------------------------------------------
(unaudited) 2005 2004 2003 2002 2001
----------- --------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 10.40 $ 10.66 $ 10.82 $ 10.80 $ 10.30 $ 10.29
--------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income+ ................. 0.15 0.29 0.30 0.31 0.31 0.34
Net gain (loss) on securities (both
realized and unrealized) ............. (0.21) (0.23) (0.13) 0.04 0.53 0.03
--------- --------- --------- --------- --------- ---------
Total from investment operations ....... (0.06) 0.06 0.17 0.35 0.84 0.37
--------- --------- --------- --------- --------- ---------
Less distributions (note 10):
Dividends from net investment income ... (0.16) (0.32) (0.33) (0.33) (0.34) (0.36)
Distributions from capital gains ....... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions .................... (0.16) (0.32) (0.33) (0.33) (0.34) (0.36)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 10.18 $ 10.40 $ 10.66 $ 10.82 $ 10.80 $ 10.30
========= ========= ========= ========= ========= =========
Total return (not reflecting sales charge) (0.61)%* 0.57% 1.60% 3.33% 8.32% 3.64%
Ratios/supplemental data
Net assets, end of period (in thousands) $ 11,924 $ 13,003 $ 15,210 $ 15,820 $ 9,109 $ 1,909
Ratio of expenses to average net assets 1.76%** 1.74% 1.70% 1.69% 1.68% 1.69%
Ratio of net investment income to
average net assets ................... 2.81%** 2.78% 2.81% 2.83% 2.99% 3.25%
Portfolio turnover rate ................ 4.03%* 10.57% 12.55% 6.16% 6.95% 14.56%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets 1.75%** 1.74% 1.69% 1.68% 1.67% 1.68%
Class Y
---------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/06 ----------------------------------------------------------------
(unaudited) 2005 2004 2003 2002 2001
----------- --------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 10.44 $ 10.71 $ 10.86 $ 10.84 $ 10.33 $ 10.33
--------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income+ ................. 0.20 0.40 0.41 0.42 0.44 0.45
Net gain (loss) on securities (both
realized and unrealized) ............. (0.21) (0.24) (0.12) 0.04 0.52 0.02
--------- --------- --------- --------- --------- ---------
Total from investment operations ....... (0.01) 0.16 0.29 0.46 0.96 0.47
--------- --------- --------- --------- --------- ---------
Less distributions (note 10):
Dividends from net investment income ... (0.21) (0.43) (0.44) (0.44) (0.45) (0.47)
Distributions from capital gains ....... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions .................... (0.21) (0.43) (0.44) (0.44) (0.45) (0.47)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 10.22 $ 10.44 $ 10.71 $ 10.86 $ 10.84 $ 10.33
========= ========= ========= ========= ========= =========
Total return (not reflecting sales charge) (0.11)%* 1.49% 2.73% 4.37% 9.50% 4.59%
Ratios/supplemental data
Net assets, end of period (in thousands) $ 12,550 $ 14,671 $ 15,608 $ 13,760 $ 7,482 $ 4,312
Ratio of expenses to average net assets 0.76%** 0.74% 0.69% 0.69% 0.71%
Ratio of net investment income to
average net assets ................... 3.81%** 3.77% 3.81% 3.85% 4.07% 4.32%
Portfolio turnover rate ................ 4.03%* 10.57% 12.55% 6.16% 6.95% 14.56%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets 0.75%** 0.74% 0.69% 0.69% 0.69% 0.70%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
* Not annualized.
** Annualized.
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 table below is intended to
help you understand your ongoing costs (in dollars) of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The table below is based on an investment of $1,000 invested on January 1,
2006 and held for the six months ended June 30, 2006.
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 JUNE 30, 2006
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A (0.14)% $1,000.00 $998.60 $4.01
- --------------------------------------------------------------------------------
Class C (0.61)% $1,000.00 $993.90 $8.75
- --------------------------------------------------------------------------------
Class Y (0.11)% $1,000.00 $998.90 $3.76
- --------------------------------------------------------------------------------
(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 T 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 0.80%, 1.75% AND
0.75% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/365 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio and an assumed rate of
return of 5.00% per year before expenses, which is not the 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 JUNE 30, 2006
Hypothetical
Annualized Beginning Ending Expenses
Total Account Account Paid During
Return Value Value the Period(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.06 $4.05
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,016.29 $8.85
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,021.31 $3.80
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.80%, 1.75% AND
0.75% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 183/365 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
RENEWAL OF THE ADVISORY AND ADMINISTRATION AGREEMENT AND THE SUB-ADVISORY
AGREEMENT
Renewal until April 30, 2007 of the Advisory and Administration Agreement
(the "Advisory Agreement") between the Fund and the Manager and the Sub-Advisory
Agreement (the "Sub-Advisory Agreement") between the Manager and Kirkpatrick
Pettis Capital Management, Inc. (the "Sub-Adviser") was approved by the Board of
Trustees and the independent Trustees in March, 2006. At a meeting called and
held for that purpose at which a majority of the independent Trustees were
present in person, the following materials were considered:
o Copies of the agreements to be renewed;
o A term sheet describing the material terms of the agreements;
o The Annual Report of the Fund for the year ended December 31, 2005;
o A report of the Manager containing data about the performance of the
Fund, data about its fees, expenses and purchases and redemptions
together with comparisons of such data with similar data about other
comparable funds, as well as data as to the profitability of the
Manager and the Sub-Adviser; and
o Quarterly materials reviewed at prior meetings on the Fund's
performance, operations, portfolio and compliance.
The Trustees considered the Advisory and Administration Agreement and the
Sub-Advisory Agreement separately as well as in conjunction with each other to
determine their combined effects on the Fund. The Trustees reviewed materials
relevant to, and considered, the factors set forth below, and as to each
agreement reached the conclusions described.
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER AND THE
SUB-ADVISER.
The Manager has provided all administrative services to the Fund. The
Board considered the nature and extent of the Manager's supervision of
third-party service providers, including the Fund's shareholder servicing agent
and custodian. The Board considered that the Manager had established and
maintained a strong culture of ethical conduct and regulatory compliance, and
had not been subject to the kinds of regulatory and legal difficulties affecting
a number of other investment advisers.
The Manager has arranged for the Sub-Adviser to provide local management
of the Fund's portfolio. The Trustees noted that the Sub-Adviser employed Mr.
Christopher Johns as portfolio manager for the Fund, and had established
facilities for credit analysis of the Fund's portfolio securities. Mr. Johns,
based in Denver, has provided local information regarding specific holdings in
the Fund's portfolio. The portfolio manager has also been available to provide
the brokerage and financial planner community with information generally about
the Fund's portfolio, with which that community can assess the Fund as an
investment vehicle for residents of Colorado in light of prevailing interest
rates and local economic conditions.
The Board considered that the Manager and the Sub-Adviser had provided all
services the Board deemed necessary or appropriate, including the specific
services that the Board has determined are required for the Fund, given that its
purpose is to provide shareholders with as high a level of current income exempt
from Colorado state and regular Federal income taxes as is consistent with
preservation of capital. It noted that compared to other Colorado state-specific
municipal bond funds, the portfolio of the Fund was of significantly higher
quality and contained no securities subject to the alternative minimum tax.
The Board concluded that a commendable quality of services was provided
and that the Fund would be well served if they continued. Evaluation of this
factor weighed in favor of renewal of the Advisory Agreement and the
Sub-Advisory Agreement.
THE INVESTMENT PERFORMANCE OF THE FUND.
The Board reviewed each aspect of the Fund's performance and compared its
performance with that of its local competitors and with national averages. It
was noted that the materials provided by the Manager indicated that compared to
the five largest competitive Colorado funds, the Fund has had investment
performance that is somewhat below that of its peers for one-, five- and
ten-year periods, with lower rates of return explained by the Fund's generally
higher-quality portfolio and generally shorter average maturities.
The Board concluded that the performance of the Fund, in light of its
investment objectives and market conditions, was satisfactory. Evaluation of
this factor indicated to the Trustees that renewal of the Advisory Agreement and
Sub-Advisory Agreement would be appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER AND SUB-ADVISER AND AFFILIATES FROM THE RELATIONSHIP WITH THE FUND.
The information provided in connection with renewal contained expense data
for the Fund and its local competitors as well as data for all single-state
tax-free municipal bond funds nationwide, including data for all such front-end
load funds of a comparable asset size. The materials also showed the
profitability to the Manager and the Sub-Adviser of their services to the Fund.
The Board compared the expense and fee data with respect to the Fund to
similar data about other funds that it found to be relevant. The Board concluded
that the expenses of the Fund and the fees paid were similar to and were
reasonable as compared to those being paid by single-state tax-free municipal
bond funds nationwide, being less than the national average, and by the Fund's
local competitors, all but one of which had higher fees.
The Board considered that the foregoing indicated the appropriateness of
the costs of the services to the Fund, which was being well managed as indicated
by the factors considered previously.
The Board further concluded that the profitability to the Manager and the
Sub-Adviser did not argue against approval of the fees to be paid under the
Advisory Agreement or the Sub-Advisory Agreement.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS.
Data provided to the Trustees showed that the Fund's asset size had been
relatively steady in recent years. However, they concluded that the uncertain
interest rate environment might make it difficult to achieve substantial growth
in assets in the near future. The Trustees also noted that the materials
indicate that the Fund's fees are already generally lower than those of its
peers, including those with breakpoints. Evaluation of this factor indicated to
the Board that the Advisory Agreement and Sub-Advisory Agreement should be
renewed without addition of breakpoints at this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND SUB-ADVISER AND THEIR
AFFILIATES FROM THEIR RELATIONSHIPS WITH THE FUND.
The Board observed that, as is generally true of most fund complexes, the
Manager and Sub-Adviser and their affiliates, by providing services to a number
of funds or other investment clients including the Fund, were able to spread
costs as they would otherwise be unable to do. The Board noted that while that
produces efficiencies and increased profitability for the Manager and
Sub-Adviser and their affiliates, it also makes their services available to the
Fund at favorable levels of quality and cost which are more advantageous to the
Fund than would otherwise have been possible.
- --------------------------------------------------------------------------------
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquila Group of Fundssm
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 at
http://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 http://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 (UNAUDITED)
The Fund does not invest in equity securities. Accordingly, there were no
matters relating to a portfolio security considered at any shareholder meeting
held during the 12 months ended June 30, 2006 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.
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Tax-Free Fund for Colorado (the "Fund")
was held on June 21, 2006. The holders of shares representing 79% of the total
net asset value of the shares entitled to vote were present in person or by
proxy. At the meeting, the following matters were voted upon and approved by the
shareholders (the resulting votes are presented below).
1. To elect Trustees.
DOLLAR AMOUNT OF VOTES
TRUSTEE FOR WITHHELD
------- --- --------
Tucker Hart Adams $189,196,454 $1,754,808
Thomas A. Christopher $189,336,874 $1,614,388
Gary C. Cornia $189,517,469 $1,433,793
Diana P. Herrmann $189,351,864 $1,599,397
Lyle W. Hillyard $189,275,615 $1,675,647
John C. Lucking $189,560,732 $1,390,529
Anne J. Mills $189,379,370 $1,571,892
2. To ratify the selection of Tait, Weller & Baker LLP as the Fund's independent
registered public accounting firm.
DOLLAR AMOUNT OF VOTES
FOR AGAINST ABSTAIN
--- ------- -------
$187,278,103 $510,002 $3,163,157
FOUNDERS
Lacy B. Herrmann, Chairman Emeritus
Aquila Management Corporation
MANAGER
AQUILA INVESTMENT MANAGEMENT LLC
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
KIRKPATRICK PETTIS CAPITAL
MANAGEMENT, INC.
1600 Broadway, Suite 1100
Denver, Colorado 80202
BOARD OF TRUSTEES
Anne J. Mills, Chair
Gary C. Cornia, Vice Chair
Tucker Hart Adams
Thomas A. Christopher
Diana P. Herrmann
Lyle W. Hillyard
John C. Lucking
TRUSTEE EMERITUS
J. William Weeks
OFFICERS
Diana P. Herrmann, President
Stephen J. Caridi, Senior Vice President
Emily T. Rae, Vice President
Robert W. Anderson, Chief Compliance Officer
Joseph P. DiMaggio, Chief Financial Officer and Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
101 Sabin Street
Pawtuckett, RI 02860
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suit 2400
Philadelphia, PA 19103
Further information is contained in the Prospectus, which must precede or
accompany this report.
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1)(ii) The Board of Trustees of the Fund has determined that
it does not have at least one audit committee financial expert
serving on its audit committee. The Fund does not have such a
person serving on the audit committee because none of the persons
currently serving as Trustees happens to have the technical
accounting and auditing expertise included in the definition of
"audit committee financial expert" recently adopted by the Securities
and Exchange Commission in connection with this Form N-CSR, and the
Board has not heretofore deemed it necessary to seek such a person
for election to the Board.
The primary mission of the Board, which is that of oversight over
the operations and affairs of the Fund, confronts the Trustees with
a wide and expanding range of issues and responsibilities. The
Trustees believe that, accordingly, it is essential that the Board's
membership consist of persons with as extensive experience as possible
in fulfilling the duties and responsibilities of mutual fund directors
and audit committee members and, ideally, with extensive experience
and background relating to the economic and financial sectors and
securities in which the Fund invests, including exposure to the
financial and accounting matters commonly encountered with respect
to those sectors and securities. The Board believes that its current
membership satisfies those criteria. It recognizes that it would
also be helpful to have a member with the relatively focused accounting
and auditing expertise reflected in the applicable definition of
"audit committee financial expert," just as additional members with
similarly focused technical expertise in other areas relevant to
the Fund's operations and affairs would also contribute added value.
However, the Board believes that the Fund is better served, and its
assets better employed, by a policy of hiring experts in various
the specialized area of technical accounting and
auditing matters, if and as the Board identifies the need, rather
than by seeking to expand its numbers by adding technical experts
in the areas constituting its domain of responsibility. The Fund's
Audit Committee Charter explicitly authorizes the Committee to
retain such experts as it deems necessary in fulfilling its duties
under the Charter.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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) 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
- - - ---------------------------------
President and Trustee
September 7, 2006
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Chief Financial Officer and Treasurer
September 7, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/ Diana P. Herrmann
- - - ---------------------------------
Diana P. Herrmann
President and Trustee
September 7, 2006
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
September 7, 2006
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.