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: 12/31/06
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL
REPORT
DECEMBER 31, 2006
[LOGO OF TAX-FREE FUND OF COLORADO:
A SQUARE WITH SILHOUETTES 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
"TAX-FREE IN BLACK AND WHITE"
February, 2007
Dear Fellow Shareholder:
We have all seen and heard the words "tax-free" over and over in various
contexts. In fact, the name of the Fund contains the words "tax-free." But, what
does that really mean to you in black and white?
As you know, you have to pay federal, state, and/or local taxes on the
dividends distributed to you by a taxable mutual fund. Thus, a bond fund which
invests in tax-free municipal bonds, such as Tax-Free Fund of Colorado, may
actually generate more net dividend income than a taxable bond fund with a
higher stated yield.
How is this possible? Let's use a simple example.
Suppose you invest $10,000 in a hypothetical TAX-FREE municipal bond fund
with a yield of 4%, paying dividends that are EXEMPT FROM FEDERAL INCOME TAXES,
and you also invest $10,000 in a hypothetical TAXABLE bond fund with a yield of
5.5%, paying dividends that are TAXABLE AT THE FEDERAL LEVEL. The example below
shows the outcome for an investor in the 33% federal income tax bracket. As you
can see, your investment in the tax-free bond municipal fund would have ended up
with more after-tax income even though the fund's yield was lower.
[BAR CHART]
Federal Income Interest Income
Taxes After Taxes
Tax-Free Municipal Bond $400
Fund Yielding 4% (Assumes no taxes)
Taxable Bond Fund Yielding 5.5% $181.50 $368.50
Tax Rate 33%
To help you compare taxable bond funds versus tax-free municipal bond
funds, a taxable-equivalent yield is often used. The taxable-equivalent yield
provides you with the rate that a taxable bond fund would have to yield to give
you the same after-tax yield as a tax-free municipal bond fund. (You should be
aware that the calculation does not take into account the impact of state income
taxes, or any alternative minimum taxes, to which some investors may be
subject.)
NOT A PART OF THE ANNUAL REPORT
In its simplest terms,
- --------------------------------------------------------------------------------
Yield of tax-free municipal bond fund
- -------------------------------------- = Your taxable-equivalent yield
1.00 - your federal income tax rate
- --------------------------------------------------------------------------------
Using the above tax-free example of a 4% yield and a federal tax bracket
of 33%, the calculation would be as follows:
- --------------------------------------------------------------------------------
4
- ------------ = 5.97%
1.00 - 0.33
- --------------------------------------------------------------------------------
In other words, a tax-free investment of 4.00% and a taxable investment of
5.97% would provide the same yield after taxes.
EFFECT OF FEDERAL INCOME TAXES ON YIELDS OF TAX-EXEMPT AND TAXABLE
INSTRUMENTS
4.00% TAX-FREE BOND 5.97% TAXABLE BOND
Cash investment $ 10,000 $ 10,000
Interest $ 400 $ 597
33% Federal income tax $ 0 $ 197.01
Net return $ 400 $ 399.99
Yield on investment after federal taxes 4.0% 4.0%
You should be aware that dividends paid by tax-free municipal bond funds,
such as Tax-Free Fund of Colorado, are often also exempt from state and/or local
taxes. FACTORING IN THE EXEMPTION AT THE STATE AND/OR LOCAL LEVEL WOULD HAVE THE
EFFECT OF INCREASING THE TAXABLE EQUIVALENT YIELD EVEN FURTHER.
So, the next time that you see the phrase "tax-free," remember that in
black and white, it oftentimes means more money into your pocket.
Sincerely,
/s/ Diana P. Herrmann /s/ Lacy B. Herrmann
Diana P. Herrmann Lacy B. Herrmann
President Founder and Chairman Emeritus
For certain investors, some dividends of your Fund may be subject to Federal and
State taxes. These hypothetical examples are not intended to predict or project
investment performance. Your own results will vary. State and local taxes, fees
and expenses, if any, are not taken into account.
NOT A PART OF THE ANNUAL REPORT
[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
ANNUAL REPORT
MANAGEMENT DISCUSSION
2006 REVIEW
The Federal Reserve Board (the "Fed") appeared to reach their goal of
equilibrium during 2006. In the first six months of the year, the Fed continued
to raise the benchmark Federal Funds rate by an additional 1.0% to 5.25%. This
tight money policy that the Fed pursued for the past few years was designed to
maintain a low inflationary environment. As 2006 progressed, it became clear
that the residential housing market was experiencing a retrenchment, energy
prices had leveled off and actually began to decline and the underlying
inflation rate was in the moderate 2.5% range. These economic factors allowed
the Fed to break its string of 17 consecutive increases in short-term rates.
The balancing factor to slower economic growth and tame inflation numbers
was the strength in the labor markets. U.S. employers added about 153,000
workers per month during 2006. The unemployment rate has dropped to 4.5% from
around 5.0% a year ago. While a strong job market can be considered
inflationary, increased worker productivity appears to have kept wage inflation
in check.
The standoff between moderate economic activity and strong labor markets
has allowed the Federal Reserve to hold short-term rates steady for the last 6
months of the year. Interest rates on U.S. Treasury securities rose slightly
during 2006. The 2-year rate rose from 4.37% to 4.80% while 10 and 20 year
yields only increased by about 0.30% to 4.72% and 4.91%, respectively. The yield
curve is now inverted which means that short-term rates are higher than
long-term rates. Historically this condition has prefaced a slowdown in economic
activity. If short-term rates continue to rise more than long-term rates, a
recession becomes more likely.
The Colorado economy also continues its recovery. The Office of State
Planning and Budgeting reports that unemployment has dropped to 4.5% from 5.0%
last year. They predict that personal income growth will average 7.0% in 2006
and 6.2% in 2007. Retail sales are forecast to increase 5.6% and consumer prices
rose about 3.5% during 2006. The major weakness in the Colorado economy was
residential real estate. Colorado experienced one of the highest foreclosure
rates in the nation. Public trustees in the six county Denver metro area
reported more than 19,000 foreclosures initiated in 2006, a record amount. A few
of the many causes for this lackluster performance are over-building, loose
lending practices and over-stretched consumers. The weakness in housing values
was concentrated in Weld, Adams, Larimer, El Paso and Pueblo counties. The
strongest real estate markets in Colorado were in the mountain resort counties
of Pitkin, Eagle and Garfield where appreciation rates were in the double
digits. We are monitoring real estate values
MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED)
very closely around the state as that is an important factor in determining the
creditworthiness of many municipal entities.
New issuance in the Colorado municipal bond market was robust in 2006.
Total new bond sales were up 21% to $8.6 billion for the year. In November,
voters approved approximately $1 billion in school bonds to be issued throughout
the state. The Regional Transportation District issued $600 million for the
Fastracks project, an expansion of light rail in the metro area, in October.
This project has approval for $3.5 billion in total debt over the next several
years. Special District financings, which are smaller local issuers with
specific purposes, totaled $890 million for the year.
The investment strategy for Tax-Free Fund of Colorado continues to
emphasize risk reduction. In our 2006 strategy outlook, we suggested that we
might reduce our holdings in shorter maturities and add to bonds in the 13 to 15
year range in the event that short-term interest rates began to decline. The
market did not cooperate with this outlook. Interest rates on 1 to 5 year
municipals rose 0.15% to 0.40% while rates on 10 to 20 year bonds actually
declined by 0.10% to 0.20%. This market behavior shows that investors were
willing to take more interest rate risk by investing in longer maturity bonds
and were willing to accept lower returns to do so! We do not believe that it is
prudent to buy longer bonds until we are earning yields that are higher than the
shorter bonds we own. We were also prepared to purchase bonds with lower
investment grade ratings if those yields improved relative to AAA rated bonds.
The relationship between AAA and A rated bonds remained largely unchanged during
the year. An investor could improve yield by about 0.30% by dropping down to A
rated bonds. Again, we do not believe this strategy would have provided enough
increased return for the additional risk added to the portfolio.
The average maturity on December 31, 2006 was 7.0 years, and 95.1% of the
portfolio was invested in AAA and AA rated securities. The total return for
Class A investors based on the net asset value was 3.11% in 2006. The double
tax-exempt dividend yield for Class A shares averaged approximately 3.87% for
the year.
2007 STRATEGY
As we approach our 20th anniversary in May 2007, we think it is important
to review our mission. Tax-Free Fund of Colorado was formed in 1987 after a
period of extremely volatile interest rates. Bond investors had experienced
double digit negative returns for the first time and were not too happy about
it. We decided at the outset of the Fund that we wanted to provide an investment
product that would seek to mitigate the impact of dramatic changes in interest
rates while providing steady double tax-exempt income. The two investment tenets
at the core of this philosophy are intermediate maturity bonds and
investment-grade credit quality. Historically, intermediate maturity bonds do
not experience as much price fluctuation as longer bonds with a given change in
interest rates. Investment-grade bonds have also retained their value better in
hostile market conditions such as recessions and periods of rising interest
rates. In the past few years we have experienced the unusual circumstance of
rising short-term rates and declining long-term rates. We have also seen the
yields on non-rated and lower rated investment grade bonds drop more than yields
of the highest
MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED)
quality bonds. These temporary market conditions have not favored the
conservative investment strategy of the Fund. It has been very tempting to
increase the yield of the Fund by adding more interest rate risk from longer
bonds and more credit risk from lower rated bonds. We have chosen, however, not
to add the additional risk to our portfolio because we believe that these risks
are not priced appropriately. We also believe that it is important to remain
true to our original mission of safety and stability. We may sacrifice some
yield in the short term in order to protect the value of our shares in more
difficult market conditions. Our prospectus allows us the latitude to make
portfolio changes to improve yield and we will intend to do so as opportunities
present themselves. At the present time, we plan to focus new purchases in the
14 to 17 year maturity range as that is where the market offers the best value.
We will monitor the differences between high-grade and lower rated credit
sectors and seek to emphasize those securities with the best risk adjusted
returns. We believe that our current portfolio of shorter maturity, high coupon,
high quality bonds is very liquid and should, therefore, allow us to make
changes as the market allows. Our goal is to provide a safe, stable tax-free
income stream with low share price volatility.
Thank you for your investment in Tax-Free Fund of Colorado.
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,
2006 as compared with the Lehman Brothers Quality Intermediate Municipal Bond
Index ("Lehman Index") and the Consumer Price Index (a cost of living index).
The performance of each of the other classes is not shown in the graph but is
included in the table below. It should be noted that the Lehman Index does not
include any operating expenses nor sales charges and being nationally oriented,
does not reflect state specific bond market performance.
[Graphic of a line chart with the following information:]
Lehman Brothers
Cost of Fund Class A Shares Fund Class A Shares Quality Intermediate
Living Index no sales charge with sales charge Municipal Bond Index
12/96 $10,000 $10,000 $ 9,600 $10,000
12/97 10,170 10,800 10,298 10,732
12/98 10,334 11,348 10,799 11,376
12/99 10,612 11,177 10,698 11,409
12/00 10,971 12,110 11,587 12,393
12/01 11,141 12,599 12,114 13,077
12/02 11,406 13,576 13,175 14,284
12/03 11,620 14,255 13,821 14,947
12/04 11,999 14,900 14,193 15,398
12/05 12,409 15,208 14,377 15,654
12/06 12,724 15,879 14,867 16,246
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2006
---------------------------------------
SINCE
CLASS AND INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- --------------------------- ------ ------- -------- ---------
Class A (5/21/87)
With Sales Charge ....... (0.98)% 3.29% 4.05% 5.58%
Without Sales Charge .... 3.11% 4.14% 4.47% 5.80%
Class C (4/30/96)
With CDSC ............... 1.12% 3.16% 3.46% 3.60%
Without CDSC ............ 2.14% 3.16% 3.46% 3.60%
Class Y (4/30/96)
No Sales Charge ......... 3.26% 4.23% 4.56% 4.83%
COMPARATIVE INDEX
- ---------------------------
Lehman Index............... 3.78% 4.44% 4.97% 5.98% (Class A)
5.07% (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.
- --------------------------------------------------------------------------------
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,
including the schedule of investments, of Tax-Free Fund of Colorado as of
December 31, 2006 and the related statement of operations for the year then
ended, and the changes in net assets and the financial highlights for each of
the two 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. The financial highlights for each of the years in the three
year period ended December 31, 2004 have been audited by other auditors, whose
report dated February 18, 2005 expressed an unqualified opinion on such
financial highlights.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
the Fund's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 2006, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Tax-Free Fund of Colorado as of December 31, 2006, the results of its operations
for the year then ended, and the changes in its net assets and the financial
highlights for each of the two years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 26, 2007
- --------------------------------------------------------------------------------
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2006
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (34.7%) S&P VALUE
- -------------- ------------------------------------------------------- -------- -------------
CITY & COUNTY (1.0%)
Denver, Colorado City & County Art Museum
$ 2,000,000 5.000%, 08/01/15 ...................................... Aa1/AA+ $ 2,127,760
-------------
Total City & County ................................... 2,127,760
-------------
METROPOLITAN DISTRICT (4.8%)
Arapahoe, Colorado Park & Recreation District
1,070,000 5.000%, 12/01/17 FGIC Insured ......................... Aaa/NR 1,136,757
Castle Pines, Colorado Metropolitan District
1,060,000 5.500%, 12/01/07 FSA Insured .......................... Aaa/AAA 1,077,988
Foothills, Colorado Park & Recreational District
1,310,000 5.000%, 12/01/12 FSA Insured .......................... Aaa/NR 1,386,963
1,325,000 5.000%, 12/01/13 FSA Insured .......................... Aaa/NR 1,401,625
Highlands Ranch, Colorado Metropolitan District
#1, Refunding
1,000,000 5.750%, 09/01/08 AMBAC Insured ........................ Aaa/AAA 1,032,620
1,730,000 5.750%, 09/01/09 AMBAC Insured ........................ Aaa/AAA 1,818,022
North Metro Fire Rescue District Colorado
1,200,000 4.625%, 12/01/20 AMBAC Insured ........................ Aaa/AAA 1,268,868
South Suburban, Colorado Park & Recreational District
1,365,000 5.125%, 12/15/09 FGIC Insured ......................... Aaa/AAA 1,403,261
-------------
Total Metropolitan District ........................... 10,526,104
-------------
SCHOOL DISTRICTS (28.9%)
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 1,291,157
1,170,000 5.000%, 12/15/12 MBIA Insured ......................... Aaa/AAA 1,239,252
830,000 5.000%, 12/15/12 MBIA Insured Pre-Refunded ............ Aaa/AAA 881,053
Adams County, Colorado School District #14
1,275,000 5.750%, 12/01/08 FSA Insured Pre-Refunded ............. Aaa/AAA 1,312,153
Adams County 12 Five Star Schools,
Colorado Refunding
2,000,000 4.500%, 12/15/20 MBIA Insured ......................... Aaa/AAA 2,078,040
Adams & Weld Counties, Colorado School District
#027J (Brighton) Refunding
1,600,000 4.375%, 12/01/19 FSA Insured .......................... Aaa/AAA 1,643,360
Adams & Weld Counties, Colorado School District
#027J (Brighton) Series C
1,340,000 4.250%, 12/01/20 MBIA Insured ......................... Aaa/AAA 1,359,470
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- -------------- -------------------------------------------------------- -------- -------------
SCHOOL DISTRICTS (CONTINUED)
Arapahoe County, Colorado Cherry Creek School
District #5
$ 1,000,000 5.500%, 12/15/08 ....................................... Aa2/AA $ 1,035,590
2,760,000 5.500%, 12/15/11 Pre-Refunded .......................... Aa2/AA 2,900,594
2,750,000 5.500%, 12/15/12 Pre-Refunded .......................... Aa2/AA 2,890,085
Boulder Valley, Colorado School District
1,215,000 5.500%, 12/01/08 FGIC Insured .......................... Aaa/AAA 1,247,611
Clear Creek, Colorado School District
1,000,000 5.000%, 12/01/16 FSA Insured ........................... Aaa/AAA 1,065,120
Colorado Educational & Cultural Facilities Authority
(Pueblo Serra Worship Holdings) (Wells Fargo)
2,940,000 3.940%, 03/01/37 VRDN .................................. NR/NR1 2,940,000
Denver, Colorado City & County School District #1
Refunding Series A
1,000,000 5.600%, 06/01/08 ....................................... Aa3/AA- 1,027,190
Douglas & Elbert Counties, Colorado School District
# Re-1, Series 1992
2,000,000 5.250%, 12/15/11 FGIC Insured Pre-Refunded ............. Aaa/AAA 2,090,880
El Paso County, Colorado School District #11
Colorado Springs
1,330,000 6.250%, 12/01/08 ....................................... Aa3/AA- 1,390,382
El Paso County, Colorado School District #20
1,000,000 6.150%, 12/15/08 MBIA Insured .......................... Aaa/AAA 1,047,520
1,500,000 5.000%, 12/15/14 FGIC Insured .......................... Aaa/NR 1,604,040
El Paso County, Colorado School District #38
1,110,000 5.700%, 12/01/12 Pre-Refunded .......................... Aa3/NR 1,191,308
El Paso County, Colorado School District #49
1,500,000 5.500%, 12/01/13 FSA Insured Pre-Refunded .............. Aaa/AAA 1,645,140
1,000,000 5.250%, 12/01/14 FGIC Insured Pre-Refunded ............. Aaa/AAA 1,072,200
Garfield County, Colorado School District
1,250,000 5.000%, 12/01/17 FSA Insured ........................... Aaa/NR 1,327,988
Grand County, Colorado School District #002
(East Grand) Refunding & Improvement Series B
1,040,000 4.250%, 12/01/18 FSA Insured ........................... Aaa/AAA 1,060,987
Jefferson County, Colorado School District #R-1
3,000,000 5.500%, 12/15/09 FGIC Insured Pre-Refunded ............. Aaa/AAA 3,135,930
2,340,000 5.250%, 12/15/11 FGIC Insured Pre-Refunded ............. Aaa/AAA 2,435,121
1,000,000 5.500%, 12/15/13 FGIC Insured Pre-Refunded ............. Aaa/AAA 1,045,310
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- -------------- -------------------------------------------------------- -------- -------------
SCHOOL DISTRICTS (CONTINUED)
SCHOOL DISTRICTS (CONTINUED)
La Plata County, Colorado School District #9
$ 1,500,000 5.000%, 11/01/18 MBIA Insured Pre-Refunded ............. Aaa/NR $ 1,606,140
Larimer County, Colorado School District #R1
Poudre Refunding Series A
2,100,000 5.250%, 12/15/11 ....................................... Aa3/AA- 2,159,766
Mesa County, Colorado School District #51
1,500,000 4.350%, 12/01/19 MBIA Insured .......................... Aaa/NR 1,536,270
Pueblo County, Colorado School District #70
1,040,000 5.500%, 12/01/09 AMBAC Insured ......................... Aaa/AAA 1,057,836
1,000,000 5.000%, 12/01/15 FGIC Insured .......................... Aaa/AAA 1,059,210
3,440,000 5.000%, 12/01/16 FGIC Insured .......................... Aaa/AAA 3,637,353
Teller County, Colorado School District #2
Woodland Park
1,265,000 5.000%, 12/01/17 MBIA Insured .......................... Aaa/AAA 1,366,908
Weld & Adams Counties, Colorado School District #3J
1,000,000 5.500%, 12/15/10 AMBAC Insured Pre-Refunded ............ Aaa/AAA 1,052,370
Weld County, Colorado School District #2
1,315,000 5.000%, 12/01/15 FSA Insured ........................... Aaa/AAA 1,403,500
Weld County, Colorado School District #3J
1,440,000 4.350%, 12/15/19 FSA Insured ........................... Aaa/NR 1,474,978
Weld County, Colorado School District #6
1,195,000 5.000%, 12/01/15 FSA Insured Pre-Refunded .............. Aaa/AAA 1,267,967
Weld County, Colorado School District #8
1,115,000 5.000%, 12/01/15 FSA Insured ........................... Aaa/AAA 1,190,039
1,385,000 5.250%, 12/01/17 FSA Insured ........................... Aaa/AAA 1,495,661
-------------
Total School Districts ................................. 62,265,479
-------------
Total General Obligation Bonds ......................... 74,919,343
-------------
REVENUE BONDS (65.4%)
ELECTRIC (3.2%)
Colorado Springs, Colorado Utilities Revenue
1,660,000 5.000%, 11/15/17 ....................................... Aa2/AA 1,764,646
Colorado Springs, Colorado Utilities Revenue
Subordinated Lien Improvement Series A
1,000,000 5.000%, 11/15/17 ....................................... Aa2/AA 1,072,480
Platte River Power Authority, Colorado Electric
Revenue Subordinated Lien Series S-1 Refunding
(Morgan Guaranty)
3,985,000 3.890%, 06/01/18 VRDN .................................. VMIG1/A1+ 3,985,000
-------------
Total Electric ......................................... 6,822,126
-------------
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------- -------- -------------
HIGHER EDUCATION (11.1%)
Boulder, Colorado Development Revenue UCAR
$ 1,760,000 5.000%, 09/01/16 MBIA Insured .......................... Aaa/AAA $ 1,870,211
1,130,000 5.000%, 09/01/17 AMBAC Insured ......................... Aaa/AAA 1,208,365
Colorado Educational & Cultural Facility Authority
Johnson & Wales
860,000 5.000%, 04/01/18 XLCA Insured .......................... Aaa/AAA 909,467
Colorado Educational & Cultural Facility Authority
University of Colorado Foundation Project
2,110,000 5.000%, 07/01/17 AMBAC Insured ......................... Aaa/AAA 2,233,351
1,865,000 5.375%, 07/01/18 AMBAC Insured ......................... Aaa/AAA 2,017,035
Colorado Educational & Cultural Facility Authority
Refunding University of Denver Project Series B
1,050,000 4.500%, 03/01/19 FGIC Insured .......................... Aaa/AAA 1,090,698
Colorado Mountain Jr. College District Student
Housing Facilities Enterprise Revenue
1,000,000 4.500%, 06/01/18 MBIA Insured ......................... Aaa/AAA 1,035,000
Colorado Post Secondary Educational Facility
1,170,000 5.500%, 03/01/08 MBIA Insured .......................... Aaa/AAA 1,194,933
Colorado State University System
1,530,000 5.000%, 03/01/17 AMBAC Insured ........................ Aaa/NR 1,629,022
University of Colorado Enterprise System
1,000,000 5.000%, 06/01/11 ....................................... Aa3/AA- 1,053,650
2,325,000 5.000%, 06/01/15 AMBAC Insured ......................... Aaa/AAA 2,475,358
1,735,000 5.000%, 06/01/16 ....................................... Aa3/AA- 1,850,343
1,000,000 5.250%, 06/01/17 FGIC Insured .......................... Aaa/AAA 1,088,870
1,000,000 4.375%, 06/01/19 FGIC Insured .......................... Aaa/AAA 1,024,450
University of Northern Colorado Auxiliary Facilities
1,745,000 5.750%, 06/01/08 MBIA Insured ETM ...................... Aaa/AAA 1,775,189
1,390,000 5.000%, 06/01/15 AMBAC Insured ......................... Aaa/AAA 1,464,574
-------------
Total Higher Education ................................. 23,920,516
-------------
HOSPITAL (4.6%)
Colorado Health Facility Authority Hospital
Revenue, Catholic Health Initiatives-A
1,000,000 5.375%, 12/01/09 Pre-Refunded .......................... Aa2/AA 1,034,060
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------- -------- -------------
HOSPITAL (CONTINUED)
Colorado Health Facility Authority Revenue,
Evangelical Lutheran Project
$ 1,000,000 5.250%, 06/01/21 ....................................... A3/A- $ 1,071,240
Colorado Health Facility Authority Revenue,
Catholic Health Initiatives-A
1,500,000 5.000%, 09/01/21 ....................................... Aa2/AA 1,604,220
Colorado Health Facility Authority Hospital
Revenue, Sisters of Charity - Health Care
1,000,000 6.250%, 05/15/09 AMBAC Insured ETM ..................... Aaa/AAA 1,056,690
Colorado Health Facility Authority Hospital
Revenue, Sisters of Charity - Leavenworth
1,000,000 5.500%, 12/01/08 MBIA Insured .......................... Aaa/AAA 1,033,210
1,500,000 5.250%, 12/01/10 MBIA Insured .......................... Aaa/AAA 1,545,810
Park Hospital District Larimer County, Colorado
Limited Tax Revenue
1,010,000 4.500%, 01/01/21 Assured Guaranty Insured .............. Aa1/AAA 1,040,896
University Colorado Hospital Authority
Hospital Revenue
1,475,000 5.500%, 11/15/07 AMBAC Insured ......................... Aaa/NR 1,498,054
-------------
Total Hospital ......................................... 9,884,180
-------------
HOUSING (1.3%)
Colorado Housing Finance Authority
505,000 6.050%, 10/01/16 Series 1999A3 ......................... Aa2/AA+ 518,595
15,000 6.125%, 11/01/23 Series 1998D3 ......................... Aa2/NR 15,477
Colorado Housing & Finance Authority Multi-
Family/Project Bonds
1,575,000 4.250%, 10/01/17 Class II 2004 Series A-3 .............. Aa2/AA 1,611,760
Colorado Housing & Finance Authority Refunding-
Single Family Program
240,000 5.000%, 08/01/13 Series 2001 Series B .................. A1/A+ 242,746
Colorado Housing Finance Authority, Single
Family Mortgage
35,000 5.625%, 06/01/10 Series 1995D .......................... Aa2/NR 35,150
25,000 5.750%, 11/01/10 Series 1996A .......................... Aa2/A+ 25,094
Colorado Housing Finance Authority, Single Family
Mortgage 2000C3
45,000 5.700%, 10/01/22 ....................................... Aa2/AA 45,287
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------- -------- -------------
HOUSING (CONTINUED)
Colorado Housing Finance Authority, Single Family
Mortgage Subordinated 2000D
$ 125,000 5.400%, 10/01/12 ....................................... A1/A+ $ 127,409
Denver, Colorado Single Family Mortgage Revenue
100,000 5.000%, 11/01/15 GNMA Insured .......................... NR/AAA 102,204
-------------
Total Housing .......................................... 2,723,722
-------------
LEASE (12.6%)
Arapahoe County, Colorado COP Refunding
1,000,000 4.250%, 02/15/19 AMBAC Insured ........................ Aaa/AAA 1,019,670
Aurora, Colorado COP
2,105,000 5.250%, 12/01/13 AMBAC Insured Pre-refunded ............ Aaa/AAA 2,228,921
Broomfield, Colorado COP
2,500,000 5.100%, 12/01/12 AMBAC Insured ......................... Aaa/NR 2,634,575
CMC Academic Facilities Leasing COP (Colorado
Mountain Jr. College District)
2,200,000 4.375%, 08/01/20 MBIA Insured* ......................... NR/AAA 2,235,244
Colorado Educational & Cultural Facilities Authority
Revenue Refunding (Frontier Academy)
1,300,000 4.375%, 06/01/19 CIFG Assurance North America,
Inc. Insured ........................................ Aaa/AAA 1,323,569
Denver, Colorado City and County COP (Roslyn Fire)
1,835,000 5.000%, 12/01/15 ....................................... Aa2/AA 1,938,586
El Paso County, Colorado COP
1,100,000 5.250%, 12/01/09 MBIA Insured .......................... Aaa/AAA 1,147,487
El Paso County, Colorado COP (Judicial Building)
1,760,000 5.000%, 12/01/16 AMBAC Insured ......................... Aaa/AAA 1,869,806
El Paso County, Colorado COP (Pikes Peak Regional
Development Authority)
1,925,000 5.000%, 12/01/18 AMBAC Insured ......................... Aaa/AAA 2,058,095
Fort Collins, Colorado Lease COP Series A
3,020,000 4.750%, 06/01/18 AMBAC Insured ......................... Aaa/NR 3,183,684
Fremont County, Colorado COP Refunding and
Improvement Series A
2,075,000 5.000%, 12/15/18 MBIA Insured .......................... Aaa/AAA 2,219,213
Golden, Colorado COP
1,575,000 4.375%, 12/01/20 FGIC Insured .......................... Aaa/AAA 1,620,281
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------- -------- -------------
LEASE (CONTINUED)
Lakewood, Colorado COP
$ 1,440,000 5.200%, 12/01/13 AMBAC Insured Pre-Refunded ............ Aaa/AAA $ 1,522,181
Northern Colorado Water Conservancy District COP
1,000,000 5.000%, 10/01/15 MBIA Insured .......................... Aaa/AAA 1,065,570
Westminster, Colorado COP
1,055,000 5.350%, 09/01/11 MBIA Insured .......................... Aaa/AAA 1,109,575
-------------
Total Lease ............................................ 27,176,457
-------------
SALES TAX (13.5%)
Boulder, Colorado
1,045,000 5.250%, 08/15/10 AMBAC Insured ......................... Aaa/AAA 1,087,072
Boulder, Colorado Open Space Acquisition
1,250,000 5.500%, 08/15/12 ....................................... Aa1/AA+ 1,328,887
Boulder, Colorado Open Space Capital Improvement
3,065,000 5.000%, 07/15/16 MBIA Insured .......................... Aaa/AAA 3,268,914
1,630,000 5.000%, 07/15/17 MBIA Insured .......................... Aaa/AAA 1,734,238
Boulder, Colorado Sales & Use Tax Open Space
Series A
1,000,000 5.450%, 12/15/12 FGIC Insured Pre-Refunded ............. Aaa/AAA 1,059,980
City & County of Denver, Colorado Excise Tax Revenue
2,000,000 5.375%, 09/01/10 FSA Insured ........................... Aaa/AAA 2,088,100
Colorado Springs, Colorado Sales & Use Tax
Revenue Service Sales
1,320,000 5.000%, 12/01/12 ....................................... A1/AA 1,367,599
Denver, Colorado City & County Excise Tax Revenue
1,000,000 5.000%, 09/01/11 FSA Insured ........................... Aaa/AAA 1,052,390
2,260,000 5.000%, 09/01/12 FSA Insured Pre-Refunded .............. Aaa/AAA 2,378,401
Douglas County, Colorado Sales & Use Tax Open
Space Revenue
1,780,000 5.500%, 10/15/12 FSA Insured ........................... Aaa/AAA 1,897,783
Golden, Colorado Sales & Use Tax
1,265,000 5.000%, 12/01/12 AMBAC Insured ......................... Aaa/AAA 1,339,319
Jefferson County, Colorado Open Space Sales Tax
1,245,000 5.000%, 11/01/11 FGIC Insured .......................... Aaa/AAA 1,291,364
1,600,000 5.000%, 11/01/13 AMBAC Insured ......................... Aaa/AAA 1,691,056
1,080,000 5.000%, 11/01/14 AMBAC Insured ......................... Aaa/AAA 1,139,508
Lakewood, Colorado Sales & Use Tax Revenue
1,040,000 5.250%, 12/01/09 ....................................... NR/AAA 1,083,441
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------- -------- -------------
SALES TAX (CONTINUED)
Larimer County, Colorado Sales Tax Revenue
$ 1,000,000 5.500%, 12/15/12 AMBAC Insured ......................... Aaa/AAA $ 1,068,930
Longmont, Colorado Sales & Use Tax
1,875,000 5.500%, 11/15/14 Pre-Refunded .......................... NR/AA+ 2,000,963
Thornton, Colorado Sales Tax
1,000,000 5.000%, 09/01/14 FSA Insured ........................... Aaa/AAA 1,053,360
Westminster, Colorado Sales Tax Revenue
1,175,000 5.500%, 12/01/07 FGIC Insured .......................... Aaa/AAA 1,194,940
-------------
Total Sales Tax ........................................ 29,126,245
-------------
TRANSPORTATION (4.5%)
Colorado Department of Transportation-Tax Revenue
Anticipation Note
1,000,000 6.000%, 06/15/13 AMBAC Insured Pre-Refunded ............ Aaa/AAA 1,080,880
Northwest Parkway, Colorado Public Highway
Authority Series A
2,515,000 5.150%, 06/15/14 AMBAC Insured ......................... Aaa/AAA 2,696,281
Regional Transportation District, Colorado COP
1,190,000 5.000%, 06/01/15 AMBAC Insured ......................... Aaa/AAA 1,263,982
1,510,000 4.850%, 06/01/18 AMBAC Insured ......................... Aaa/AAA 1,579,294
Regional Transportation District, Colorado Sales
Tax Revenue
2,000,000 5.000%, 11/01/13 FGIC Insured .......................... Aaa/AAA 2,109,220
1,000,000 5.000%, 11/01/16 FGIC Insured Pre-Refunded ............. Aaa/AAA 1,057,550
-------------
Total Transportation 9,787,207
-------------
WATER & SEWER (12.6%)
Boulder, Colorado Water & Sewer Revenue
1,000,000 5.400%, 12/01/14 ....................................... Aa2/AA+ 1,065,050
Boulder, Colorado Water & Sewer Revenue Series C
2,420,000 4.500%, 12/01/18 ....................................... Aa2/AA+ 2,519,051
Broomfield, Colorado Sewer and Waste Water Revenue
1,985,000 5.000%, 12/01/15 AMBAC Insured ......................... Aaa/NR 2,119,146
1,000,000 5.000%, 12/01/16 AMBAC Insured ......................... Aaa/NR 1,065,720
Broomfield, Colorado Water Activity Enterprise
1,500,000 5.300%, 12/01/12 MBIA Insured .......................... Aaa/NR 1,604,625
1,730,000 5.250%, 12/01/13 MBIA Insured .......................... Aaa/NR 1,844,924
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------- -------- -------------
WATER & SEWER (CONTINUED)
Colorado Clean Water Revenue
$ 830,000 5.375%, 09/01/10 Pre-Refunded .......................... Aaa/AAA $ 853,871
170,000 5.375%, 09/01/10 ....................................... Aaa/AAA 174,889
Colorado Metro Wastewater Reclamation District
1,270,000 5.250%, 04/01/09 ....................................... Aa2/AA 1,293,914
Colorado Water Resource & Power Development
Authority
2,675,000 5.000%, 09/01/16 MBIA Insured** ........................ Aaa/AAA 2,893,815
1,855,000 5.000%, 09/01/17 MBIA Insured .......................... Aaa/AAA 2,000,339
Colorado Water Resource & Power Development
Authority Clean Water Revenue Series A
1,375,000 5.000%, 09/01/12 Pre-Refunded .......................... Aaa/AAA 1,454,997
260,000 5.000%, 09/01/12 Un-Refunded portion ................... Aaa/AAA 275,127
Colorado Water Resource & Power Development
Authority Clean Water Revenue Series B
820,000 5.500%, 09/01/09 Pre-Refunded .......................... Aaa/AAA 845,223
180,000 5.500%, 09/01/09 Un-Refunded portion ................... Aaa/AAA 185,360
Colorado Water Resource & Power Development
Authority Small Water Resource Series A
600,000 5.550%, 11/01/13 FGIC Insured Un-Refunded portion ...... Aaa/AAA 640,320
400,000 5.550%, 11/01/13 FGIC Insured Pre-Refunded ............. Aaa/AAA 427,324
Denver, Colorado City and County Wastewater
Revenue
1,560,000 5.000%, 11/01/15 FGIC Insured .......................... Aaa/AAA 1,663,631
Pueblo, Colorado Board Water Works
1,000,000 5.500%, 11/01/10 FSA Insured ........................... Aaa/AAA 1,066,540
Thornton, Colorado Water Enterprise Revenue
1,445,000 4.500%, 12/01/18 MBIA Insured .......................... Aaa/AAA 1,498,479
Ute, Colorado Water Conservancy District
1,570,000 5.500%, 06/15/12 MBIA Insured .......................... Aaa/AAA 1,665,346
-------------
Total Water & Sewer .................................... 27,157,691
-------------
MISCELLANEOUS REVENUE (2.0%)
Denver, Colorado City & County Helen Bonfils Project
1,755,000 5.875%, 12/01/09 ....................................... NR/A+ 1,789,819
South Suburban, Colorado Park & Recreational District
350,000 6.000%, 11/01/07 ....................................... Baa2/NR 353,500
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------- -------- -------------
MISCELLANEOUS REVENUE (CONTINUED)
Thornton, Colorado Development Authority Tax
Increment North Washington Street Urban
Renewal Project
$ 1,040,000 4.500%, 12/01/18 MBIA Insured .......................... Aaa/AAA $ 1,078,490
Westminster, Colorado Golf Course Activity
1,000,000 5.400%, 12/01/13 Radian Group, Inc. Insured ............ NR/AA 1,036,390
-------------
Total Miscellaneous Revenue ............................ 4,258,199
-------------
Total Revenue Bonds .................................... 140,856,343
-------------
Total Investments (cost $208,764,120 - note 4) ......... 100.1% 215,775,686
Other assets less liabilities .......................... (0.1) (310,736)
------- -------------
Net Assets ............................................. 100.0% $ 215,464,950
======= =============
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED) PORTFOLIO
---------------------------------------------------- ---------
Aaa of Moody's or AAA of S&P ....................... 77.5%
Aa of Moody's or AA of S&P ......................... 17.6
A of Moody's or S&P ................................ 1.5
Baa of Moody's or BBB of S&P ....................... 0.2
VMIG1 of Moody's or A1+ of S&P or F1 of Fitch ...... 3.2
------
100.0%
======
* Security purchased on a delayed delivery basis.
** Security pledged as collateral for the Fund's delayed delivery
commitment.
1 Rated by Fitch F1.
PORTFOLIO ABBREVIATIONS:
-----------------------------------------------------------
AMBAC - American Municipal Bond Assurance Corp.
COP - Certificates of Participation
CIFG - CDC IXIS Financial Guaranty
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
VRDN - Variable Rate Demand Note
XLCA - XL Capital Assurance
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
ASSETS
Investments at value (cost $208,764,120) ........................................... $ 215,775,686
Cash ............................................................................... 774,818
Interest receivable ................................................................ 1,535,993
Receivable for Fund shares sold .................................................... 109,396
Other assets ....................................................................... 14,612
-------------
Total assets ....................................................................... 218,210,505
-------------
LIABILITIES
Payable for investment securities purchased ........................................ 2,243,890
Dividends payable .................................................................. 152,252
Payable for Fund shares redeemed ................................................... 141,804
Management fee payable ............................................................. 91,748
Distribution and service fees payable .............................................. 36,365
Accrued expenses ................................................................... 79,496
-------------
Total liabilities .................................................................. 2,745,555
-------------
NET ASSETS ............................................................................ $ 215,464,950
=============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share $ 208,732
Additional paid-in capital ......................................................... 208,765,401
Net unrealized appreciation on investments (note 4) ................................ 7,011,566
Net realized loss on investments ................................................... (542,312)
Undistributed net investment income ................................................ 21,563
$ 215,464,950
=============
CLASS A
Net Assets ......................................................................... $ 197,926,289
=============
Capital shares outstanding ......................................................... 19,173,290
=============
Net asset value and redemption price per share ..................................... $ 10.32
=============
Offering price per share (100/96 of $10.32 adjusted to nearest cent) ............... $ 10.75
=============
CLASS C
Net Assets ......................................................................... $ 11,759,707
=============
Capital shares outstanding ......................................................... 1,141,414
=============
Net asset value and offering price per share ....................................... $ 10.30
=============
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) ...................................... $ 10.30*
=============
CLASS Y
Net Assets ......................................................................... $ 5,778,954
=============
Capital shares outstanding ......................................................... 558,448
=============
Net asset value, offering and redemption price per share ........................... $ 10.35
=============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
YEAR Ended DECEMBER 31, 2006
INVESTMENT INCOME:
Interest income ...................................... $ 10,529,771
Expenses:
Management fee (note 3) .............................. $ 1,156,263
Distribution and service fees (note 3) ............... 225,653
Transfer and shareholder servicing agent fees ........ 179,971
Trustees' fees and expenses (note 8) ................. 130,111
Legal fees (note 3) .................................. 68,704
Shareholders' reports and proxy statements ........... 51,437
Custodian fees ....................................... 39,246
Auditing and tax fees ................................ 18,999
Insurance ............................................ 16,179
Registration fees and dues ........................... 11,618
Chief compliance officer (note 3) .................... 4,544
Miscellaneous ........................................ 38,661
-------------
Total expenses ....................................... 1,941,386
Expenses paid indirectly (note 6) .................... (20,900)
-------------
Net expenses ......................................... 1,920,486
-------------
Net investment income ................................ 8,609,285
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions (296,973)
Change in unrealized appreciation on investments ..... (1,494,446)
-------------
Net realized and unrealized gain (loss) on investments (1,791,419)
-------------
Net change in net assets resulting from operations ... $ 6,817,866
=============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------- -----------------
OPERATIONS:
Net investment income ............................... $ 8,609,285 $ 9,287,999
Net realized gain (loss) from securities transactions (296,973) 114,717
Change in unrealized appreciation on investments .... (1,494,446) (5,760,022)
------------- -------------
Change in net assets from operations .............. 6,817,866 3,642,694
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 10):
Class A Shares:
Net investment income ............................... (8,364,068) (8,882,147)
Class C Shares:
Net investment income ............................... (376,548) (433,040)
Class Y Shares:
Net investment income ............................... (481,457) (625,839)
------------- -------------
Change in net assets from distributions ........... (9,222,073) (9,941,026)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from shares sold ........................... 16,194,654 21,108,886
Reinvested dividends and distributions .............. 5,247,141 5,684,989
Cost of shares redeemed ............................. (49,357,648) (31,598,529)
------------- -------------
Change in net assets from capital share transactions (27,915,853) (4,804,654)
------------- -------------
Change in net assets .............................. (30,320,060) (11,102,986)
NET ASSETS:
Beginning of period ................................. 245,785,010 256,887,996
------------- -------------
End of period* ...................................... 215,464,950 $ 245,785,010
============= =============
* Includes undistributed net investment income of: ... $ 21,563 $ 24,089
============= =============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
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, 2006 the Fund
increased undistributed net investment income by $610,262 and decreased
additional paid-in capital by $610,262 due primarily to differing book/tax
treatment of distributions and bond amortization.
g) NEW ACCOUNTING PRONOUNCEMENTS: In July 2006, the Financial Accounting
Standards Board ("FASB") released FASB Interpretation No. 48 "Accounting
for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides guidance for
how uncertain tax positions should be recognized, measured, presented and
disclosed in the financial statements. FIN 48 requires the evaluation of
tax positions taken or expected to be taken in the course of preparing the
Fund's tax returns to determine
whether the tax positions are "more-likely-than-not" of being sustained by
the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax benefit or
expense in the current year. Adoption of FIN 48 is required to be
implemented no later than June 29, 2007 and is to be applied to all open
tax years as of that date. At this time, management does not believe the
adoption of FIN 48 will result in any material impact on the Fund's
financial statements.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value
Measurement" ("SFAS 157"), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair
value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Fund
believes adoption of SFAS 157 will have no material impact on the Fund's
financial statements.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Aquila Investment Management LLC (the "Manager"), a wholly-owned
subsidiary of Aquila Management Corporation, the Fund's founder and sponsor,
serves as the Manager for the Fund under an Advisory and Administration
Agreement with the Fund. The portfolio management of the Fund has been delegated
to 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 year
ended December 31, 2006, distribution fees on Class A Shares amounted to
$103,635 of which the Distributor retained $3,496.
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, 2006, amounted to $91,514. 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, 2006 amounted to $30,504. The
total of these payments with respect to Class C Shares amounted to $122,018 of
which the Distributor retained $28,385.
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, 2006, total commissions on sales of Class A Shares amounted to $266,785 of
which the Distributor received $49,437.
c) OTHER RELATED PARTY TRANSACTIONS:
For the year ended December 31, 2006, the Fund incurred $67,122 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 year ended December 31, 2006, purchases of securities and
proceeds from the sales of securities aggregated $17,100,030 and $48,901,751,
respectively.
At December 31, 2006, the aggregate tax cost for all securities was
$208,742,557. At December 31, 2006 the aggregate gross unrealized appreciation
for all securities in which there is an excess of value over tax cost amounted
to $7,118,340 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $85,211 for a net
unrealized appreciation of $7,033,129.
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.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
CLASS A SHARES:
Proceeds from shares sold ... 1,276,887 $ 13,173,965 1,666,823 $ 17,582,759
Reinvested distributions .... 473,577 4,889,312 489,086 5,154,342
Cost of shares redeemed ..... (3,504,597) (36,133,383) (2,390,628) (25,145,318)
------------ ------------ ------------ ------------
Net change .............. (1,754,133) (18,070,106) (234,719) (2,408,217)
------------ ------------ ------------ ------------
CLASS C SHARES:
Proceeds from shares sold ... 119,840 1,233,789 150,827 1,588,430
Reinvested distributions .... 18,176 187,305 21,343 224,529
Cost of shares redeemed ..... (246,633) (2,541,592) (348,748) (3,664,214)
------------ ------------ ------------ ------------
Net change .............. (108,617) (1,120,498) (176,578) (1,851,255)
------------ ------------ ------------ ------------
CLASS Y SHARES:
Proceeds from shares sold ... 172,601 1,786,900 182,878 1,937,697
Reinvested distributions .... 16,528 170,524 28,938 306,118
Cost of shares redeemed ..... (1,035,385) (10,682,673) (265,014) (2,788,997)
------------ ------------ ------------ ------------
Net change .............. (846,256) (8,725,249) (53,198) (545,182)
------------ ------------ ------------ ------------
Total transactions in Fund shares (2,709,006) $(27,915,853) (464,495) $ (4,804,654)
============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES
At December 31, 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 year ended December 31, 2006 was $90,375, 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 year ended December 31, 2006, such meeting-related
expenses amounted to $39,736.
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, 2006, the Fund had a capital loss carryover of $542,312 of which
$245,339 expires in 2012 and $296,973 expires in 2014. 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,
2006 2005
---------- ----------
Net tax-exempt income .......... $8,611,722 $9,394,426
Ordinary income ................ 610,351 546,600
---------- ----------
$9,222,073 $9,941,026
========== ==========
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Unrealized appreciation $7,033,129
Accumulated net realized loss (542,312)
----------
$6,490,817
==========
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,
------------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Net asset value, beginning of period ....................... $ 10.42 $ 10.68 $ 10.84 $ 10.82 $ 10.32
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income+ ................................. 0.39 0.39 0.40 0.41 0.43
Net gain (loss) on securities (both realized
and unrealized) .................................... (0.07) (0.23) (0.13) 0.05 0.52
-------- -------- -------- -------- --------
Total from investment operations ....................... 0.32 0.16 0.27 0.46 0.95
-------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ................... (0.42) (0.42) (0.43) (0.44) (0.45)
Distributions from capital gains ....................... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions .................................... (0.42) (0.42) (0.43) (0.44) (0.45)
-------- -------- -------- -------- --------
Net asset value, end of period ............................. $ 10.32 $ 10.42 $ 10.68 $ 10.84 $ 10.82
======== ======== ======== ======== ========
Total return (not reflecting sales charge) ................. 3.11% 1.53% 2.57% 4.32% 9.36%
Ratios/supplemental data
Net assets, end of period (in thousands) ............... $197,926 $218,111 $226,070 $233,109 $215,195
Ratio of expenses to average net assets ................ 0.79% 0.79% 0.75% 0.74% 0.75%
Ratio of net investment income to average net assets ... 3.76% 3.73% 3.76% 3.81% 4.05%
Portfolio turnover rate ................................ 7.48% 10.57% 12.55% 6.16% 6.95%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ................ 0.78% 0.79% 0.74% 0.74% 0.74%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS (continued)
For a share outstanding throughout each period
Class C
------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Net asset value, beginning of period ............ $ 10.40 $ 10.66 $ 10.82 $ 10.80 $ 10.30
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income+ ...................... 0.29 0.29 0.30 0.31 0.31
Net gain (loss) on securities (both
realized and unrealized) ................. (0.07) (0.23) (0.13) 0.04 0.53
-------- -------- -------- -------- --------
Total from investment operations ............ 0.22 0.06 0.17 0.35 0.84
-------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ........ (0.32) (0.32) (0.33) (0.33) (0.34)
Distributions from capital gains ............ -- -- -- --
-------- -------- -------- -------- --------
Total distributions ......................... (0.32) (0.32) (0.33) (0.33) (0.34)
-------- -------- -------- -------- --------
Net asset value, end of period .................. $ 10.30 $ 10.40 $ 10.66 $ 10.82 $ 10.80
======== ======== ======== ======== ========
Total return (not reflecting sales charge) ...... 2.14% 0.57% 1.60% 3.33% 8.32%
Ratios/supplemental data
Net assets, end of period (in thousands) .... $ 11,760 $ 13,003 $ 15,210 $ 15,820 $ 9,109
Ratio of expenses to average net assets ..... 1.74% 1.74% 1.70% 1.69% 1.68%
Ratio of net investment income to average
net assets ............................... 2.81% 2.78% 2.81% 2.83% 2.99%
Portfolio turnover rate ..................... 7.48% 10.57% 12.55% 6.16% 6.95%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ..... 1.73% 1.74% 1.69% 1.68% 1.67%
Class Y
------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- --------
Net asset value, beginning of period ............ $ 10.44 $ 10.71 $ 10.86 $ 10.84 $ 10.33
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income+ ...................... 0.40 0.40 0.41 0.42 0.44
Net gain (loss) on securities (both
realized and unrealized) ................. (0.07) (0.24) (0.12) 0.04 0.52
-------- -------- -------- -------- --------
Total from investment operations ............ 0.33 0.16 0.29 0.46 0.96
-------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ........ (0.42) (0.43) (0.44) (0.44) (0.45)
Distributions from capital gains ............ -- -- -- --
-------- -------- -------- -------- --------
Total distributions ......................... (0.42) (0.43) (0.44) (0.44) (0.45)
-------- -------- -------- -------- --------
Net asset value, end of period .................. $ 10.35 $ 10.44 $ 10.71 $ 10.86 $ 10.84
======== ======== ======== ======== ========
Total return (not reflecting sales charge) ...... 3.26% 1.49% 2.73% 4.37% 9.50%
Ratios/supplemental data
Net assets, end of period (in thousands) .... $ 5,779 $ 14,671 $ 15,608 $ 13,760 $ 7,482
Ratio of expenses to average net assets ..... 0.75% 0.74% 0.70% 0.69% 0.69%
Ratio of net investment income to average
net assets ............................... 3.82% 3.77% 3.81% 3.85% 4.07%
Portfolio turnover rate ..................... 7.48% 10.57% 12.55% 6.16% 6.95%
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% 0.69% 0.69% 0.69%
- ----------
+ 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 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 July 1,
2006 and held for the six months ended December 31, 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".
SIX MONTHS ENDED DECEMBER 31, 2006
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 3.25% $1,000.00 $1,032.50 $ 3.94
- --------------------------------------------------------------------------------
Class C 2.76% $1,000.00 $1,027.60 $ 8.79
- --------------------------------------------------------------------------------
Class Y 3.37% $1,000.00 $1,033.70 $ 3.74
- --------------------------------------------------------------------------------
(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 0.77%, 1.72% AND
0.73% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (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.
SIX MONTHS ENDED DECEMBER 31, 2006
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.32 $ 3.92
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,016.53 $ 8.74
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,021.53 $ 3.72
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.77%, 1.72% AND
0.73% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/365 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquila Group of Funds(SM)
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 2006, $8,611,722 of dividends
paid by Tax-Free Fund of Colorado, constituting 93.38% of total dividends paid
during calendar 2006, were exempt-interest dividends and the balance were
ordinary dividend income.
Prior to January 31, 2007, shareholders will be mailed IRS Form 1099-DIV
which will contain information on the status of distributions paid for the 2006
CALENDAR YEAR.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
TRUSTEES(1) AND OFFICERS
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
INTERESTED TRUSTEES(4)
Diana P. Herrmann Trustee Vice Chair and Chief Executive Officer of 12 ICI Mutual Insurance
New York, NY since 2000 Aquila Management Corporation, Founder of the Company
(02/25/58) and President Aquila Group of Funds(SM) (5) 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; Chair,
Vice Chair, President, Executive Vice
President or Senior Vice President of funds
in the Aquila Group of Funds(SM) 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 and head of its Small Funds
Committee since 2004; active in charitable
and volunteer organizations.
NON-INTERESTED TRUSTEES
Anne J. Mills Chair of the President, Loring Consulting Company since 4 None
Castle Rock, CO Board of 2001; Vice President for Business Management
(12/23/38) Trustees and CFO, Ottawa University, since 2006, Vice
since 2005 President for Business Affairs, 1992-2001;
and Trustee IBM Corporation, 1965-1991; currently active
since 1987 with various charitable educational and
religious organizations.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Tucker Hart Adams Trustee President, The Adams Group, Inc., an economic 2 Director, Colorado
Colorado Springs, since 1989 consulting firm, since 1989; formerly Chief Health Facilities
CO Economist, United Banks of Colorado; Authority
(01/11/38) currently or formerly active with numerous
professional and community organizations.
Thomas A. Christopher Trustee Vice President of Robinson, Hughes & 3 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; currently or
formerly active with various professional and
community organizations.
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 - present; Associate Dean,
Marriott School of Management, Brigham Young
University, 1991-2000; Utah Governor's Tax
Review Committee since 1993.
Lyle W. Hillyard Trustee President of the law firm of Hillyard, 2 None
Logan, UT since 2006 Anderson & Olsen, Logan, Utah, since 1967;
(09/25/40) member of Utah Senate, 1985 to present, in
the following positions: President, 2000,
Senate Majority Leader, 1999-2000, Assistant
Majority Whip, 1995-1998; served as Chairman
of the following Senate Committees: Tax and
Revenue, Senate Judiciary Standing, Joint
Executive Appropriations, and Senate Rules;
currently serves as Co-Chair, Joint Executive
Appropriations.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
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, Northern
Arizona University Foundation since 1997;
member, various historical, civic and
economic associations.
OTHER INDIVIDUALS
TRUSTEES EMERITUS(6)
Lacy B. Herrmann Founder and Founder and Chairman of the Board, Aquila N/A N/A
New York, NY Chairman Management Corporation, the sponsoring
(05/12/29) Emeritus organization and parent of the Manager or
since 2005; Administrator and/or Adviser or Sub-Adviser
Chairman to each fund of the Aquila Group of
of the Board Funds(SM); Chairman of the Manager or
of Trustees, Administrator and/or Adviser or Sub-Adviser
1987-2004 to each since 2004; Founder and Chairman
Emeritus of each fund in the Aquila Group of
Funds(SM); previously Chairman and a Trustee
of each fund in the Aquila Group of Funds(SM)
since its establishment until 2004 or 2005;
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.
J. William Weeks Trustee Retired; limited partner in real estate N/A N/A
Palm Beach, FL Emeritus partnerships Alex, Brown & Sons No. 1 and 2;
(06/22/27) since 2006 formerly Senior Vice President or Vice
President of the Aquila Municipal Bond Funds;
and Vice President of the Distributor.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
OFFICERS
Charles E. Childs, III Executive Executive Vice President of all funds in the N/A N/A
New York, NY Vice President Aquila Group of Funds(SM) and the Manager and
(04/01/57) since 2003 the Manager's parent since 2003; formerly
Senior Vice President, corporate development,
Vice President, Assistant Vice President and
Associate of the Manager's parent since 1987;
Senior Vice President, Vice President or
Assistant Vice President of the Aquila
Money-Market Funds, 1988-2003.
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; Vice
President, Aquila Rocky Mountain Equity Fund
since 2006.
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
Three Peaks High Income Fund, Aquila Rocky
Mountain Equity Fund and five Aquila
Municipal Bond Funds; 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.
Robert W. Anderson Chief Chief Compliance Officer of the Fund and each N/A N/A
New York, NY Compliance of the other funds in the Aquila Group of
(08/23/40) Officer since Funds(SM), the Manager and the Distributor
2004 and since 2004, Compliance Officer of the Manager
Assistant or its predecessor and current parent
Secretary 1998-2004; Assistant Secretary of the Aquila
since 2000 Group of Funds(SM) since 2000.
NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------
Joseph P. DiMaggio Chief Chief Financial Officer of the Aquila Group N/A N/A
New York, NY Financial of Funds(SM) since 2003 and Treasurer since
(11/06/56) Officer 2000.
since 2003
and Treasurer
since 2000
Edward M. W. Hines Secretary Hollyer Brady Barrett & Hines LLP, legal N/A N/A
New York, NY since 1987 counsel to the Fund, since 1989; Secretary of
(12/16/39) the Aquila Group of Funds(SM).
John M. Herndon Assistant Assistant Secretary of the Aquila Group of N/A N/A
New York, NY Secretary Funds(SM) since 1995 and Vice President of
(12/17/39) since 1995 the three Aquila Money-Market Funds since
1990; Vice President of the Manager or its
predecessor and current parent since 1990.
Lori A. Vindigni Assistant Assistant Treasurer of the Aquila Group of N/A N/A
New York, NY Treasurer Funds(SM) since 2000; Assistant Vice
(11/02/66) since 2000 President of the Manager or its predecessor
and current parent since 1998; Fund
Accountant for the Aquila Group of Funds(SM),
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) Ms. Herrmann is an interested person of the Fund as an officer of the
Fund, as a director, officer and shareholder of the Manager's corporate
parent, as an officer and Manager of the Manager, and as a shareholder and
director of the Distributor.
(5) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash
Assets Trust, each of which is a money-market fund, are called the "Aquila
Money-Market Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona,
Tax-Free Trust of Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free
Fund of Kentucky, Narragansett Insured Tax-Free Income Fund and Tax-Free
Fund For Utah, each of which is a tax-free municipal bond fund, are called
the "Aquila Municipal Bond Funds"; Aquila Rocky Mountain Equity Fund is an
equity fund; Aquila Three Peaks High Income Fund is a high income
corporate bond fund; considered together, these 12 funds are called the
"Aquila Group of Funds(SM)."
(6) A Trustee Emeritus may attend Board meetings but has no voting power.
- --------------------------------------------------------------------------------
PRIVACY NOTICE (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 non-public
personal information about you. Our policy is to keep this information strictly
safeguarded and confidential, and to use or disclose it only as necessary to
provide services to you or as otherwise permitted by law. Our privacy policy
applies equally to former shareholders and persons who inquire about the Fund.
INFORMATION WE COLLECT. "Non-public personal information" is personally
identifiable financial information about you as an individual or your family.
The kinds of non-public personal information we have about you may include the
information you provide us on your share purchase application or in telephone
calls or correspondence with us, and information about your fund transactions
and holdings, how you voted your shares and the account where your shares are
held.
INFORMATION WE DISCLOSE. We disclose non-public personal information about you
to companies that provide necessary services to us, such as the 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.
NON-CALIFORNIA RESIDENTS: We also may disclose some of this information to
another fund in the Aquila Group of Funds(SM) (or its service providers) under
joint marketing agreements that permit the funds to use the information only to
provide you with information about other funds in the Aquila Group of Funds(SM)
or new services we are offering that may be of interest to you.
CALIFORNIA RESIDENTS ONLY: In addition, unless you "opt-out" of the following
disclosures using the form that was mailed to you under separate cover, we may
disclose some of this information to another fund in the Aquila Group of
Funds(SM) (or its sevice providers) under joint marketing agreements that permit
the funds to use the information only to provide you with information about
other funds in the Aquila Group of Funds(SM) or new services we are offering
that may be of interest to you.
HOW WE SAFEGUARD YOUR INFORMATION. We restrict access to non-public personal
information about you to only those persons who need it to provide services to
you or who are permitted by law to receive it. We maintain physical, electronic
and procedural safeguards to protect the confidentiality of all non-public
personal information we have about you.
If you have any questions regarding our Privacy Policy, please contact us at
1-800-437-1020.
AQUILA DISTRIBUTORS, INC.
AQUILA INVESTMENT MANAGEMENT LLC
This Privacy Policy also has been adopted by Aquila Distributors, Inc. and
Aquila Investment Management LLC and applies to all non-public information about
you that each of these companies may obtain in connection with services provided
to the Fund or to you as a shareholder of the Fund.
- --------------------------------------------------------------------------------
(THIS PAGE INTENTIONALLY LEFT BLANK)
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
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC Inc.
101 Sabin Street
Pawtucket, RI 02860
CUSTODIAN
JPMORGAN CHASE BANK, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Further information is contained in the Prospectus, which must precede or
accompany this report.
ITEM 2. CODE OF ETHICS.
(a) As of December 31, 2006 (the end of the reporting period) the
Trust has adopted a code of ethics that applies to the Trust's
principal executive officer(s)and principal financial officer(s)
and persons performing similar functions ("Covered Officers") as
defined in the Aquila Group of Funds Code of Ethics for Principal
Executive and Senior Financial Officers under Section 406 of the
Sarbanes-Oxley Act of 2002;
(f)(1) Pursuant to Item 10(a)(1), a copy of the Trust's Code of
Ethics that applies to the Trust's principal executive officer(s)
and principal financial officer(s) and persons performing similar
functions is included as an exhibit to its annual report on this
Form N-CSR;
(f)(2) The text of the Trust's Code of Ethics that applies to the
Trust's principal executive officer(s) and principal financial
officer(s) and persons performing similar functions has been
posted on its Internet website which can be found at the Trust's
Internet address at aquilafunds.com.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1)(ii) The Board of Trustees of the Fund has determined that
it does not have at least one audit committee financial expert
serving on its audit committee. The Fund does not have such a
person serving on the audit committee because none of the persons
currently serving as Trustees happens to have the technical
accounting and auditing expertise included in the definition of
"audit committee financial expert" recently adopted by the Securities
and Exchange Commission in connection with this Form N-CSR, and the
Board has not heretofore deemed it necessary to seek such a person
for election to the Board.
The primary mission of the Board, which is that of oversight over
the operations and affairs of the Fund, confronts the Trustees with
a wide and expanding range of issues and responsibilities. The
Trustees believe that, accordingly, it is essential that the Board's
membership consist of persons with as extensive experience as possible
in fulfilling the duties and responsibilities of mutual fund directors
and audit committee members and, ideally, with extensive experience
and background relating to the economic and financial sectors and
securities in which the Fund invests, including exposure to the
financial and accounting matters commonly encountered with respect
to those sectors and securities. The Board believes that its current
membership satisfies those criteria. It recognizes that it would
also be helpful to have a member with the relatively focused accounting
and auditing expertise reflected in the applicable definition of
"audit committee financial expert," just as additional members with
similarly focused technical expertise in other areas relevant to
the Fund's operations and affairs would also contribute added value.
However, the Board believes that the Fund is better served, and its
assets better employed, by a policy of hiring experts in various
the specialized area of technical accounting and
auditing matters, if and as the Board identifies the need, rather
than by seeking to expand its numbers by adding technical experts
in the areas constituting its domain of responsibility. The Fund's
Audit Committee Charter explicitly authorizes the Committee to
retain such experts as it deems necessary in fulfilling its duties
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 $18,000 in 2005 and $18,000 in 2006.
b) Audit Related Fees - There were no amounts billed for audit-related
fees over the past two years.
c) Tax Fees - The Registrant was billed by the principal accountant
$3,000 and $3,000 in 2005 and 2006, respectively, for return preparation
and tax compliance.
d) All Other Fees - There were no additional fees paid for audit and
non-audit services other than those disclosed in a) thorough c) above.
e)(1) Currently, the audit committee of the Registrant pre-approves audit
services and fees on an engagement-by-engagement basis
e)(2) None of the services described in b) through d) above were approved
by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X, all were pre-approved on an engagement-by-engagement basis.
f) No applicable.
g) There were no non-audit services fees billed by the Registrant's accountant
to the Registrant's investment adviser or distributor over the past two years
h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included in Item 1 above
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Directors of the Registrant has adopted a Nominating
Committee Charter which provides that the Nominating Committee (the 'Committee')
may consider and evaluate nominee candidates properly submitted by shareholders
if a vacancy among the Independent Trustees of the Registrant occurs and if,
based on the Board's then current size, composition and structure, the Committee
determines that the vacancy should be filled. The Committee will consider
candidates submitted by shareholders on the same basis as it considers and
evaluates candidates recommended by other sources. A copy of the qualifications
and procedures that must be met or followed by shareholders to properly submit
a nominee candidate to the Committee may be obtained by submitting a request
in writing to the Secretary of the Registrant.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing of this report, the registrant's
chief financial and executive officers have concluded that the disclosure
controls and procedures of the registrant are appropriately designed to ensure
that information required to be disclosed in the registrant's reports that are
filed under the Securities Exchange Act of 1934 are accumulated and communicated
to registrant's management, including its principal executive officer(s) and
principal financial officer(s), to allow timely decisions regarding required
disclosure and is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms adopted by the Securities and Exchange
Commission.
(b) There have been no significant changes in registrant's internal controls or
in other factors that could significantly affect registrant's internal controls
subsequent to the date of the most recent evaluation, including no significant
deficiencies or material weaknesses that required corrective action.
ITEM 12. EXHIBITS.
(a)(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
March 9, 2007
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Chief Financial Officer and Treasurer
March 9, 2007
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
March 9, 2007
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
March 9, 2007
TAX-FREE FUND OF COLORADO
EXHIBIT INDEX
(a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and
Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act
of 2002.
(a) (2) Certifications of principal executive officer
and principal financial officer as required by Rule 30a-2(a)
under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.