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: 12/31/08
Date of reporting period: 12/31/08
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL
REPORT
DECEMBER 31, 2008
[LOGO OF TAX-FREE FUND OF COLORADO: A SQUARE WITH
SILLHOUETTES OF TWO MOUNTAINS AND A RISING SUN]
TAX-FREE FUND
OF
COLORADO
A TAX-FREE INCOME INVESTMENT
[LOGO OF THE AQUILA
GROUP OF FUNDS: ONE OF THE
AN EAGLE'S HEAD] AQUILA GROUP OF FUNDS (R)
[LOGO OF TAX-FREE FUND OF COLORADO:
A SQUARE WITH SILHOUETTES OF TWO
MOUNTAINS AND A RISING SUN]
SERVING COLORADO INVESTORS FOR MORE THAN TWO DECADES
TAX-FREE FUND OF COLORADO
"PROPER ASSET ALLOCATION -
A STRATEGY FOR ALL SEASONS"
February, 2009
The market has definitely been volatile enough recently to cause even the
most seasoned investor to ask, "What should I do now?"
We believe you will be in a better position to weather this, or any,
economic storm, if your portfolio is built with a strong foundation. In short,
is your portfolio properly allocated based on your specific needs?
As you hopefully already know, asset allocation is an investment strategy
that strives to balance risk and reward by diversifying assets according to your
specific desires. These include:
o investment time horizon (specifically your age and retirement
objectives);
o risk threshold (how much of your investment capital you are willing
to lose during a given time frame);
o financial situation (your wealth, income, expenses, tax bracket,
liquidity needs, etc.); and
o goals (the financial goals you and your family want to achieve).
Since the three main asset classes - equities, fixed-income, and cash/cash
equivalents - have different levels of risk and return, each is expected to
behave differently over time. The objective of asset allocation is to create a
diversified portfolio with an acceptable level of risk and the highest possible
return given that level of risk.
Although there is no simple formula that can find the right asset
allocation for every individual, the consensus among most financial
professionals is that asset allocation is one of the most important decisions
that investors make.
NOT A PART OF THE ANNUAL REPORT
The way you allocate your investment among stocks, bonds, and cash/cash
equivalents will be the principal determinant of your investment results -
secondary to your selection of individual securities.
Once you and your financial professional have developed an appropriate
asset allocation for your portfolio, we believe that changes should be made
based on need, not on scary headlines.
A properly constructed portfolio with sound asset allocation should be in
a good position to weather all seasons.
Sincerely
[PHOTO OMITTED]
/s/ Lacy B. Herrmann /s/ Diana P. Herrmann
Lacy B. Herrmann Diana P. Herrmann
Founder and Chairman Emeritus President
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 MORE THAN TWO DECADES
TAX-FREE FUND OF COLORADO
ANNUAL REPORT
MANAGEMENT DISCUSSION
2008 REVIEW
The primary theme in the financial markets in 2008 was crisis. We began
the year with a growing problem in the sub prime mortgage market which quickly
translated to escalating liquidity and credit quality problems in the banking,
brokerage and insurance industries. These difficulties arose from a number of
factors, including many years of easy credit availability, lax regulation, low
interest rates and the mistaken belief that real estate values would never
decline significantly. As the financial sector began to realize the extent of
their declining asset quality problem, lending began to dry up and companies
began looking to unload poor quality assets (loans) at almost any price.
Naturally, as this asset deterioration was occurring throughout the financial
system, there were few entities willing to accept these distressed assets.
The primary culprit of the current financial morass is the residential
mortgage market. The past several years have been marked by record levels of
home ownership driven by loose lending standards, no money down, teaser rates,
and adjustable mortgages. Home owners were borrowing more than they could afford
to pay back and when the monthly payments began to reset with higher interest
rates, borrowers began to default and home foreclosures began to soar.
In the face of our seizing financial system the Federal Government has
been forced to be a lender of last resort. The U.S. Treasury and Federal Reserve
Boards have developed a variety of stimulus programs designed to bolster the
banking system, provide liquidity to the financial markets and encourage
consumers to begin spending again. The cost of these programs has yet to be
determined but appears to be in the trillions of dollars.
Due to the worldwide flight to safety in the fixed income markets, U.S.
Treasury yields have declined to historical lows. By the end of the year,
interest rates on 1 to 5 year notes declined to 0.34% and 1.53%, respectively,
and rates on 10 and 30 year bonds declined to 2.27% and 2.65%. The Federal
Reserve has moved their target for the overnight Federal Funds rate to 0 - 0.25%
in an effort to provide liquidity and stimulate the economy. We believe that we
will remain in this low interest rate environment until there are signs of
increased economic activity late in 2009 or early 2010.
Interest rates on municipal bonds did not behave in the same fashion as
Treasuries during 2008. Yields on shorter term securities declined by 200 basis
points (1 basis point equals 1/100th of 1%) for 1 year maturities and about 50
basis points for 7 year bonds. AAA municipals with maturities of 10 to 30 years
experienced an increase in yield of 17 to 83 basis points, respectively. The
forced sales of bonds in the derivative markets, mutual fund liquidations and
credit rating downgrades of municipal bond insurers were the primary cause for
the rise in yields. There was also a dramatic yield increase in higher risk, low
rated municipal bonds. This was a continuation of the trend which began in 2007
where municipal investors are requiring higher returns for investing in higher
risk securities with longer maturities and lower credit ratings.
The Colorado economy has also entered a recession. We have seen the
unemployment rate increase to almost 6% and it is projected to go higher in
2009. The housing market contraction which began in 2006 continues at a
frightening pace. Permits for new homes are down more than 30% from 2007
MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED)
depressed levels, and the median sales price of existing homes declined by 9-12%
depending on the region. On a positive note, Colorado home values are holding up
much better than other areas of the country because we did not have the runaway
price inflation experienced in other high growth markets. Hopefully, Colorado
will lead the nation in price recovery as it led the nation into the downturn.
State and local governments are also feeling the effects of the economic
downturns. The State Office of Budget and Planning has estimated a $600 million
shortfall in General Fund revenues. Local governments are dealing with lower
sales tax collections and flattening property tax income. Fortunately, our
Colorado governments have a history of making the difficult budget cuts
necessary to maintain break-even operations.
The conservative investment strategy for Tax-Free Fund of Colorado was
rewarded during 2008. The positive factors affecting our investment performance
were our intermediate maturity, high credit quality and above average interest
rates on our seasoned holdings. During the year our average maturity lengthened
from 6 years to 8.5 years as we sought to take advantage of higher yields on the
longer maturities within our intermediate range. The municipal bond insurance
companies have been under review by the major rating agencies and the ratings of
some of the insurance companies have now either been downgraded and/or have a
negative outlook. As a result, we experienced a reduction in our average credit
ratings. The underlying credit quality of our portfolio remains very strong,
however, with an average rating of A/AA. The average interest rate on the
portfolio holdings remained slightly above 5% during the year. These higher
coupon bonds held their value very well in hostile market conditions.
Negative factors impacting our performance were longer maturity, lower
credit quality bonds that were added to the portfolio in late 2007 and early
2008. We began using these securities a little earlier than when they achieved
their cheapest valuations, but they only represented about 10% of the portfolio.
We believe we achieved our goal of improving the yield and maintaining a
relatively stable price for 2008. In a market of unprecedented volatility, the
total return for Class A investors based on Net Asset Value was +0.57% and the
double tax-exempt dividend yield averaged approximately 4.10% for the year.
2009 STRATEGY
We believe that the present valuation characteristics of municipal bonds
are very favorable. The interest rates on tax-free bonds are currently about the
same or higher than U.S. Treasury securities with similar maturities. We believe
the prospect for rising tax rates seems almost certain given the amount of
Federal economic stimulus legislation being added to the Treasury's balance
sheet. The value of tax-exempt income is becoming widely recognized by the
investing public and demand for municipal bonds is increasing. The most critical
aspect of investing in municipals in this environment is credit research.
Knowing what you own will become more difficult with the rapidly changing
financial condition of state and local issuers. At Tax-Free Fund of Colorado we
plan to redouble our efforts in ongoing credit surveillance and new issue credit
research. We plan to add to our positions in 15-20 year maturities as there is
now a yield pick up of over 2.5% versus 5 year bonds. We will strive to maintain
an average maturity in the intermediate range of 8 to 12 years as has always
been our practice. We intend to continue our emphasis on strong credit quality
issuers where we have compiled a history of financial performance and have
access to management. In the event we have to sell securities, we expect to look
to the shorter bonds that will mature or be called in the next 2 or 3 years. If
interest rates begin to rise later in the year, we believe we are in a very
liquid and flexible position to take advantage of those opportunities as they
present themselves.
We hope that our shareholders are taking some comfort in the fact that
Tax-Free Fund of Colorado continues, in our view, to meet expectations as a
safe, stable product that produces a reliable double tax-free income stream. In
uncertain and volatile market conditions we strive to provide a solid foundation
for your investment portfolio.
Thank you for your interest 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,
2008 as compared with the Barclays Capital Quality Intermediate Municipal Bond
Index (formerly known as the Lehman Brothers Quality Intermediate Municipal Bond
Index) and the Consumer Price Index (a cost of living index). The performance of
each of the other classes is not shown in the graph but is included in the table
below. It should be noted that the Barclays Capital Quality Intermediate
Municipal Bond 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:]
Tax-Free Fund Tax-Free Fund
of Colorado of Colorado
Cost of Class A Shares Class A Shares Barclays
Living Index no sales charge with sales charge Capital Index
12/98 10,000 10,000 9,600 10,000
12/99 10,268 9,905 9,512 10,029
12/00 10,616 10,727 10,301 10,895
12/01 10,781 11,215 10,769 11,495
12/02 11,037 12,198 11,713 12,557
12/03 11,245 12,796 12,287 13,139
12/04 11,611 13,141 12,619 13,536
12/05 12,007 13,311 12,785 13,764
12/06 12,312 13,782 13,234 14,281
12/07 12,815 14,172 13,608 14,977
12/08 12,827 14,288 13,720 15,651
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2008
-----------------------------------
SINCE
CLASS AND INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ----------------------------------------- ------ ------- -------- ---------
Class A (commenced operations on 5/21/87)
With Maximum Sales Charge (3.49)% 1.36% 3.21% 5.23%
Without Sales Charge 0.57% 2.19% 3.63% 5.43%
Class C (commenced operations on 4/30/96)
With CDSC (1.38)% 1.23% 2.65% 3.17%
Without CDSC (0.39)% 1.23% 2.65% 3.17%
Class Y (commenced operations on 4/30/96)
No Sales Charge 0.63% 2.25% 3.69% 4.36%
Barclays Capital Quality
Intermediate Municipal Bond Index 4.49% 3.56% 4.58% 5.85% (Class A)
5.01% (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, 2008 and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the four 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 the year ended December 31, 2004 was
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, 2008, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Tax-Free Fund of Colorado as of December 31, 2008, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the four
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, 2009
- --------------------------------------------------------------------------------
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2008
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (26.6%) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
CITY & COUNTY (1.1%)
Denver, Colorado City & County Art Museum
$ 2,000,000 5.000%, 08/01/15 ........................................ Aa1/AAA $ 2,142,100
-------------
METROPOLITAN DISTRICT (5.7%)
Arapahoe, Colorado Park & Recreation District
1,070,000 5.000%, 12/01/17 FGIC Insured ........................... A3/NR 1,110,617
Aspen Grove Business Improvement District,
Colorado Refunding
1,150,000 4.750%, 12/01/21Radian Insured .......................... NR/BBB+ 947,473
Foothills, Colorado Park & Recreational District
1,310,000 5.000%, 12/01/12 FSA Insured ............................ Aa3/NR+ 1,401,124
1,325,000 5.000%, 12/01/13 FSA Insured ............................ Aa3/NR+ 1,409,124
Fraser Valley Metropolitan Recreational District,
Colorado
1,375,000 5.000%, 12/01/25 ........................................ NR/A 1,342,743
Highlands Ranch, Colorado Metropolitan District #1,
Refunding
1,730,000 5.750%, 09/01/09 AMBAC Insured .......................... Baa1/AA+ 1,772,956
Hyland Hills Metro Park & Recreation District,
Colorado Special Revenue Refunding
& Improvement
1,275,000 4.375%, 12/15/26 ACA Insured ............................ NR/NR* 697,336
Lincoln Park, Colorado Metropolitan District,
Refunding & Improvement
1,535,000 5.625%, 12/01/20 ........................................ NR/BBB- 1,200,692
North Metro Fire Rescue District, Colorado
1,200,000 4.625%, 12/01/20 AMBAC Insured .......................... Baa1/A+ 1,226,664
South Suburban, Colorado Park & Recreational
District
300,000 5.125%, 12/15/09 FGIC Insured ........................... Aa3/AA 304,257
-------------
Total Metropolitan District ............................. 11,412,986
-------------
SCHOOL DISTRICTS (19.8%)
Adams & Arapahoe Counties, Colorado Joint School
District #28J
2,500,000 5.500%, 12/01/23 ........................................ Aa3/AA- 2,610,475
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
SCHOOL DISTRICTS (CONTINUED)
Adams & Weld Counties, Colorado School
District #27J
$ 1,000,000 5.375%, 12/01/26 MBIA Insured ........................... Aa3/AA $ 1,020,910
Adams County, Colorado School District #12
(Adams 12 Five Star Schools)
1,170,000 5.000%, 12/15/12 MBIA Insured ........................... Aa3/AA+ 1,252,438
830,000 5.000%, 12/15/12 MBIA Insured Pre-Refunded .............. Aa3/AAA 905,007
Arapahoe County, Colorado Cherry Creek School
District #5
2,760,000 5.500%, 12/15/11 Pre-Refunded ........................... Aa2/AA 2,880,088
2,750,000 5.500%, 12/15/12 Pre-Refunded ........................... Aa2/AA 2,869,652
Arapahoe County, Colorado School District #006
Littleton
1,000,000 5.250%, 12/01/21 FGIC Insured ........................... Aa2/AA 1,038,850
Boulder Larimer & Weld Counties, Colorado
1,260,000 5.000%, 12/15/26 FSA Insured ............................ Aa3/AAA 1,233,666
Clear Creek, Colorado School District
1,000,000 5.000%, 12/01/16 FSA Insured ........................ Aa3/AAA 1,003,470
El Paso County, Colorado School District #20
1,500,000 5.000%, 12/15/14 FGIC Insured ........................... Aa3/NR 1,620,570
El Paso County, Colorado School District #020
1,085,000 5.500%, 12/15/23 FGIC Insured ........................... Aa3/NR 1,127,206
El Paso County, Colorado School District #38
1,110,000 5.700%, 12/01/12 Pre-Refunded ........................... Aa3/NR 1,194,282
El Paso County, Colorado School District #49
1,500,000 5.500%, 12/01/13 FSA Insured Pre-Refunded ............... Aa3/AAA 1,637,745
1,000,000 5.250%, 12/01/14 FGIC Insured Pre-Refunded .............. Aa3/AA- 1,097,730
Garfield County, Colorado School District
1,250,000 5.000%, 12/01/17 FSA Insured ............................ Aa3/NR+ 1,315,938
Jefferson County, Colorado School District #R-001
3,000,000 5.250%, 12/15/25 FSA Insured ............................ Aa3/AAA 3,090,180
La Plata County, Colorado School District #9
1,500,000 5.000%, 11/01/18 MBIA Insured Pre-Refunded .............. Aa3/NR 1,664,640
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
SCHOOL DISTRICTS (CONTINUED)
Pueblo County, Colorado School District #70
$ 1,000,000 5.000%, 12/01/15 FGIC Insured ........................... A2/AA $ 1,041,030
3,440,000 5.000%, 12/01/16 FGIC Insured ........................... A2/AA 3,561,879
Teller County, Colorado School District #2
Woodland Park
1,265,000 5.000%, 12/01/17 MBIA Insured ........................... Aa3/AA+ 1,352,133
Weld and Adams Counties, Colorado School
District #3J
1,000,000 5.500%, 12/15/10 AMBAC Insured Pre-Refunded ............. Aa3/AA- 1,044,000
Weld County, Colorado School District #2
1,315,000 5.000%, 12/01/15 FSA Insured ............................ Aa3/AAA 1,406,143
Weld County, Colorado School District #6
1,195,000 5.000%, 12/01/15 FSA Insured Pre-Refunded ............... Aa3/AAA 1,305,143
Weld County, Colorado School District #8
1,115,000 5.000%, 12/01/15 FSA Insured Pre-Refunded ............... Aa3/AAA 1,242,177
1,385,000 5.250%, 12/01/17 FSA Insured Pre-Refunded ............... Aa3/AAA 1,555,923
-------------
Total School Districts .................................. 40,071,275
-------------
Total General Obligation Bonds .......................... 53,626,361
-------------
REVENUE BONDS (72.9%)
ELECTRIC (2.1%)
Colorado Springs, Colorado Utilities Revenue
1,660,000 5.000%, 11/15/17 ........................................ Aa2/AA 1,746,619
Colorado Springs, Colorado Utilities Revenue
Refunding Series B
1,285,000 5.250%, 11/15/23 ........................................ Aa2/AA 1,352,617
Colorado Springs, Colorado Utilities Revenue
Subordinated Lien Improvement Series B
1,160,000 5.000%, 11/15/23 ........................................ Aa2/AA 1,181,738
-------------
Total Electric .......................................... 4,280,974
-------------
HIGHER EDUCATION (16.4%)
Boulder, Colorado Development Revenue UCAR
1,880,000 5.000%, 09/01/27 MBIA Insured ........................... A2/AA 1,820,047
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
HIGHER EDUCATION (CONTINUED)
Colorado Educational & Cultural Facility Authority,
Johnson & Wales
$ 860,000 5.000%, 04/01/18 Syncora Guarantee Inc. Insured** ....... NR/BBB- $ 786,384
Colorado Educational & Cultural Facility Authority,
Regis University Project
1,695,000 5.000%, 06/01/24 Radian Insured ......................... A3/BBB+ 1,279,674
Colorado Educational & Cultural Facility Authority,
Student Housing - Campus Village Apartments
Refunding
2,835,000 5.375%, 06/01/28 ........................................ NR/A 2,169,342
Colorado Educational & Cultural Facility Authority,
University of Colorado Foundation Project
2,110,000 5.000%, 07/01/17 AMBAC Insured .......................... Baa1/AA- 2,302,748
1,865,000 5.375%, 07/01/18 AMBAC Insured .......................... Baa1/AA- 2,058,699
Colorado Educational & Cultural Facility Authority
Revenue Refunding, University of Denver Project
1,000,000 5.250%, 03/01/26 FGIC Insured ........................... A1/AA 991,010
Colorado Educational & Cultural Facility Authority,
University of Denver Project, Series B Refunding
1,620,000 5.250%, 03/01/23 FGIC Insured ........................... A1/A 1,615,075
Colorado Mountain Jr. College District Student
Housing Facilities Enterprise Revenue
1,000,000 4.500%, 06/01/18 MBIA Insured ........................... Baa1/AA 1,030,150
Colorado State Board of Governors University
Enterprise System, Series A, Refunding and
Improvement
425,000 5.000%, 03/01/17 Prerefunded, ETM ....................... A1/NR+ 475,737
Colorado State Board of Governors University
Enterprise System, Series A, Refunding and
Improvement
1,105,000 5.000%, 03/01/17 AMBAC Insured .......................... A1/NR++ 1,164,560
Colorado State COP UCDHSC Fitzsimons Academic
Projects Series B
3,135,000 5.250%, 11/01/25 MBIA Insured ........................... Baa1/AA 3,168,764
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
HIGHER EDUCATION (CONTINUED)
Mesa State College, Colorado Auxiliary Facilities
Enterprise
$ 2,000,000 5.700%, 05/15/26 ........................................ Aa3/AA- $ 2,081,640
University of Colorado Enterprise System
1,000,000 5.000%, 06/01/11 ........................................ Aa3/AA- 1,066,130
2,325,000 5.000%, 06/01/15 AMBAC Insured Pre-Refunded ............. Aa3/AA- 2,568,660
1,735,000 5.000%, 06/01/16 Pre-Refunded ........................... Aa3/AA- 1,950,175
1,000,000 5.250%, 06/01/17 FGIC Insured Pre-Refunded .............. Aa3/AA- 1,134,490
University of Colorado Enterprise System Revenue,
Refunding & Improvement
3,905,000 5.000%, 06/01/24 FGIC Insured ........................... Aa3/AA 3,934,600
University of Northern Colorado Auxiliary Facilities
1,390,000 5.000%, 06/01/15 AMBAC Insured .......................... A2/A 1,437,608
-------------
Total Higher Education 33,035,493
-------------
HOSPITAL (8.2%)
Colorado Health Facility Authority Hospital Revenue,
Valley View Hospital Association, Refunding
1,000,000 5.500%, 05/15/28 ........................................ NR/BBB 673,570
Colorado Health Facility Authority Hospital Revenue,
Catholic Health
1,000,000 4.750%, 09/01/25 FSA Insured ............................ Aa2/AAA 916,000
Colorado Health Facility Authority Revenue, Catholic
Health Initiatives
2,000,000 5.000%, 10/01/16 ........................................ Aa2/AA 2,021,580
Colorado Health Facility Authority Revenue, Catholic
Health Initiatives
1,000,000 6.000%, 10/01/23 ........................................ Aa2/AA 1,009,730
Colorado Health Facility Authority Hospital Revenue,
Evangelical Lutheran Project Refunding
1,575,000 5.250%, 06/01/19 ........................................ A3/A- 1,382,378
Colorado Health Facility Authority Hospital Revenue,
Poudre Valley Health Care Series F Refunding
2,800,000 5.000%, 03/01/25 ........................................ Baa1/BBB+ 1,891,428
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
Hospital (continued)
Colorado Health Facility Authority Hospital Revenue,
Sisters of Charity - Health Care
$ 1,000,000 6.250%, 05/15/09 AMBAC Insured ETM ...................... Baa1/A+ $ 1,015,170
Colorado Health Facility Authority Hospital Revenue,
Sisters of Charity - Leavenworth
1,500,000 5.250%, 12/01/10 MBIA Insured ........................... Aa2/AA 1,510,395
Colorado Health Facility Authority Hospital Revenue,
Evangelical Lutheran Project Refunding
1,000,000 5.250%, 06/01/21 ........................................ A3/A- 842,260
2,000,000 5.250%, 06/01/24 ........................................ A3/A- 1,599,400
Denver, Colorado Health & Hospital Authority
Healthcare, Revenue Series A Refunding
2,000,000 5.000%, 12/01/18 ........................................ NR/BBB 1,517,440
Denver, Colorado Health & Hospital Authority
Healthcare, Revenue Series A Refunding
1,500,000 5.000%, 12/01/19 ........................................ NR/BBB 1,107,150
Park Hospital District Larimer County, Colorado
Limited Tax Revenue
1,010,000 4.500%, 01/01/21 Assured Guaranty Insured ............... Aa2/AAA 1,009,071
-------------
Total Hospital .......................................... 16,495,572
-------------
HOUSING (1.3%)
Colorado Housing & Finance Authority
300,000 6.050%, 10/01/16 Series 1999A3 .......................... Aa2/NR 297,591
10,000 6.125%, 11/01/23 Series 1998D3 .......................... Aa2/NR 9,501
Colorado Housing & Finance Authority, Single
Family Program Refunding
145,000 5.000%, 08/01/13 Series 2001 Series B ................... A1/A+ 136,515
Colorado Housing Finance Authority, Single Family
Mortgage
35,000 5.700%, 10/01/22 Series 2000C3 .......................... Aa2/AA 34,869
Colorado Housing Finance Authority, Single Family
Mortgage Class III Series A-5
2,000,000 5.000%, 11/01/34 ........................................ A1/A+ 1,913,940
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
HOUSING (CONTINUED)
Colorado Housing Finance Authority, Single Family
Mortgage Subordinated
$ 65,000 5.400%, 10/01/12 Series 2000D ........................... A1/A+ $ 63,415
Denver, Colorado Single Family Mortgage Revenue
85,000 5.000%, 11/01/15 GNMA Insured ........................... NR/AAA 81,852
-------------
Total Housing ........................................... 2,537,683
-------------
LEASE (15.4%)
Adams 12 Five Star Schools COP
1,770,000 4.625%, 12/01/24 ........................................ A1/A+ 1,615,567
Aurora, Colorado COP
2,105,000 5.250%, 12/01/13 AMBAC Insured Pre-Refunded ............. Baa1/AA- 2,241,025
Broomfield, Colorado COP
2,500,000 5.100%, 12/01/12 AMBAC Insured .......................... A2/NR 2,590,225
Colorado Educational & Cultural Facilities Authority
Revenue, Ave Maria School Project Refunding
1,000,000 4.850%, 12/01/25 Radian Insured ......................... A3/BBB+ 784,350
Colorado Educational & Cultural Facilities Authority
Revenue, Peak to Peak Charter School, Refunding
1,500,000 5.250%, 08/15/24 Syncora Guarantee Inc. Insured** ....... NR/A 1,467,105
Colorado State Higher Ed Capital Construction Lease
3,000,000 5.250%, 11/01/23 ........................................ Aa3/AA- 3,027,270
Denver, Colorado City and County COP (Botanical
Gardens)
2,015,000 5.250%, 12/01/22 ........................................ Aa3/AA+ 2,063,360
Denver, Colorado City and County COP (Roslyn Fire)
1,835,000 5.000%, 12/01/15 ........................................ Aa2/AA+ 1,932,585
El Paso County, Colorado COP
1,100,000 5.250%, 12/01/09 MBIA Insured ........................... A1/AA 1,134,617
El Paso County, Colorado COP (Pikes Peak Regional
Development Authority)
1,925,000 5.000%, 12/01/18 AMBAC Insured .......................... Baa1/AA- 2,038,864
Fort Collins, Colorado Lease COP Series A
3,020,000 4.750%, 06/01/18 AMBAC Insured .......................... Aa2/NR 3,140,891
Fremont County, Colorado COP Refunding &
Improvement Series A
2,075,000 5.000%, 12/15/18 MBIA Insured ........................... Baa1/AA 2,169,994
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 ............. Baa1/AA- $ 1,537,315
Northern Colorado Water Conservancy District COP
1,000,000 5.000%, 10/01/15 MBIA Insured ........................... Baa1/AA 1,044,920
Pueblo, Colorado COP (Police Complex Project)
2,170,000 5.500%, 08/15/22 AGC Insured ............................ Aa2/AAA 2,174,687
Rangeview Library District Project, Colorado COP
1,000,000 5.000%, 12/15/28 AGC Insured ............................ Aa2/AAA 963,310
Westminster, Colorado COP
1,055,000 5.350%, 09/01/11 MBIA Insured Pre-Refunded .............. Baa1/AA 1,096,673
-------------
Total Lease ............................................. 31,022,758
-------------
SALES TAX (12.2%)
Boulder, Colorado
1,045,000 5.250%, 08/15/10 AMBAC Insured .......................... Aa2/AA- 1,065,095
Boulder, Colorado Open Space Acquisition
1,250,000 5.500%, 08/15/12 ........................................ Aa1/AA+ 1,335,762
Boulder, Colorado Open Space Capital Improvement
1,630,000 5.000%, 07/15/17 MBIA Insured ........................... Aa2/AA 1,710,962
Boulder County, Colorado Open Space Capital
Improvement Series A
1,500,000 5.000%, 01/01/24 FSA Insured ............................ Aa3/AAA 1,518,555
Boulder, Colorado Sales & Use Tax Open Space
Series A
1,000,000 5.450%, 12/15/12 FGIC Insured Pre-Refunded .............. NR/AA- 1,052,970
Colorado Springs, Colorado Sales & Use Tax Revenue
Service Sales
1,320,000 5.000%, 12/01/12 ........................................ A1/AA+ 1,351,508
Commerce City, Colorado Sales & Use Tax Revenue
1,000,000 5.000%, 08/01/21 AMBAC Insured .......................... Baa1/AA 989,850
Denver, Colorado City & County Excise Tax Revenue
2,000,000 5.375%, 09/01/10 FSA Insured ............................ Aa3/AAA 2,036,940
2,260,000 5.000%, 09/01/12 FSA Insured Pre-Refunded ............... Aa3/AAA 2,422,426
Douglas County, Colorado Sales & Use Tax Open
Space Revenue
1,780,000 5.500%, 10/15/12 FSA Insured ............................ Aa3/AAA 1,880,356
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
SALES TAX (CONTINUED)
Golden, Colorado Sales & Use Tax
$ 1,265,000 5.000%, 12/01/12 AMBAC Insured .......................... Baa1/A $ 1,336,599
Jefferson County, Colorado Open Space Sales Tax
1,600,000 5.000%, 11/01/13 AMBAC Insured .......................... Aa3/AA- 1,698,752
1,080,000 5.000%, 11/01/14 AMBAC Insured .......................... Aa3/AA- 1,140,037
Larimer County, Colorado Sales Tax Revenue Bond
1,000,000 5.500%, 12/15/12 AMBAC Insured .......................... A1/AA- 1,074,660
Longmont, Colorado Sales & Use Tax
1,875,000 5.500%, 11/15/14 Pre-Refunded ........................... NR/AA+ 2,009,044
Park Meadows Business Implementation District,
Colorado Shared Sales Tax Revenue Bond
1,500,000 5.300%, 12/01/27 ........................................ NR/NR* 921,285
Thornton, Colorado Sales Tax
1,000,000 5.000%, 09/01/14 FSA Insured ............................ Aa3/AAA 1,052,430
-------------
Total Sales Tax ......................................... 24,597,231
-------------
TRANSPORTATION (7.3%)
Colorado Department of Transportation-Tax Revenue
Anticipation Note
1,000,000 6.000%, 06/15/13 AMBAC Insured Pre-Refunded ............. Aaa/AA 1,073,610
E-470 Public Highway Authority, Colorado Revenue
Series D2
4,000,000 5.000%, 09/01/39 MBIA Insured ........................... Baa1/AA 3,812,920
Northwest Parkway, Colorado Public Highway
Authority Series A
2,515,000 5.150%, 06/15/14 AMBAC Insured .......................... Baa1/A 2,751,385
Regional Transportation District, Colorado COP
1,190,000 5.000%, 06/01/15 AMBAC Insured ...................... A1/A++ 1,243,110
Regional Transportation District, Colorado COP,
Series A
3,500,000 5.000%, 06/01/25 AMBAC Insured .......................... A1/AA 3,135,895
Regional Transportation District, Colorado Sales Tax
Revenue
2,000,000 5.000%, 11/01/13 FGIC Insured ........................... Aa3/AAA 2,099,740
Walker Field, Colorado Public Airport Authority
Airport Revenue
1,000,000 5.000%, 12/01/22 ........................................ Baa3/NR 692,300
-------------
Total Transportation .................................... 14,808,960
-------------
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
WATER & SEWER (9.2%)
Boulder, Colorado Water & Sewer Revenue
$ 1,000,000 5.400%, 12/01/14 Pre-Refunded ........................... Aa2/AA+ $ 1,071,310
Broomfield, Colorado Sewer and Waste Water
Revenue
1,985,000 5.000%, 12/01/15 AMBAC Insured .......................... A3/NR 2,087,208
Broomfield, Colorado Water Activity Enterprise
1,500,000 5.300%, 12/01/12 MBIA Insured ........................... A2/NR 1,593,570
1,730,000 5.250%, 12/01/13 MBIA Insured ........................... A2/NR 1,812,504
Colorado Clean Water Revenue
170,000 5.375%, 09/01/10 Un-Refunded portion .................... Aaa/AAA 170,092
Colorado Water Resource & Power Development
Authority
2,675,000 5.000%, 09/01/16 MBIA Insured ........................... Baa1/AA 2,720,903
1,855,000 5.000%, 09/01/17 MBIA Insured ........................... Baa1/AA 1,860,305
Colorado Water Resource & Power Development
Authority Clean Water Revenue Series A
1,375,000 5.000%, 09/01/12 Pre-Refunded ........................... Aaa/AAA 1,491,064
260,000 5.000%, 09/01/12 Un-Refunded portion .................... Aaa/AAA 276,851
Colorado Water Resource & Power Development
Authority Clean Water Revenue Series B
180,000 5.500%, 09/01/09 Un-Refunded portion .................... Aaa/AAA 180,095
Colorado Water Resource & Power Development
Authority Small Water Resource Series A
600,000 5.550%, 11/01/13 FGIC Insured Un-Refunded portion ....... NR/NR* 623,406
400,000 5.550%, 11/01/13 FGIC Insured Pre-Refunded .............. NR/NR* 427,240
Denver, Colorado City and County Wastewater
Revenue
1,560,000 5.000%, 11/01/15 FGIC Insured ........................... Aa3/AAA 1,665,924
Pueblo, Colorado Board Water Works
1,000,000 5.500%, 11/01/10 FSA Insured ............................ Aa3/AAA 1,055,560
Ute, Colorado Water Conservancy District
1,570,00 5.500%, 06/15/12 MBIA Insured ........................... Baa1/AA 1,632,627
-------------
Total Water & Sewer ..................................... 18,668,659
-------------
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
MISCELLANEOUS REVENUE (0.8%)
Denver, Colorado City & County Helen Bonfils Project
$ 620,000 5.875%, 12/01/09 ........................................ NR/A+ $ 620,533
Westminster, Colorado Golf Course Activity
1,000,000 5.400%, 12/01/13 Radian Group, Inc. Insured ............. NR/A 1,008,090
-------------
Total Miscellaneous Revenue ............................. 1,628,623
-------------
Total Revenue Bonds ..................................... 147,075,953
-------------
Total Investments (cost $201,952,940 - note 4) .......... 99.5% 200,702,314
Other assets less liabilities ........................... 0.5 1,097,355
----- -------------
Net Assets .............................................. 100.0% $ 201,799,669
===== =============
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED) PORTFOLIO*
---------------------------------------------------- ----------
Aaa of Moody's or AAA of S&P or AAA of Fitch ....... 22.8%
Aa of Moody's or AA of S&P ......................... 54.6
A of Moody's or S&P or Fitch ....................... 16.9
Baa of Moody's or BBB of S&P ....................... 4.4
Not rated* ......................................... 1.3
-----
100.0%
=====
* Calculated using the highest rating of the three rating
services.
** Any security not rated (NR) by any of the approved credit
rating services has been determined by the Investment
Sub-Advisor to have sufficient quality to be ranked in the top
four credit ratings if a credit rating were to be assigned by
a rating service.
FITCH RATINGS
-------------
+ AAA
++ A
PORTFOLIO ABBREVIATIONS:
------------------------
ACA - American Capital Assurance FSA - Financial Security Assurance
Financial Guaranty Corp. GNMA - Government National Mortgage
AGC - Assured Guaranty Corp. Association
MBIA - Municipal Bond Investors
AMBAC - American Municipal Bond Assurance Assurance
Corp. NR - Not Rated
COP - Certificates of Participation UCAR- University Corporation for
ETM - Escrowed to Maturity Atmospheric Research
FGIC - Financial Guaranty Insurance Co.
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2008
ASSETS
Investments at value (cost $201,952,940) ................................................. $ 200,702,314
Cash ..................................................................................... 1,566,273
Interest receivable ...................................................................... 1,601,864
Receivable for Fund shares sold .......................................................... 271,122
Receivable for investment securities sold ................................................ 5,000
Other assets ............................................................................. 15,697
-------------
Total assets ............................................................................. 204,162,270
-------------
LIABILITIES
Payable for Fund shares redeemed ......................................................... 1,808,125
Dividends payable ........................................................................ 379,609
Management fee payable ................................................................... 85,077
Distribution and service fees payable .................................................... 14,800
Accrued expenses ......................................................................... 74,990
-------------
Total liabilities ........................................................................ 2,362,601
-------------
NET ASSETS ................................................................................... $ 201,799,669
=============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share ...... $ 204,246
Additional paid-in capital ............................................................... 203,352,364
Net unrealized depreciation on investments (note 4) ...................................... (1,250,626)
Accumulated net realized loss on investments ............................................. (541,110)
Undistributed net investment income ...................................................... 34,795
-------------
$ 201,799,669
=============
CLASS A
Net Assets ............................................................................... $ 182,629,882
=============
Capital shares outstanding ............................................................... 18,485,393
=============
Net asset value and redemption price per share ........................................... $ 9.88
=============
Maximum offering price per share (100/96 of $9.88 adjusted to nearest cent) .............. $ 10.29
=============
CLASS C
Net Assets ............................................................................... $ 8,188,968
=============
Capital shares outstanding ............................................................... 830,466
=============
Net asset value and offering price per share ............................................. $ 9.86
=============
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) ........................................... $ 9.86*
=============
CLASS Y
Net Assets ............................................................................... $ 10,980,819
=============
Capital shares outstanding ............................................................... 1,108,738
=============
Net asset value, offering and redemption price per share ................................. $ 9.90
=============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
YEAR Ended DECEMBER 31, 2008
INVESTMENT INCOME:
Interest income ............................................... $ 9,597,638
Expenses:
Management fee (note 3) ....................................... $ 1,020,555
Distribution and service fees (note 3) ........................ 188,765
Transfer and shareholder servicing agent fees ................. 173,764
Trustees' fees and expenses (note 8) .......................... 106,441
Legal fees (note 3) ........................................... 70,474
Shareholders' reports and proxy statements .................... 49,716
Custodian fees (note 6) ....................................... 22,435
Auditing and tax fees ......................................... 21,396
Registration fees and dues .................................... 14,607
Insurance ..................................................... 9,085
Chief compliance officer (note 3) ............................. 4,159
Miscellaneous ................................................. 35,601
-----------
Total expenses ................................................ 1,716,998
Expenses paid indirectly (note 6) ............................. (13,651)
-----------
Net expenses .................................................. 1,703,347
-----------
Net investment income ......................................... 7,894,291
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ......... 207,443
Change in unrealized appreciation on investments .............. (6,965,614)
-----------
Net realized and unrealized gain (loss) on investments ........ (6,758,171)
-----------
Net change in net assets resulting from operations ............ $ 1,136,120
===========
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, 2008 DECEMBER 31, 2007
----------------- -----------------
OPERATIONS:
Net investment income ........................................ $ 7,894,291 $ 7,759,543
Net realized gain (loss) from securities transactions ........ 207,443 (206,241)
Change in unrealized appreciation on investments ............. (6,965,614) (1,296,578)
------------- -------------
Change in net assets from operations ....................... 1,136,120 6,256,724
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (note 10):
Class A Shares:
Net investment income ........................................ (7,578,115) (7,672,295)
Class C Shares:
Net investment income ........................................ (294,661) (342,777)
Class Y Shares:
Net investment income ........................................ (307,126) (232,447)
------------- -------------
Change in net assets from distributions .................... (8,179,902) (8,247,519)
------------- -------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold .................................... 33,331,739 18,965,362
Reinvested dividends and distributions ....................... 4,583,846 4,637,380
Cost of shares redeemed ...................................... (30,945,266) (35,203,765)
------------- -------------
Change in net assets from capital share transactions ......... 6,970,319 (11,601,023)
------------- -------------
Change in net assets ....................................... (73,463) (13,591,818)
NET ASSETS:
Beginning of period .......................................... 201,873,132 215,464,950
------------- -------------
End of period* ............................................... $ 201,799,669 $ 201,873,132
============= =============
* Includes undistributed net investment income of: ........... $ 34,795 $ 26,082
============= =============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008
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) FAIR VALUE MEASUREMENTS: The Fund adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" ("SFAS 157"), effective January 1, 2008. SFAS 157
established a three-tier hierarchy of inputs to establish classification
of fair value measurements for disclosure purposes. Inputs may be
observable or unobservable. Observable inputs reflect the assumptions
market participants would use in pricing the asset or liability developed
based on market data obtained from sources independent of the reporting
entity. Unobservable inputs reflect the reporting entity's own assumptions
about the assumptions market participants would use in pricing the asset
or liability developed based on the best information available in the
circumstances. The Fund's investments are assigned levels based upon the
observability.
The three-tier hierarchy of inputs is summarized below:
Level 1 - quoted prices in active markets for identical securities
Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 - significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities.
The following is a summary of the valuation inputs, representing 100% of
the Fund's investments, used to value the Fund's net assets as of December
31, 2008:
VALUATION INPUTS INVESTMENTS IN SECURITIES
---------------- -------------------------
Level 1 - Quoted Prices ....................... $ --
Level 2 - Other Significant Observable Inputs.. 200,702,314
Level 3 - Significant Unobservable Inputs ..... --
----------------
Total ......................................... $ 200,702,314
================
c) 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.
d) 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.
The Fund has adopted FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). Management has reviewed the tax
positions for each of the open tax years (2005-2008) and has determined
that the implementation of FIN 48 did not have a material impact on the
Fund's financial statements.
e) 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.
f) 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.
g) 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, 2008 the Fund
increased undistributed net investment income by $294,324 and decreased
additional paid-in capital by $294,324 due primarily to differing book/tax
treatment of distributions and bond amortization.
h) ACCOUNTING PRONOUNCEMENT: In March 2008, Statement of Financial Accounting
Standards No. 161, "Disclosures about Derivative Instruments and Hedging
Activities" ("SFAS 161") was issued and is effective for fiscal years
beginning after November 15, 2008. SFAS 161 is intended to improve
financial reporting for derivative instruments by requiring enhanced
disclosure that enables investors to understand how and why an entity uses
derivatives, how derivatives are accounted for, and how derivative
instruments affect an entity's results of operations and financial
position. Management is currently evaluating the implications of SFAS 161
and its impact, if any, on the Fund's financial statement disclosures.
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 nature and extent of the services provided by
the Manager and the Sub-Adviser are more fully defined in the Trust'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, 2008, distribution fees on Class A Shares amounted to $93,553
of which the Distributor retained $3,685.
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, 2008, amounted to $71,409. 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, 2008
amounted to $23,803. The total of these payments with respect to Class C Shares
amounted to $95,212 of which the Distributor retained $20,626.
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive
distributor of the Fund's shares. Through agreements between the Distributor and
various brokerage and advisory firms ("intermediaries"), the Fund's shares are
sold primarily through the facilities of intermediaries having offices within
Colorado, with the bulk of sales commissions inuring to such intermediaries. For
the year ended December 31, 2008, total commissions on sales of Class A Shares
amounted to $307,906 of which the Distributor received $62,949.
c) OTHER RELATED PARTY TRANSACTIONS:
For the year ended December 31, 2008, the Fund incurred $70,416 of legal
fees allocable to Butzel Long PC, counsel to the Fund, for legal services in
conjunction with the Fund's ongoing operations. The Secretary of the Fund is a
shareholder of that firm.
4. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 2008, purchases of securities and
proceeds from the sales of securities aggregated $67,993,097 and $49,444,283,
respectively.
At December 31, 2008, the aggregate tax cost for all securities was
$201,918,145. At December 31, 2008 the aggregate gross unrealized appreciation
for all securities in which there is an excess of value over tax cost amounted
to $6,674,704 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $7,890,535 for a net
unrealized depreciation of $1,215,831.
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, 2008 DECEMBER 31, 2007
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
CLASS A SHARES:
Proceeds from shares sold .......... 2,464,452 $ 24,867,344 1,543,026 $ 15,781,661
Reinvested distributions ........... 431,178 4,357,710 430,513 4,399,250
Cost of shares redeemed ............ (2,525,879) (25,422,774) (3,031,187) (30,993,982)
------------ ------------ ------------ ------------
Net change ....................... 369,751 3,802,280 (1,057,648) (10,813,071)
------------ ------------ ------------ ------------
CLASS C SHARES:
Proceeds from shares sold .......... 178,646 1,809,057 151,365 1,544,571
Reinvested distributions ........... 15,282 154,179 18,231 185,929
Cost of shares redeemed ............ (398,301) (4,000,837) (276,171) (2,819,549)
------------ ------------ ------------ ------------
Net change ....................... (204,373) (2,037,601) (106,575) (1,089,049)
------------ ------------ ------------ ------------
CLASS Y SHARES:
Proceeds from shares sold .......... 663,100 6,655,338 159,917 1,639,130
Reinvested distributions ........... 7,122 71,957 5,095 52,201
Cost of shares redeemed ............ (149,303) (1,521,655) (135,641) (1,390,234)
------------ ------------ ------------ ------------
Net change ....................... 520,919 5,205,640 29,371 301,097
------------ ------------ ------------ ------------
Total transactions in Fund shares .... 686,297 $ 6,970,319 (1,134,852) $(11,601,023)
============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES
At December 31, 2008 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, 2008 was $73,667, 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 meetings (Audit, Nominating,
Shareholder and special meetings) are held, 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,
2008, such meeting-related expenses amounted to $32,774.
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. Net realized capital gains, if any, are distributed annually
and are taxable. Dividends and capital gains distributions are paid in
additional shares at the net asset value per share, in cash, or in a combination
of both, at the shareholder's option.
The Fund intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net investment
income to be exempt from regular Federal and State of Colorado income taxes.
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, 2008, the Fund had a capital loss carryover of $408,064 of which
$207,540 expires in 2014, and $200,524 expires in 2015. 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.
As of December 31, 2008, there were post-October capital loss deferrals of
$133,046, which will be recognized in the following year.
The tax character of distributions:
Year Ended December 31,
2008 2007
-------------- --------------
Net tax-exempt income $ 7,885,578 $ 7,755,024
Ordinary income 294,324 492,495
-------------- --------------
$ 8,179,902 $ 8,247,519
============== ==============
As of December 31, 2008, the components of distributable earnings on a tax
basis were as follows:
Undistributed tax-exempt income $ 379,609
Unrealized depreciation (1,215,831)
Other accumulated losses (541,110)
Other temporary differences (379,609)
--------------
$ (1,756,941)
==============
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to premium/discount adjustments.The difference between
book basis and tax basis undistributed income is due to the timing difference in
recognizing dividends paid.
11. RECENT DEVELOPMENTS
a) THE DAVIS CASE: In May, 2007, the U. S. Supreme Court agreed to hear an
appeal in DEPARTMENT OF REVENUE OF KENTUCKY V. DAVIS, a case concerning
the constitutionality of differential tax treatment for interest from
in-state vs. out-of-state municipal securities, a practice which is common
among the majority of the states. On May 19, 2008, the U. S. Supreme Court
upheld the right of states to tax interest on out-of-state municipal bonds
while exempting their own state's bond interest from taxation. The U. S.
Supreme Court said differential tax treatment for interest from in-state
vs. out-of-state municipal securities does not discriminate against
interstate commerce, but rather promotes the financing of essential
governmental services.
b) INSURERS: Over the past year, municipal bond insurance companies have been
under review by the three major rating agencies: Standard & Poor's,
Moody's and Fitch. The ratings of some of the insurance companies have now
either been downgraded and/or have a negative outlook. The financial
markets continue to assess the severity of the losses caused by the
subprime credit crisis and its impact on municipal bond insurance
companies and the prices of insured municipal bonds.
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------
CLASS A
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
2008 2007 2006 2005 2004
--------- --------- --------- --------- ---------
Net asset value, beginning of period ................... $ 10.23 $ 10.32 $ 10.42 $ 10.68 $ 10.84
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income ................................ 0.40++ 0.39++ 0.39+ 0.39+ 0.40+
Net gain (loss) on securities (both realized
and unrealized) .................................... (0.34) (0.07) (0.07) (0.23) (0.13)
--------- --------- --------- --------- ---------
Total from investment operations ..................... 0.06 0.32 0.32 0.16 0.27
--------- --------- --------- --------- ---------
Less distributions (note 10):
Dividends from net investment income ................. (0.41) (0.41) (0.42) (0.42) (0.43)
Distributions from capital gains ..................... - - - - -
--------- --------- --------- --------- ---------
Total distributions .................................. (0.41) (0.41) (0.42) (0.42) (0.43)
--------- --------- --------- --------- ---------
Net asset value, end of period ......................... $ 9.88 $ 10.23 $ 10.32 $ 10.42 $ 10.68
========= ========= ========= ========= =========
Total return (not reflecting sales charge) ............. 0.57% 3.21% 3.11% 1.53% 2.57%
Ratios/supplemental data
Net assets, end of period (in thousands) ............. $ 182,630 $ 185,283 $ 197,926 $ 218,111 $ 226,070
Ratio of expenses to average net assets .............. 0.80% 0.80% 0.79% 0.79% 0.75%
Ratio of net investment income to average
net assets ......................................... 3.90% 3.80% 3.76% 3.73% 3.76%
Portfolio turnover rate .............................. 24.63% 8.77% 7.48% 10.57% 12.55%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ........ 0.79% 0.79% 0.78% 0.79% 0.74%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily 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,
----------------------------------------------------------------------------
2008 2007 2006 2005 2004
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period .............. $ 10.21 $ 10.30 $ 10.40 $ 10.66 $ 10.82
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income ........................... 0.30++ 0.29++ 0.29+ 0.29+ 0.30+
Net gain (loss) on securities (both
realized and unrealized) ...................... (0.34) (0.06) (0.07) (0.23) (0.13)
---------- ---------- ---------- ---------- ----------
Total from investment operations ................ (0.04) 0.23 0.22 0.06 0.17
---------- ---------- ---------- ---------- ----------
Less distributions (note 10):
Dividends from net investment income ............ (0.31) (0.32) (0.32) (0.32) (0.33)
Distributions from capital gains ................ - - - - -
---------- ---------- ---------- ---------- ----------
Total distributions ............................. (0.31) (0.32) (0.32) (0.32) (0.33)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period .................... $ 9.86 $ 10.21 $ 10.30 $ 10.40 $ 10.66
========== ========== ========== ========== ==========
Total return (not reflecting sales charge) ........ (0.39)% 2.24% 2.14% 0.57% 1.60%
Ratios/supplemental data
Net assets, end of period (in thousands) ........ $ 8,189 $ 10,563 $ 11,760 $ 13,003 $ 15,210
Ratio of expenses to average net assets ......... 1.75% 1.75% 1.74% 1.74% 1.70%
Ratio of net investment income to
average net assets ............................ 2.95% 2.85% 2.81% 2.78% 2.81%
Portfolio turnover rate ......................... 24.63% 8.77% 7.48% 10.57% 12.55%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ......... 1.74% 1.74% 1.73% 1.74% 1.69%
Class Y
----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------
2008 2007 2006 2005 2004
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of period .............. $ 10.25 $ 10.35 $ 10.44 $ 10.71 $ 10.86
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income ........................... 0.40++ 0.40++ 0.40+ 0.40+ 0.41+
Net gain (loss) on securities (both
realized and unrealized) ...................... (0.33) (0.08) (0.07) (0.24) (0.12)
---------- ---------- ---------- ---------- ----------
Total from investment operations ................ 0.07 0.32 0.33 0.16 0.29
---------- ---------- ---------- ---------- ----------
Less distributions (note 10):
Dividends from net investment income ............ (0.42) (0.42) (0.42) (0.43) (0.44)
Distributions from capital gains ................ - - - - -
---------- ---------- ---------- ---------- ----------
Total distributions ............................. (0.42) (0.42) (0.42) (0.43) (0.44)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period .................... $ 9.90 $ 10.25 $ 10.35 $ 10.44 $ 10.71
========== ========== ========== ========== ==========
Total return (not reflecting sales charge) ........ 0.63% 3.17% 3.26% 1.49% 2.73%
Ratios/supplemental data
Net assets, end of period (in thousands) ........ $ 10,980 $ 6,027 $ 5,779 $ 14,671 $ 15,608
Ratio of expenses to average net assets ......... 0.75% 0.75% 0.75% 0.74% 0.70%
Ratio of net investment income to
average net assets ............................ 3.96% 3.84% 3.82% 3.77% 3.81%
Portfolio turnover rate ......................... 24.63% 8.77% 7.48% 10.57% 12.55%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ......... 0.74% 0.73% 0.74% 0.74% 0.69%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Per share amounts have been calculated using the daily 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,
2008 and held for the six months ended December 31, 2008.
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, 2008
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A (0.43)% $1,000.00 $995.70 $3.96
- --------------------------------------------------------------------------------
Class C (0.91)% $1,000.00 $990.90 $8.71
- --------------------------------------------------------------------------------
Class Y (0.40)% $1,000.00 $996.00 $3.71
- --------------------------------------------------------------------------------
(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 0.79%, 1.74% AND
0.74% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio and an assumed rate of
return of 5.00% per year before expenses, which is not the Fund's actual return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
the information provided in this table to compare the ongoing costs of investing
in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical
example relating to the Fund with the 5.00% hypothetical examples that appear in
the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs
with respect to Class A shares. The example does not reflect the deduction of
contingent deferred sales charges ("CDSC") with respect to Class C shares.
Therefore, the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different mutual funds. In
addition, if these transaction costs were included, your costs would have been
higher.
SIX MONTHS ENDED DECEMBER 31, 2008
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.17 $4.01
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,016.39 $8.82
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,021.42 $3.76
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.79%, 1.74% AND
0.74% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquila Group of Funds
produce is automatically sent to you and all other shareholders. Specifically,
you are routinely sent 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 1-800-SEC-0330.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROXY VOTING RECORD (UNAUDITED)
The Fund does not invest in equity securities. Accordingly, there were no
matters relating to a portfolio security considered at any shareholder meeting
held during the 12 months ended June 30, 2008 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, 2008, $7,885,578 of dividends
paid by Tax-Free Fund of Colorado, constituting 96.40% of total dividends paid
during calendar year 2008, were exempt-interest dividends and the balance was
ordinary dividend income.
Prior to January 31, 2009, shareholders were mailed the approriate tax
form(s) which contained information on the status of distributions paid for the
2008 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 since Vice Chair and Chief Executive Officer of 12 ICI Mutual Insurance
New York, NY 2000 and Aquila Management Corporation, Founder of Company
(02/25/58) President the Aquila Group of Funds(R) (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(R) 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 (a trade organization for the U.S.
fund industry dedicated to protecting
shareholder interests and educating the
public about investing) 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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Gary C. Cornia Vice Chair of Dean, Marriott School of Management, Brigham 4 Lincoln Institute of Land
Orem, UT the Board of Young University, since 2008; Director, Policy, Cambridge, MA
(06/24/48) Trustees Romney Institute of Public Management,
since 2006 Marriott School of Management, 2004 - 2008;
and Trustee Professor, Marriott School of Management,
since 2000 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; member, Utah
Governor's Tax Review Committee since 1993.
Tucker Hart Adams Trustee President, The Adams Group, Inc., an 3 Griffis/Blessings, Inc.
Colorado Springs, CO since 1989 economic consulting firm, since 1989; (commerical property
(01/11/38) formerly Chief Economist, United Banks of development and
Colorado; currently or formerly active with management); Kachi
numerous professional and community Partners (middle market
organizations. buyouts); Colorado
Health Facilities Authority
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.
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 None
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 of to each fund of the Aquila Group of Funds(R);
the Board of Chairman of the Manager or Administrator
Trustees, and/or Adviser or Sub-Adviser to each since
1987-2004 2004; Founder and Chairman Emeritus of each
fund in the Aquila Group of Funds(R);
previously Chairman and a Trustee of each
fund in the Aquila Group of Funds(R) 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.)
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Charles E. Childs, III Executive Vice Executive Vice President of all funds in the N/A N/A
New York, NY President Aquila Group of Funds(R) 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 N/A N/A
New York, NY President 1995; Vice President, Hawaiian Tax-Free
(05/06/61) since 2004 Trust since 1998; Senior Vice President,
Narragansett Insured Tax-Free Income Fund
since 1998, Vice President 1996-1997; Senior
Vice President, Tax-Free Fund of Colorado
since 2004; Vice President, Aquila Rocky
Mountain Equity Fund since 2006.
Robert W. Anderson Chief Chief Compliance Officer of the Fund and N/A N/A
New York, NY Compliance each of the other funds in the Aquila Group
(08/23/40 Officer since of Funds(R), the Manager and the Distributor
2004 and since 2004, Compliance Officer of the
Assistant Manager or its predecessor and current
Secretary parent 1998-2004; Assistant Secretary of the
since 2000 Aquila Group of Funds(R) since 2000.
Joseph P. DiMaggio Chief Financial Chief Financial Officer of the Aquila Group N/A N/A
New York, NY Officer of Funds(R) since 2003 and Treasurer since
(11/06/56) since 2003 2000.
and Treasurer
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.)
- ----------------- ---------- ------------------- ---------- ---------------------
Edward M. W. Hines Secretary Shareholder of Butzel Long, a professional N/A N/A
New York, NY since 1987 corporation, counsel to the Fund, since
(12/16/39) 2007; Partner of Hollyer Brady Barrett &
Hines LLP, its predecessor as counsel,
1989-2007; Secretary of the Aquila Group of
Funds(R).
John M. Herndon Assistant Assistant Secretary of the Aquila Group of N/A N/A
New York, NY Secretary Funds(R) since 1995 and Vice President of the
(12/17/39) since 1995 three Aquila Money-Market Funds since 1990;
Vice President of the Manager or its
predecessor and current parent since 1990.
Lori A. Vindigni Assistant Assistant Treasurer of the Aquila Group of N/A N/A
New York, NY Treasurer Funds(R) since 2000; Assistant Vice President
(11/02/66) since 2000 of the Manager or its predecessor and
current parent since 1998; Fund Accountant
for the Aquila Group of Funds(R), 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) or by visiting the EDGAR Database at the SEC's
internet site at www.sec.gov.
(2) The mailing address of each Trustee and officer is c/o Tax-Free Fund of
Colorado, 380 Madison Avenue, New York, NY 10017.
(3) Each Trustee holds office until the next annual meeting of shareholders or
until his or her successor is elected and qualifies. The term of office of each
officer is one year.
(4) 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. Ms. Herrmann is the daughter of Lacy B. Herrmann, the Founder and
Chairman Emeritus of the Fund.
(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(R)."
(6) A Trustee Emeritus may attend Board meetings but has no voting power.
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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, or manager, 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(R) (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(R)
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(R) (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(R) 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.
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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
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, 2008 (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, as amended;
(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
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 2007 and $16,800 in 2008.
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 $3,100 in 2007 and 2008, 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
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President and Trustee
March 4, 2009
By: /s/ Joseph P. DiMaggio
- -------------------------------------
Chief Financial Officer and Treasurer
March 4, 2009
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
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Diana P. Herrmann
President and Trustee
March 4, 2009
By: /s/ Joseph P. DiMaggio
- -------------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
March 4, 2009
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.