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: 06/30/09
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMI-ANNUAL
REPORT
JUNE 30, 2009
[LOGO OF TAX-FREE FUND OF COLORADO: A SQUARE WITH
SILHOUETTES OF TWO MOUNTAINS AND A RISING SUN]
TAX-FREE FUND
OF
COLORADO
A TAX-FREE INCOME INVESTMENT
[LOGO OF THE AQUILA
GROUP OF FUNDS: ONE OF THE
AN EAGLE'S HEAD] AQUILA 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
"SOME COMFORT IN UNSETTLING TIMES"
August, 2009
Dear Fellow Shareholder:
We know it. And, you know it too. The United States has seen better
economic days.
Like it or not, unpleasant market cycles do occur periodically. This tends
to distract some people's focus from the longer-term objective that influenced
their investment decision in the first place.
Our shareholder and financial professional surveys have consistently
indicated over the years that the original investment objective and decision for
investors in Tax-Free Fund of Colorado, has generally been aligned with the
Fund's objective: to seek as high a level of current income exempt from Colorado
state and regular Federal income taxes as is consistent with preservation of
capital.
How does the Fund seek to fulfill its and your investment objective?
Perhaps the single most significant matter we wish to emphasize is the
element of professional management that we have continually sought to bring to
bear on your behalf. The job of investment managers is to be keen observers of
the scene, setting aside emotions. This is particularly true in the constantly
changing environment that exists today. One must make every effort to be as
objective as possible, adjusting the portfolio of investments as necessary, to
try to be of most benefit to shareholders.
Management of Tax-Free Fund of Colorado and its municipal bond portfolio
management team believe that when you are dealing with investments, quality
counts.
As you may recall, there are nine separate credit ratings assignable to
municipal securities, ranging from the most conservative to the highly
speculative. For protection of investors' capital, the Fund intentionally limits
its purchases to securities rated (or, if unrated, deemed by the Investment
Sub-Adviser to be) investment grade quality - that is rated within the four
highest credit ratings: AAA, AA, A, and BBB.
NOT A PART OF THE SEMI-ANNUAL REPORT
In general, the higher the quality rating of a municipal security, the
greater or more reliable the cash flow there is for the municipality to cover
interest and principal payments when due on the security. While exaggerated
price changes may occur in emotionally charged securities markets, they normally
are not reflective of a municipal issuer's capability to pay interest and
principal in a timely manner on any particular security. It is the cash flow and
solidness of the municipal issuer that count - and this is reflected in the
quality level of the credit rating.
We can assure you that the Fund's portfolio management team pays
considerable attention to this factor before any security is purchased for the
portfolio as well as in conducting continuing analysis and evaluation with each
and every security once it is a part of the Fund's investment portfolio. It is
additionally important for you to know that, with any insured securities, our
portfolio management team has always sought to look beyond the insurance to the
credit quality of the underlying issuer rather than relying upon any insurance.
We fully recognize that the current times can be unsettling. However, we
hope that you are comforted to know that we believe you have a knowledgeable
team of financial experts, which has continually sought to carefully choose the
securities in the Fund's portfolio and seeks to continuously monitor your
investment in Tax-Free Fund of Colorado.
Sincerely,
/s/ Lacy B. Herrmann /s/ Diana P. Herrmann
Lacy B. Herrmann Diana P. Herrmann
Founder and Chairman Emeritus President
NOT A PART OF THE SEMI-ANNUAL REPORT
TAX-FREE FUND OF COLORADO
SCHEDULE OF INVESTMENTS
JUNE 30, 2009 (UNAUDITED)
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (25.2%) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
CITY & COUNTY (0.9%)
Denver, Colorado City & County Art Museum
$ 2,000,000 5.000%, 08/01/15 ........................................ Aa1/AAA $ 2,148,660
-------------
METROPOLITAN DISTRICT (6.3%)
Arapahoe, Colorado Park & Recreation District
1,070,000 5.000%, 12/01/17 National-re Insured .................... A3/NR 1,095,819
Aspen Grove Business Improvement District,
Colorado Refunding
1,150,000 4.750%, 12/01/21Radian Insured .......................... NR/BBB- 869,147
Foothills, Colorado Park & Recreational District
1,310,000 5.000%, 12/01/12 FSA Insured ............................ Aa3/NR+ 1,410,687
1,325,000 5.000%, 12/01/13 FSA Insured ............................ Aa3/NR+ 1,414,557
Fraser Valley Metropolitan Recreational District,
Colorado
1,375,000 5.000%, 12/01/25 ........................................ NR/A 1,419,688
Highlands Ranch, Colorado Metropolitan District #1,
Refunding
1,730,000 5.750%, 09/01/09 AMBAC Insured .......................... NR/AA+ 1,741,124
Hyland Hills Metro Park & Recreation District, Colorado
Special Revenue Refunding & Improvement
1,275,000 4.375%, 12/15/26 ACA Insured ............................ NR/NR* 817,109
Lincoln Park, Colorado Metropolitan District, Refunding
& Improvement
1,535,000 5.625%, 12/01/20 ........................................ NR/BBB- 1,369,849
Stonegate Village Metropolitan District, Colorado
Refunding & Improvement
500,000 5.000%, 12/01/23 National-re Insured .................... Baa1/A 507,700
North Metro Fire Rescue District, Colorado
1,200,000 4.625%, 12/01/20 AMBAC Insured .......................... NR/AA 1,257,012
Park Creek Metropolitan District, Colorado Revenue
Refunding & Improvement - SR Property Tax Support
2,000,000 5.500%, 12/01/21 Assured Guaranty Insured ............... NR/AAA+ 2,026,780
South Suburban, Colorado Park & Recreational District
300,000 5.125%, 12/15/09 National-re Insured .................... Aa3/A 304,725
-------------
Total Metropolitan District ............................. 14,234,197
-------------
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
SCHOOL DISTRICTS (18.0%)
Adams & Arapahoe Counties, Colorado Joint School
District #28J
$ 2,500,000 5.500%, 12/01/23 ........................................ Aa3/AA- $ 2,717,825
Adams & Weld Counties, Colorado School District #27J
1,000,000 5.375%, 12/01/26 National-re Insured .................... Aa3/AA- 1,060,340
Adams County, Colorado School District #12
(Adams 12 Five Star Schools)
1,170,000 5.000%, 12/15/12 National-re Insured .................... Aa3/AA 1,261,365
830,000 5.000%, 12/15/12 National-re Insured Pre-Refunded ....... Aa3/AAA 907,555
Arapahoe County, Colorado School District #006
Littleton
1,000,000 5.250%, 12/01/21 National-re Insured .................... Aa2/AA 1,052,040
Boulder Larimer & Weld Counties, Colorado
1,260,000 5.000%, 12/15/26 FSA Insured ............................ Aa3/AAA 1,296,225
1,500,000 5.000%, 12/15/28 ........................................ Aa3/AA- 1,555,965
Clear Creek, Colorado School District
1,000,000 5.000%, 12/01/16 FSA Insured ............................ Aa3/AAA 1,010,850
Denver, Colorado City & County School District No. 1
3,000,000 5.250%, 12/01/27 ........................................ Aa3/AA- 3,178,080
El Paso County, Colorado School District #20
1,500,000 5.000%, 12/15/14 National-re Insured .................... Aa3/NR 1,627,035
1,085,000 5.500%, 12/15/23 National-re Insured .................... Aa3/NR 1,151,511
El Paso County, Colorado School District #38
1,110,000 5.700%, 12/01/12 Pre-Refunded ........................... Aa3/NR 1,186,035
El Paso County, Colorado School District #49
1,500,000 5.500%, 12/01/13 FSA Insured Pre-Refunded ............... Aa3/AAA 1,605,960
1,000,000 5.250%, 12/01/14 National-re Insured Pre-Refunded ....... Aa3/AA- 1,099,140
Garfield County, Colorado School District
1,250,000 5.000%, 12/01/17 FSA Insured ............................ Aa3/NR+ 1,331,100
Gunnison Watershed, Colorado School District
1,025,000 5.250%, 12/01/26 ........................................ Aa3/AA- 1,090,641
Jefferson County, Colorado School District #R-001
3,000,000 5.250%, 12/15/25 FSA Insured ............................ Aa3/AAA 3,211,320
La Plata County, Colorado School District #9
1,500,000 5.000%, 11/01/18 National-re Insured Pre-Refunded ....... Aa3/NR 1,677,120
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 National-re Insured .................... Aa3/AA- $ 1,041,750
3,440,000 5.000%, 12/01/16 National-re Insured .................... Aa3/AA- 3,561,845
Teller County, Colorado School District #2 Woodland
Park
1,265,000 5.000%, 12/01/17 National-re Insured .................... Aa3/AA- 1,358,914
Weld and Adams Counties, Colorado School District #3J
1,000,000 5.500%, 12/15/10 AMBAC Insured Pre-Refunded ............. Aa3/AA- 1,022,710
Weld County, Colorado School District #2
1,315,000 5.000%, 12/01/15 FSA Insured ............................ Aa3/AAA 1,409,128
Weld County, Colorado School District #6
1,195,000 5.000%, 12/01/15 FSA Insured Pre-Refunded ............... Aa3/AAA 1,304,904
Weld County, Colorado School District #8
1,115,000 5.000%, 12/01/15 FSA Insured Pre-Refunded ............... Aa3/AAA 1,251,877
1,385,000 5.250%, 12/01/17 FSA Insured Pre-Refunded ............... Aa3/AAA 1,566,504
-------------
Total School Districts .................................. 40,537,739
-------------
Total General Obligation Bonds .......................... 56,920,596
-------------
REVENUE BONDS (73.0%)
---------------------------------------------------------
ELECTRIC (1.9%)
Colorado Springs, Colorado Utilities Revenue
1,660,000 5.000%, 11/15/17 ........................................ Aa2/AA 1,756,529
Colorado Springs, Colorado Utilities Revenue
Refunding Series B
1,285,000 5.250%, 11/15/23 ........................................ Aa2/AA 1,410,352
Colorado Springs, Colorado Utilities Revenue
Subordinated Lien Improvement Series B
1,160,000 5.000%, 11/15/23 ........................................ Aa2/AA 1,215,958
-------------
Total Electric .......................................... 4,382,839
-------------
HIGHER EDUCATION (19.4%)
Adams State College, Colorado Auxiliary Facilities
1,000,000 5.200%, 05/15/27 ........................................ Aa3/AA- 1,039,030
Boulder, Colorado Development Revenue UCAR
1,880,000 5.000%, 09/01/27 National-re Insured .................... A2/A+ 1,898,424
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/NR* $ 830,416
Colorado Educational & Cultural Facility Authority,
Regis University Project
1,695,000 5.000%, 06/01/24 Radian Insured ......................... NR/BBB 1,477,972
Colorado Educational & Cultural Facility Authority,
Student Housing - Campus Village Apartments
Refunding
2,835,000 5.375%, 06/01/28 ........................................ NR/A 2,703,853
Colorado Educational & Cultural Facility Authority,
University of Colorado Foundation Project
2,110,000 5.000%, 07/01/17 AMBAC Insured Pre-Refunded ............. NR/AA- 2,313,193
1,865,000 5.375%, 07/01/18 AMBAC Insured Pre-Refunded ............. NR/AA- 2,064,872
Colorado Educational & Cultural Facility Authority
Revenue Refunding, University of Denver Project
1,000,000 5.250%, 03/01/26 National-re Insured .................... A1/A 1,064,160
Colorado Educational & Cultural Facility Authority,
University of Denver Project, Series B Refunding
1,620,000 5.250%, 03/01/23 National-re Insured .................... A1/A 1,674,967
Colorado Mountain Jr. College District Student Housing
Facilities Enterprise Revenue
1,000,000 4.500%, 06/01/18 National-re Insured .................... Baa1/A 1,015,340
1,825,000 5.000%, 06/01/23 National-re Insured .................... Baa1/A 1,780,287
Colorado School of Mines Enterprise Revenue
Refunding & Improvement
1,455,000 5.000%, 12/01/24 ........................................ Aa3/AA- 1,507,962
Colorado State Board of Governors University Enterprise
System, Series A, Refunding and Improvement
425,000 5.000%, 03/01/17 Pre-Refunded ........................... A1/NR 475,902
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 1,165,985
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
HIGHER EDUCATION (CONTINUED)
Colorado State COP University of Colorado at Denver
Health Sciences Center Fitzsimons Academic
Projects Series B
$ 3,135,000 5.250%, 11/01/25 National-re Insured .................... Baa1/AA- $ 3,278,677
Mesa State College, Colorado Auxiliary Facilities
Enterprise
1,000,000 5.000%, 05/15/20 XLCA Insured ........................... A3/NR 990,860
Mesa State College, Colorado Auxiliary Facilities
Enterprise
2,000,000 5.700%, 05/15/26 ........................................ Aa3/AA- 2,172,780
University of Colorado Enterprise System
1,000,000 5.000%, 06/01/11 ........................................ Aa3/AA- 1,070,480
2,325,000 5.000%, 06/01/15 AMBAC Insured Pre-Refunded ............. Aa3/AA- 2,574,170
1,735,000 5.000%, 06/01/16 Pre-Refunded ........................... Aa3/AA- 1,953,090
1,000,000 5.250%, 06/01/17 National-re Insured Pre-Refunded ....... Aa3/AA- 1,135,110
2,000,000 5.000%, 06/01/27 ........................................ Aa3/AA- 2,079,120
University of Colorado Enterprise System Revenue,
Refunding & Improvement
3,905,000 5.000%, 06/01/24 National-re Insured .................... Aa3/AA- 4,041,909
University of Northern Colorado Auxiliary Facilities
1,390,000 5.000%, 06/01/15 AMBAC Insured .......................... A2/A 1,436,315
University of Northern Colorado Revenue Refunding
1,000,000 5.000%, 06/01/24 FSA Insured ............................ Aa3/AAA 1,019,390
Western State College, Colorado Revenue
1,020,000 5.000%, 05/15/27 State Higher Ed. Intercept
Program Insured ...................................... Aa3/AA- 1,027,834
-------------
Total Higher Education .................................. 43,792,098
-------------
HOSPITAL (7.9%)
Colorado Health Facility Authority Hospital Revenue,
Valley View Hospital Association, Refunding
1,000,000 5.500%, 05/15/28 ........................................ NR/BBB 883,210
Colorado Health Facility Authority Hospital Revenue,
Catholic Health
1,000,000 4.750%, 09/01/25 FSA Insured ............................ Aa2/AAA 1,013,610
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
HOSPITAL (CONTINUED)
Colorado Health Facility Authority Revenue, Catholic
Health Initiatives
$ 2,000,000 5.000%, 10/01/16 ........................................ Aa2/AA $ 2,141,340
1,000,000 6.000%, 10/01/23 ........................................ Aa2/AA 1,098,040
Colorado Health Facility Authority Hospital Revenue,
Evangelical Lutheran Project Refunding
1,575,000 5.250%, 06/01/19 ........................................ A3/A- 1,560,541
Colorado Health Facility Authority Hospital Revenue,
Poudre Valley Health Care Series F Refunding
2,800,000 5.000%, 03/01/25 ........................................ Baa1/A- 2,512,832
Colorado Health Facility Authority Hospital Revenue,
Sisters of Charity - Leavenworth
1,500,000 5.250%, 12/01/10 National-re Insured .................... Aa3/AA 1,502,280
Colorado Health Facility Authority Hospital Revenue,
Evangelical Lutheran Project Refunding
1,000,000 5.250%, 06/01/21 ........................................ A3/A- 953,010
2,000,000 5.250%, 06/01/24 ........................................ A3/A- 1,830,740
Denver, Colorado Health & Hospital Authority
Healthcare, Revenue Series A Refunding
2,000,000 5.000%, 12/01/18 ........................................ NR/BBB++ 1,826,800
1,500,000 5.000%, 12/01/19 ........................................ NR/BBB++ 1,349,550
Park Hospital District Larimer County, Colorado
Limited Tax Revenue
1,010,000 4.500%, 01/01/21 AGC Insured ............................ Aa2/AAA 1,040,926
-------------
Total Hospital .......................................... 17,712,879
-------------
HOUSING (2.4%)
Colorado Housing & Finance Authority
275,000 6.050%, 10/01/16 Series 1999A3 .......................... Aa2/NR 275,319
5,000 6.125%, 11/01/23 Series 1998D3 .......................... Aa2/NR 5,167
Colorado Housing & Finance Authority, Single Family
Program Refunding
130,000 5.000%, 08/01/13 Series 2001 Series B ................... A1/A+ 126,924
Colorado Housing Finance Authority, Single Family
Mortgage
30,000 5.700%, 10/01/22 Series 2000C3 .......................... Aa2/AA 30,406
Colorado Housing & Finance Authority, Single Family
Mortgage Class II
1,000,000 5.500%, 11/01/29 ........................................ Aaa/AAA 1,016,380
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
HOUSING (CONTINUED)
Colorado Housing Finance Authority, Single Family
Mortgage Class III Series A-5
$ 3,000,000 5.000%, 11/01/34 ........................................ A1/A+ $ 2,978,340
Colorado Housing Finance Authority, Single Family
Mortgage Subordinated
50,000 5.400%, 10/01/12 Series 2000D ........................... A1/A+ 50,428
Colorado Housing and Finance Authority, Multi-Family
Project C1-II Ser A-2
1,000,000 5.400%, 10/01/29 ........................................ Aa2/AA 1,005,930
-------------
Total Housing ........................................... 5,488,894
-------------
LEASE (15.2%)
Adams 12 Five Star Schools, Colorado COP
1,770,000 4.625%, 12/01/24 ........................................ A1/A+ 1,757,415
Adams County, Colorado Corrections Facility COP,
Series B
1,600,000 5.000%, 12/01/26 ........................................ Aa3/AA 1,629,984
1,200,000 5.125%, 12/01/27 ........................................ Aa3/AA 1,224,624
Aurora, Colorado COP
2,105,000 5.250%, 12/01/13 AMBAC Insured Pre-Refunded ............. NR/AA- 2,235,994
Broomfield, Colorado COP
2,500,000 5.100%, 12/01/12 AMBAC Insured .......................... A2/NR 2,608,400
Colorado Educational & Cultural Facilities Authority
Revenue, Ave Maria School Project Refunding
1,000,000 4.850%, 12/01/25 Radian Insured ......................... NR/BBB- 746,830
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 1,528,815
Colorado State Higher Ed Capital Construction Lease
3,000,000 5.250%, 11/01/23 ........................................ Aa3/AA- 3,125,460
Denver, Colorado City and County COP (Botanical
Gardens)
2,015,000 5.250%, 12/01/22 ........................................ Aa3/AA+ 2,155,244
Denver, Colorado City and County COP (Roslyn Fire)
1,835,000 5.000%, 12/01/15 ........................................ Aa2/AA+ 1,930,750
El Paso County, Colorado COP
1,100,000 5.250%, 12/01/09 National-re Insured .................... A1/A 1,119,052
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
LEASE (CONTINUED)
El Paso County, Colorado COP (Pikes Peak Regional
Development Authority)
$ 1,925,000 5.000%, 12/01/18 AMBAC Insured .......................... NR/AA- $ 2,047,469
Fort Collins, Colorado Lease COP Series A
3,020,000 4.750%, 06/01/18 AMBAC Insured .......................... Aa2/NR 3,163,661
Fremont County, Colorado COP Refunding &
Improvement Series A
2,075,000 5.000%, 12/15/18 National-re Insured .................... Baa1/A 2,113,782
Lakewood, Colorado COP
1,440,000 5.200%, 12/01/13 AMBAC Insured Pre-Refunded ............. NR/AA- 1,529,654
Northern Colorado Water Conservancy District COP
1,000,000 5.000%, 10/01/15 National-re Insured .................... Baa1/AA- 1,049,210
Pueblo, Colorado COP (Police Complex Project)
2,170,000 5.500%, 08/15/22 AGC Insured ............................ Aa2/AAA 2,269,495
Rangeview Library District Project, Colorado COP
1,000,000 5.000%, 12/15/28 AGC Insured ............................ Aa2/AAA 1,021,870
Westminster, Colorado COP
1,055,000 5.350%, 09/01/11 National-re Insured Pre-Refunded ....... NR/AA- 1,073,589
-------------
Total Lease ............................................. 34,331,298
-------------
SALES TAX (9.9%)
Boulder, Colorado
1,045,000 5.250%, 08/15/10 AMBAC Insured .......................... Aa2/AA 1,050,476
Boulder, Colorado Open Space Acquisition
1,250,000 5.500%, 08/15/12 Pre-Refunded ........................... Aa1/AAA 1,319,988
Boulder, Colorado Open Space Capital Improvement
1,630,000 5.000%, 07/15/17 National-re Insured .................... Aa2/AA 1,710,098
Boulder County, Colorado Open Space Capital
Improvement Series A
1,500,000 5.000%, 01/01/24 FSA Insured ............................ Aa3/AAA 1,564,215
Boulder, Colorado Sales & Use Tax Open Space Series A
1,000,000 5.450%, 12/15/12 National-re Insured Pre-Refunded ....... NR/AA- 1,030,190
Colorado Springs, Colorado Sales & Use Tax Revenue
Service Sales
1,320,000 5.000%, 12/01/12 Pre-Refunded ........................... A1/AA+ 1,344,407
Commerce City, Colorado Sales & Use Tax Revenue
1,000,000 5.000%, 08/01/21 AMBAC Insured .......................... NR/A+ 1,017,230
Denver, Colorado City & County Excise Tax Revenue
2,000,000 5.375%, 09/01/10 FSA Insured Pre-Refunded .............. Aa3/AAA 2,015,320
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
SALES TAX (CONTINUED)
Douglas County, Colorado Sales & Use Tax Open
Space Revenue
$ 1,780,000 5.500%, 10/15/12 FSA Insured Pre-Refunded ............... Aa3/AAA $ 1,886,355
Golden, Colorado Sales & Use Tax
1,265,000 5.000%, 12/01/12 AMBAC Insured .......................... Baa1/A 1,348,351
Jefferson County, Colorado Open Space Sales Tax
1,600,000 5.000%, 11/01/13 AMBAC Insured .......................... Aa3/AA- 1,704,464
1,080,000 5.000%, 11/01/14 AMBAC Insured .......................... Aa3/AA- 1,139,940
Larimer County, Colorado Sales Tax Revenue Bond
1,000,000 5.500%, 12/15/12 AMBAC Insured Pre-Refunded ............. A1/AA- 1,068,280
Longmont, Colorado Sales & Use Tax
1,875,000 5.500%, 11/15/14 Pre-Refunded ........................... NR/AA+ 1,995,656
Park Meadows Business Implementation District,
Colorado Shared Sales Tax Revenue Bond
1,500,000 5.300%, 12/01/27 ........................................ NR/NR* 1,103,925
Thornton, Colorado Sales Tax
1,000,000 5.000%, 09/01/14 FSA Insured ............................ Aa3/AAA 1,051,620
-------------
Total Sales Tax ......................................... 22,350,515
-------------
TRANSPORTATION (6.8%)
Colorado Department of Transportation-Tax Revenue
Anticipation Note
1,000,000 6.000%, 06/15/13 AMBAC Insured Pre-Refunded ............. #Aaa/AA 1,057,270
E-470 Public Highway Authority, Colorado Revenue
Series D2
4,000,000 5.000%, 09/01/39 National-re Insured .................... Baa1/A 3,952,160
Northwest Parkway, Colorado Public Highway
Authority Series A
2,515,000 5.150%, 06/15/14 AMBAC Insured Pre-Refunded ............. NR/BBB 2,738,357
Regional Transportation District, Colorado COP
1,190,000 5.000%, 06/01/15 AMBAC Insured .......................... A1/A 1,241,979
Regional Transportation District, Colorado COP, Series A
3,500,000 5.000%, 06/01/25 AMBAC Insured .......................... A1/A+ 3,421,005
Regional Transportation District, Colorado Sales Tax
Revenue
2,000,000 5.000%, 11/01/13 National-re Insured .................... Aa3/AAA 2,094,480
Walker Field, Colorado Public Airport Authority
Airport Revenue
1,000,000 5.000%, 12/01/22 ........................................ Baa3/NR 769,680
-------------
Total Transportation .................................... 15,274,931
-------------
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
WATER & SEWER (8.8%)
Boulder, Colorado Water & Sewer Revenue
$ 1,000,000 5.400%, 12/01/14 Pre-Refunded ........................... Aa2/AAA $ 1,065,050
Broomfield, Colorado Sewer and Waste Water Revenue
1,985,000 5.000%, 12/01/15 AMBAC Insured .......................... A3/NR 2,088,637
Broomfield, Colorado Water Activity Enterprise
1,500,000 5.300%, 12/01/12 National-re Insured .................... A2/NR 1,598,280
1,730,000 5.250%, 12/01/13 National-re Insured .................... A2/NR 1,810,618
Colorado Clean Water Revenue
170,000 5.375%, 09/01/10 Un-Refunded portion .................... Aaa/AAA 170,024
Colorado Water Resource & Power Development
Authority
2,675,000 5.000%, 09/01/16 National-re Insured .................... Baa1/A 2,748,134
1,855,000 5.000%, 09/01/17 National-re Insured .................... Baa1/A 1,877,557
Colorado Water Resource & Power Development
Authority Clean Water Revenue Series A
1,375,000 5.000%, 09/01/12 Pre-Refunded ........................... Aaa/AAA 1,494,597
260,000 5.000%, 09/01/12 Un-Refunded portion .................... Aaa/AAA 279,087
Colorado Water Resource & Power Development
Authority Clean Water Revenue Series B
180,000 5.500%, 09/01/09 Un-Refunded portion .................... Aaa/AAA 180,011
Colorado Water Resource & Power Development
Authority Small Water Resource Series A
600,000 5.550%, 11/01/13 National-re Insured
Un-Refunded portion .................................. NR/A 621,912
400,000 5.550%, 11/01/13 National-re Insured Pre-Refunded ....... NR/A 424,444
Denver, Colorado City and
County Wastewater Revenue
1,560,000 5.000%, 11/01/15 National-re Insured .................... Aa3/AAA 1,669,028
Erie, Colorado Water Enterprise Revenue, Series A
1,000,000 5.000%, 12/01/25 FSA Insured ............................ Aa3/NR+ 1,044,580
Pueblo, Colorado Board Water Works
1,000,000 5.500%, 11/01/10 FSA Insured ............................ Aa3/AAA 1,050,020
Ute, Colorado Water Conservancy District
1,570,000 5.500%, 06/15/12 National-re Insured .................... Baa1/A+ 1,621,590
-------------
Total Water & Sewer ..................................... 19,743,569
-------------
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- --------------------------------------------------------- -------- -------------
MISCELLANEOUS REVENUE (0.7%)
Denver, Colorado City & County Helen Bonfils Project
$ 620,000 5.875%, 12/01/09 ........................................ NR/A+ $ 621,314
Westminster, Colorado Golf Course Activity
1,000,000 5.400%, 12/01/13 Radian Group, Inc. Insured ............. NR/BBB- 1,006,110
-------------
Total Miscellaneous Revenue ............................. 1,627,424
-------------
Total Revenue Bonds ..................................... 164,704,447
-------------
Total Investments (cost $217,155,435 - note 4) .......... 98.2% 221,625,043
Other assets less liabilities ........................... 1.8 4,163,488
----- -------------
Net Assets .............................................. 100.0% $ 225,788,531
===== =============
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING PORTFOLIO(1)
---------------------------------------- ------------
Aaa of Moody's or AAA of S&P ............................ 12.0%
Pre-Refunded Bonds2 ..................................... 20.0
Aa of Moody's or AA of S&P or Fitch ..................... 35.1
A of Moody's or S&P ..................................... 27.0
Baa of Moody's or BBB of S&P ............................ 4.7
Not rated* .............................................. 1.2
-----
100.0%
=====
1 Calculated using the highest rating of the three rating services.
2 Pre-refunded bonds are bonds for which U.S. Govenment Obligations have
been placed in escrow to retire the bonds at their earliest call date.
* Any security not rated (NR) by any of the approved credit rating services
has been determined by the Investment Sub-Adviser to have sufficient
quality to be ranked in the top four credit ratings if a credit rating
were to be assigned by a rating service.
FITCH RATINGS
-------------
+ AAA
++ B
Note: National Public Finance Guarantee Corporation (National-re) is the
new name for Municipal Bond Investors Assurance Inc.'s U.S. public finance
platform.
PORTFOLIO ABBREVIATIONS:
------------------------
ACA - American Capital Assurance Financial Guaranty Corp.
AGC - Assured Guaranty Corp.
AMBAC - American Municipal Bond Assurance Corp.
COP - Certificates of Participation
FSA - Financial Security Assurance
National-re - National Public Finance Guarantee Corporation
NR - Not Rated
UCAR - University Corporation for Atmospheric Research
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2009 (UNAUDITED)
ASSETS
Investments at value (cost $217,155,435) ................................................ $ 221,625,043
Cash .................................................................................... 2,212,059
Interest receivable ..................................................................... 1,695,929
Receivable for Fund shares sold ......................................................... 619,428
Other assets ............................................................................ 13,520
-----------------
Total assets ............................................................................ 226,165,979
-----------------
LIABILITIES
Dividends payable ....................................................................... 167,471
Management fee payable .................................................................. 91,859
Payable for Fund shares redeemed ........................................................ 39,317
Distribution and service fees payable ................................................... 16,233
Accrued expenses ........................................................................ 62,568
-----------------
Total liabilities ....................................................................... 377,448
-----------------
NET ASSETS ...................................................................................... $ 225,788,531
=================
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share ..... $ 221,935
Additional paid-in capital .............................................................. 221,291,649
Net unrealized appreciation on investments (note 4) ..................................... 4,469,608
Accumulated net realized loss on investments ............................................ (175,488)
Distributions in excess of net investment income ........................................ (19,173)
-----------------
$ 225,788,531
=================
CLASS A
Net Assets .............................................................................. $ 198,701,046
=================
Capital shares outstanding .............................................................. 19,532,804
=================
Net asset value and redemption price per share .......................................... $ 10.17
=================
Maximum offering price per share (100/96 of $10.17 adjusted to nearest cent) ............ $ 10.59
=================
CLASS C
Net Assets .............................................................................. $ 10,392,050
=================
Capital shares outstanding .............................................................. 1,023,597
=================
Net asset value and offering price per share ............................................ $ 10.15
=================
Redemption price per share (*a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower, if redeemed
during the first 12 months after purchase) ...................................... $ 10.15*
=================
CLASS Y
Net Assets .............................................................................. $ 16,695,435
=================
Capital shares outstanding .............................................................. 1,637,140
=================
Net asset value, offering and redemption price per share ................................ $ 10.20
=================
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED)
INVESTMENT INCOME:
Interest income ...................................... $ 5,087,840
Expenses:
Management fee (note 3) .............................. $ 532,731
Distribution and service fees (note 3) ............... 92,632
Transfer and shareholder servicing agent fees ........ 85,697
Trustees' fees and expenses (note 8) ................. 50,998
Legal fees (note 3) .................................. 37,373
Shareholders' reports and proxy statements ........... 24,415
Auditing and tax fees ................................ 9,548
Custodian fees (note 6) .............................. 8,980
Registration fees and dues ........................... 6,932
Insurance ............................................ 5,287
Chief compliance officer (note 3) .................... 2,017
Miscellaneous ........................................ 16,910
-----------
Total expenses ....................................... 873,520
Expenses paid indirectly (note 6) .................... (491)
-----------
Net expenses ......................................... 873,029
------------
Net investment income ................................ 4,214,811
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions 365,622
Change in unrealized depreciation on investments ..... 5,720,234
-----------
Net realized and unrealized gain (loss) on investments 6,085,856
------------
Net change in net assets resulting from operations ... $ 10,300,667
============
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 2009 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2008
----------------- -----------------
OPERATIONS:
Net investment income ......................................... $ 4,214,811 $ 7,894,291
Net realized gain (loss) from securities transactions ......... 365,622 207,443
Change in unrealized appreciation (depreciation) on investments 5,720,234 (6,965,614)
----------------- -----------------
Change in net assets from operations ........................ 10,300,667 1,136,120
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS (note 10):
Class A Shares:
Net investment income ......................................... (3,848,400) (7,578,115)
Class C Shares:
Net investment income ......................................... (138,395) (294,661)
Class Y Shares:
Net investment income ......................................... (281,984) (307,126)
----------------- -----------------
Change in net assets from distributions ..................... (4,268,779) (8,179,902)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold ..................................... 26,976,334 33,331,739
Reinvested dividends and distributions ........................ 2,240,140 4,583,846
Cost of shares redeemed ....................................... (11,259,500) (30,945,266)
----------------- -----------------
Change in net assets from capital share transactions .......... 17,956,974 6,970,319
----------------- -----------------
Change in net assets ........................................ 23,988,862 (73,463)
NET ASSETS:
Beginning of period ........................................... 201,799,669 201,873,132
----------------- -----------------
End of period* ................................................ $ 225,788,531 $ 201,799,669
================= =================
* Includes distributions in excess of net investment income and
undistributed net investment income, respectively, of: $ (19,173) $ 34,795
================= =================
See accompanying notes to financial statements.
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 (UNAUDITED)
1. ORGANIZATION
Tax-Free Fund of Colorado (the "Fund"), a non-diversified, open-end
investment company, was organized in February, 1987 as a Massachusetts business
trust and commenced operations on May 21, 1987. The Fund is authorized to issue
an unlimited number of shares and, since its inception to April 30, 1996,
offered only one class of shares. On that date, the Fund began offering two
additional classes of shares, Class C and Class Y Shares. All shares outstanding
prior to that date were designated as Class A Shares and are sold with a
front-payment sales charge and bear an annual distribution fee. Class C Shares
are sold with a level-payment sales charge with no payment at time of purchase
but level service and distribution fees from date of purchase through a period
of six years thereafter. A contingent deferred sales charge of 1% is assessed to
any Class C shareholder who redeems shares of this Class within one year from
the date of purchase. Class C Shares, together with a pro-rata portion of all
Class C Shares acquired through reinvestment of dividends and other
distributions paid in additional Class C Shares, automatically convert to Class
A Shares after 6 years. The Class Y Shares are only offered to institutions
acting for an investor in a fiduciary, advisory, agency, custodian or similar
capacity and are not offered directly to retail investors. Class Y Shares are
sold at net asset value without any sales charge, redemption fees, contingent
deferred sales charge or distribution or service fees. On April 30, 1998, the
Fund established Class I Shares, which are offered and sold only through
financial intermediaries and are not offered directly to retail investors. Class
I Shares are sold at net asset value without any sales charge, redemption fees,
or contingent deferred sales charge. Class I Shares carry a distribution and
service fee. As of the report date no Class I Shares were outstanding. All
classes of shares represent interests in the same portfolio of investments and
are identical as to rights and privileges but differ with respect to the effect
of sales charges, the distribution and/or service fees borne by each class,
expenses specific to each class, voting rights on matters affecting a single
class and the exchange privileges of each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with accounting principles generally accepted in the United States of
America for investment companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities
of more than 60 days are valued at fair value each business day based upon
information provided by a nationally prominent independent pricing service
and periodically verified through other pricing services. In the case of
securities for which market quotations are readily available, securities
are valued by the pricing service at the mean of bid and asked quotations.
If market quotations or a valuation from the pricing service is not
readily available, the security is valued at fair value determined in good
faith under procedures established by and under the general supervision of
the Board of Trustees. Securities which mature in 60 days or less are
valued at amortized cost if their term to maturity at purchase is 60 days
or less, or by amortizing their unrealized appreciation or depreciation on
the 61st day prior to maturity, if their term to maturity at purchase
exceeds 60 days.b) 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 (details of which can be found in the schedule of
investments), used to value the Fund's net assets as of June 30, 2009:
VALUATION INPUTS INVESTMENTS IN SECURITIES
---------------- -------------------------
Level 1 - Quoted Prices ......................... $ --
Level 2 - Other Significant Observable Inputs
Municipal Bonds .............................. 221,625,043
Level 3 - Significant Unobservable Inputs ....... --
------------
Total ........................................... $221,625,043
============
c) ACCOUNTING PRONOUNCEMENTS: In April 2009, the Financial Accounting
Standards Board ("FASB") issued FASB Staff Position No. 157-4,
"Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly" ("FSP 157-4"). FSP 157-4 provides
additional guidance for estimating fair value in accordance with FASB
Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" ("FAS 157"), when the volume and level of activity for the
asset or liability have significantly decreased as well as guidance on
identifying circumstances that indicate a transaction is not orderly. FSP
157-4 is effective for fiscal years and interim periods ending after June
15, 2009. The adoption of FSP 157-4 did not have an impact on the Fund's
financial statements and the Fund has made the required additional
disclosures.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" (SFAS No.
165). The Fund adopted SFAS No. 165 which requires an entity to recognize
in the financial statements the effects of all subsequent events that
provide additional evidence about conditions that existed at the date of
the balance sheet. For non-recognized subsequent events that must be
disclosed to keep financial statements
from being misleading, an entity is required to disclose the nature of the
event as well as an estimate of its financial effect, or a statement that
such an estimate cannot be made. In addition, SFAS No. 165 requires an
entity to disclose the date through which subsequent events have been
evaluated. The Fund has evaluated subsequent events through the issuance
of its financial statements on August 28, 2009.
The Fund has adopted the provisions of Statement of Financial Accounting
Standards No. 161, "Disclosures about Derivative Instruments and Hedging
Activities" ("SFAS 161"), effective June 30, 2009. SFAS 161 requires
enhanced disclosures about a fund's derivative and hedging activities,
including how such activities are accounted for and their effect on a
fund's financial position, performance and cash flows. The Fund does not
invest in derivative instruments or engage in hedging activities. As a
result, SFAS 161 did not impact the Fund's financial statements.
d) 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.
e) 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 implementation of FIN 48 did not have a material impact on the Fund's
financial statements.
f) 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.
g) 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.
h) 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.
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
distribution 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. While 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 distribution fee payments at the rate of
up to 0.15 of 1% on the entire net assets represented by Class A Shares, the
Fund currently makes payment of this distribution fee at the annual rate of 0.05
of 1%.
For the six months ended June 30, 2009, distribution fees on Class A Shares
amounted to $47,567 of which the Distributor retained $1,920.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Fund's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Fund's average net assets represented by Class C Shares and for the
six months ended June 30, 2009, amounted to $33,799. In addition, under a
Shareholder Services Plan, the Fund is authorized to make service fee payments
with respect to Class C Shares to Qualified Recipients for providing personal
services and/or maintenance of shareholder accounts. These payments are made at
the annual rate of 0.25 of 1% of the Fund's average net assets represented by
Class C Shares and for the six months ended June 30, 2009 amounted to $11,266.
The total of these payments with respect to Class C Shares amounted to $45,065
of which the Distributor retained $8,160.
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 six months ended June 30, 2009, total commissions on sales of Class A Shares
amounted to $251,730 of which the Distributor received $42,007.
c) OTHER RELATED PARTY TRANSACTIONS:
For the six months ended June 30, 2009, the Fund incurred $37,341 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 six months ended June 30, 2009, purchases of securities and
proceeds from the sales of securities aggregated $24,325,761 and $9,310,247,
respectively.
At June 30, 2009, the aggregate tax cost for all securities was
$217,112,834. At June 30, 2009 the aggregate gross unrealized appreciation for
all securities in which there is an excess of value over tax cost amounted to
$8,064,425 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $3,552,216 for a net
unrealized appreciation of $4,512,209.
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:
SIX MONTHS ENDED
JUNE 30, 2009 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2008
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
CLASS A SHARES:
Proceeds from shares sold ..... 1,610,368 $ 16,335,949 2,464,452 $ 24,867,344
Reinvested distributions ...... 208,270 2,116,229 431,178 4,357,710
Cost of shares redeemed ....... (771,227) (7,830,897) (2,525,879) (25,422,774)
------------ ------------ ------------ ------------
Net change .................. 1,047,411 10,621,281 369,751 3,802,280
------------ ------------ ------------ ------------
CLASS C SHARES:
Proceeds from shares sold ..... 344,804 3,493,117 178,646 1,809,057
Reinvested distributions ...... 7,166 72,692 15,282 154,179
Cost of shares redeemed ....... (158,839) (1,608,558) (398,301) (4,000,837)
------------ ------------ ------------ ------------
Net change .................. 193,131 1,957,251 (204,373) (2,037,601)
------------ ------------ ------------ ------------
CLASS Y SHARES:
Proceeds from shares sold ..... 702,620 7,147,268 663,100 6,655,338
Reinvested distributions ...... 5,030 51,219 7,122 71,957
Cost of shares redeemed ....... (179,248) (1,820,045) (149,303) (1,521,655)
------------ ------------ ------------ ------------
Net change .................. 528,402 5,378,442 520,919 5,205,640
------------ ------------ ------------ ------------
Total transactions in Fund shares 1,768,944 $ 17,956,974 686,297 $ 6,970,319
============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES
At June 30, 2009 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 six months ended June 30, 2009 was $36,531, 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 six months ended June 30, 2009, such meeting-related expenses amounted to
$14,467.
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 DEVELOPMENT
Since December 2007, municipal bond insurance companies have been under
review by the three major rating agencies: Standard & Poor's, Moody's and Fitch.
The ratings of most 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
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
6/30/09 ------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period ......... $ 9.88 $ 10.23 $ 10.32 $ 10.42 $ 10.68 $ 10.84
----------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ...................... 0.20 0.40++ 0.39++ 0.39+ 0.39+ 0.40+
Net gain (loss) on securities (both realized
and unrealized) .......................... 0.29 (0.34) (0.07) (0.07) (0.23) (0.13)
----------- -------- -------- -------- -------- --------
Total from investment operations ........... 0.49 0.06 0.32 0.32 0.16 0.27
----------- -------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ....... (0.20) (0.41) (0.41) (0.42) (0.42) (0.43)
Distributions from capital gains ........... -- -- -- -- -- --
----------- -------- -------- -------- -------- --------
Total distributions ........................ (0.20) (0.41) (0.41) (0.42) (0.42) (0.43)
----------- -------- -------- -------- -------- --------
Net asset value, end of period ............... $ 10.17 $ 9.88 $ 10.23 $ 10.32 $ 10.42 $ 10.68
=========== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) ... 5.01%* 0.57% 3.21% 3.11% 1.53% 2.57%
Ratios/supplemental data
Net assets, end of period (in thousands) ... $198,701 $182,630 $185,283 $197,926 $218,111 $226,070
Ratio of expenses to average net assets .... 0.78%** 0.80% 0.80% 0.79% 0.79% 0.75%
Ratio of net investment income to average
net assets ............................... 3.99%** 3.90% 3.80% 3.76% 3.73% 3.76%
Portfolio turnover rate .................... 4.41%* 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 .... 0.78%** 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.
* Not annualized.
** Annualized.
See accompanying notes to financial statements.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
6/30/09 ------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period ......... $ 9.86 $ 10.21 $ 10.30 $ 10.40 $ 10.66 $ 10.82
----------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ...................... 0.15 0.30++ 0.29++ 0.29+ 0.29+ 0.30+
Net gain (loss) on securities (both
realized and unrealized) ................. 0.30 (0.34) (0.06) (0.07) (0.23) (0.13)
----------- -------- -------- -------- -------- --------
Total from investment operations ........... 0.45 (0.04) 0.23 0.22 0.06 0.17
----------- -------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ....... (0.16) (0.31) (0.32) (0.32) (0.32) (0.33)
Distributions from capital gains ........... -- -- -- -- -- --
----------- -------- -------- -------- -------- --------
Total distributions ........................ (0.16) (0.31) (0.32) (0.32) (0.32) (0.33)
----------- -------- -------- -------- -------- --------
Net asset value, end of period ............... $ 10.15 $ 9.86 $ 10.21 $ 10.30 $ 10.40 $ 10.66
=========== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) ... 4.53%* (0.39)% 2.24% 2.14% 0.57% 1.60%
Ratios/supplemental data
Net assets, end of period (in thousands) ... $ 10,392 $ 8,189 $ 10,563 $ 11,760 $ 13,003 $ 15,210
Ratio of expenses to average net assets .... 1.73%** 1.75% 1.75% 1.74% 1.74% 1.70%
Ratio of net investment income to
average net assets ....................... 3.02%** 2.95% 2.85% 2.81% 2.78% 2.81%
Portfolio turnover rate .................... 4.41%* 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 .... 1.73%** 1.74% 1.74% 1.73% 1.74% 1.69%
CLASS Y
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
6/30/09 ------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------- -------- -------- -------- -------- --------
Net asset value, beginning of period ......... $ 9.90 $ 10.25 $ 10.35 $ 10.44 $ 10.71 $ 10.86
----------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ...................... 0.20 0.40++ 0.40++ 0.40+ 0.40+ 0.41+
Net gain (loss) on securities (both
realized and unrealized) ................. 0.31 (0.33) (0.08) (0.07) (0.24) (0.12)
----------- -------- -------- -------- -------- --------
Total from investment operations ........... 0.51 0.07 0.32 0.33 0.16 0.29
----------- -------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ....... (0.21) (0.42) (0.42) (0.42) (0.43) (0.44)
Distributions from capital gains ........... -- -- -- -- -- --
----------- -------- -------- -------- -------- --------
Total distributions ........................ (0.21) (0.42) (0.42) (0.42) (0.43) (0.44)
----------- -------- -------- -------- -------- --------
Net asset value, end of period ............... $ 10.20 $ 9.90 $ 10.25 $ 10.35 $ 10.44 $ 10.71
=========== ======== ======== ======== ======== ========
Total return (not reflecting sales charge) ... 5.14%* 0.63% 3.17% 3.26% 1.49% 2.73%
Ratios/supplemental data
Net assets, end of period (in thousands) ... $ 16,695 $ 10,980 $ 6,027 $ 5,779 $ 14,671 $ 15,608
Ratio of expenses to average net assets .... 0.73%** 0.75% 0.75% 0.75% 0.74% 0.70%
Ratio of net investment income to
average net assets ....................... 4.02%** 3.96% 3.84% 3.82% 3.77% 3.81%
Portfolio turnover rate .................... 4.41%* 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 .... 0.73%** 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.
* Not annualized.
** Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED)
As a shareholder of the Fund, you may incur two types of costs: (1)
transaction costs, including front-end sales charges with respect to Class A
shares or contingent deferred sales charges ("CDSC") with respect to Class C
shares; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other Fund expenses. The table below is intended to
help you understand your ongoing costs (in dollars) of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The table below is based on an investment of $1,000 invested on January 1,
2009 and held for the six months ended June 30, 2009.
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 JUNE 30, 2009
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 5.01% $1,000.00 $1,050.10 $3.96
- --------------------------------------------------------------------------------
Class C 4.53% $1,000.00 $1,045.30 $8.77
- --------------------------------------------------------------------------------
Class Y 5.14% $1,000.00 $1,051.40 $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 0.78%, 1.73% AND
0.73% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO
REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio and an assumed rate of
return of 5.00% per year before expenses, which is not the Fund's actual return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
the information provided in this table to compare the ongoing costs of investing
in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical
example relating to the Fund with the 5.00% hypothetical examples that appear in
the shareholder reports of other mutual funds.
Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs
with respect to Class A shares. The example does not reflect the deduction of
contingent deferred sales charges ("CDSC") with respect to Class C shares.
Therefore, the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different mutual funds. In
addition, if these transaction costs were included, your costs would have been
higher.
SIX MONTHS ENDED JUNE 30, 2009
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,020.93 $3.91
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,016.22 $8.65
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,021.17 $3.66
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.78%, 1.73% AND
0.73% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY
THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (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 your Fund's entire list of portfolio securities twice a
year in the semi-annual and annual reports you receive. Additionally, under Fund
policies, the Manager publicly discloses the complete schedule of the Fund's
portfolio holdings, as of each calendar quarter, generally by the 15th day after
the end of each calendar quarter. Such information remains accessible until the
next schedule is made publicly available. You may obtain a copy of the Fund's
portfolio holding schedule for the most recently completed period by visiting
the Fund's website at www.aquilafunds.com. The Fund also discloses its five
largest holdings by value as of the close of the last business day of each
calendar month in a posting to its website on the 5th business day following the
month end. This information remains on the website until the next such posting.
Whenever you wish to see a listing of your Fund's portfolio other than in your
shareholder reports, please check our website (www.aquilafunds.com) or call us
at 1-800-437-1020.
The Fund additionally files a complete list of its portfolio holdings with
the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms
N-Q are available free of charge on the SEC website at http://www.sec.gov. You
may also review or, for a fee, copy the forms at the SEC's Public Reference Room
in Washington, D.C. 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, 2009 with respect to which the Fund was
entitled to vote. Applicable regulations require us to inform you that the
foregoing proxy voting information is available on the SEC website at
http://www.sec.gov.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Tax-Free Fund of Colorado (the "Fund") was
held on June 24, 2009. The holders of shares representing 86% of the total net
asset value of the shares entitled to vote were present in person or by proxy.
At the meeting, the following matters were voted upon and approved by the
shareholders (the resulting votes are presented below).
1. To elect Trustees.
DOLLAR AMOUNT OF VOTES
----------------------
TRUSTEE FOR WITHHELD
------- --- --------
Tucker Hart Adams $184,158,724 $2,964,674
Ernest Calderon $183,152,761 $3,970,627
Thomas A. Christopher $183,418,078 $3,705,310
Gary C. Cornia $184,490,443 $2,632,945
Grady Gammage, Jr. $184,476,075 $2,647,313
Diana P. Herrmann $184,394,094 $2,729,294
Lyle W. Hillyard $183,386,345 $3,737,043
John C. Lucking $184,582,595 $2,540,793
Anne J. Mills $184,346,782 $2,776,616
2. To ratify the selection of Tait Weller & Baker LLP as the Fund's independent
registered public accounting firm.
DOLLAR AMOUNT OF VOTES
----------------------
FOR AGAINST ABSTAIN
--- ------- -------
$181,546,474 $4,121,205 $5,161,448
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
RENEWAL OF THE ADVISORY AND ADMINISTRATION AGREEMENT AND THE SUB-ADVISORY
AGREEMENT
Renewal until April 30, 2010 of the Advisory and Administration Agreement
(the "Advisory Agreement") between the Fund and the Manager and the Sub-Advisory
Agreement (the "Sub-Advisory Agreement") between the Manager and Kirkpatrick
Pettis Capital Management, Inc. (the "Sub-Adviser") was approved by the Board of
Trustees and the independent Trustees in February, 2009. At a meeting called and
held for the foregoing purpose at which a majority of the independent Trustees
were present in person, the following materials were considered:
o Copies of the agreements to be renewed;
o A term sheet describing the material terms of the agreements;
o The Annual Report of the Fund for the year ended December 31, 2008;
o A report, prepared by the Manager and provided to the Trustees in advance
of the meeting for the Trustees review, containing data about the
performance of the Fund, data about its fees, expenses and purchases and
redemptions of capital shares together with comparisons of such data with
similar data about other comparable funds, as well as data as to the
profitability of the Manager and the Sub-Adviser; and
o Quarterly materials reviewed at prior meetings on the Fund's performance,
operations, portfolio and compliance.
The Trustees acted on the Advisory and Administration Agreement and the
Sub-Advisory Agreement separately but they considered each in conjunction with
the other to determine the agreements' combined effects on the Fund. The
Trustees reviewed materials relevant to, and considered, the factors set forth
below, and as to each agreement reached the conclusions described.
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER AND THE
SUB-ADVISER.
The Manager has provided all administrative services to the Fund. The
Board considered the nature and extent of the Manager's supervision of
third-party service providers, including the Fund's shareholder servicing agent
and custodian. The Board considered that the Manager had established and
maintained a strong culture of ethical conduct and regulatory compliance.
The Manager has arranged for the Sub-Adviser to provide local management
of the Fund's portfolio. The Trustees noted that the Sub-Adviser employed Mr.
Christopher Johns as portfolio manager for the Fund, and had provided facilities
for credit analysis of the Fund's portfolio securities. Mr. Johns, based in
Denver, has provided local information regarding specific holdings in the Fund's
portfolio. The portfolio manager has also been available and has met with the
brokerage and financial planner community and with investors and prospective
investors to provide them with information generally about the Fund's portfolio,
with which to assess the Fund as an investment vehicle for residents of Colorado
in light of prevailing interest rates and local economic conditions.
The Board considered that the Manager and the Sub-Adviser had provided all
services the Board deemed necessary or appropriate, including the specific
services that the Board has determined are required for the Fund, given that its
purpose is to provide shareholders with as high a level of current income exempt
from Colorado state and regular Federal income taxes as is consistent with
preservation of capital. It noted that compared to other Colorado state-specific
municipal bond funds, the portfolio of the Fund was of significantly higher
quality and contained no securities subject to the alternative minimum tax.
The Board concluded that a commendable quality of services was provided
and that the Fund would be well served if they continued. Evaluation of this
factor weighed in favor of renewal of the Advisory Agreement and the
Sub-Advisory Agreement.
THE INVESTMENT PERFORMANCE OF THE FUND, THE MANAGER AND THE SUB-ADVISER.
The Board reviewed each aspect of the Fund's performance and compared its
performance with that of its local competitors and with national averages and
with benchmark indices. It was noted that the materials provided by the Manager
indicated that compared to the five largest competitive Colorado funds, the Fund
had investment performance measured by total return that was higher than all but
one of its peers for the one-, three-, five- and ten-year periods, with
annualized rates of return explained in part by the Fund's generally
higher-quality portfolio and generally shorter average maturities. Furthermore,
the Trustees noted that in the past year the Fund's net asset value generally
fluctuated modestly compared to the local Colorado competitors.
The Board concluded that the performance of the Fund was good in light of
market conditions, the length of its average maturities, its investment
objectives and its long-standing emphasis on minimizing risk. Evaluation of this
factor indicated to the Trustees that renewal of the Advisory Agreement and
Sub-Advisory Agreement would be appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER AND THE SUB-ADVISER AND THEIR AFFILIATES FROM THEIR RELATIONSHIPS WITH
THE FUND.
The information provided in connection with renewal contained expense data
for the Fund and its local competitors as well as data for all single-state
tax-free municipal bond funds nationwide, including data for all such front-end
sales charge funds of a comparable asset size. The materials also showed the
profitability to the Manager and the Sub-Adviser of their services to the Fund.
The Board compared the expense and fee data with respect to the Fund to
similar data about other funds that it found to be relevant. The Board concluded
that the expenses of the Fund and the fees paid were similar to and were
reasonable as compared to those being paid by single-state tax-free municipal
bond funds nationwide, being less than the national average.
The Board considered that the foregoing indicated the appropriateness of
the costs of the services to the Fund, which was being well managed as indicated
by the factors considered previously.
The Board further concluded that the profitability to the Manager and the
Sub-Adviser did not argue against approval of the fees to be paid under the
Advisory Agreement or the Sub-Advisory Agreement.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS.
Data provided to the Trustees showed that the Fund's asset size had
declined in recent years. The Trustees noted that the materials indicate that
the Fund's fees are already generally comparable to those of its peers,
including those with breakpoints. Evaluation of this factor indicated to the
Board that the Advisory Agreement and Sub-Advisory Agreement should be renewed
without addition of breakpoints at this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND THE SUB-ADVISER AND THEIR
AFFILIATES FROM THEIR RELATIONSHIPS WITH THE FUND.
The Board observed that, as is generally true of most fund complexes, the
Manager and Sub-Adviser and their affiliates, by providing services to a number
of funds or other investment clients including the Fund, were able to spread
costs as they would otherwise be unable to do. The Board noted that while that
produces efficiencies and increased profitability for the Manager and
Sub-Adviser and their affiliates, it also makes their services available to the
Fund at favorable levels of quality and cost which are more advantageous to the
Fund than would otherwise have been possible.
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
Ernest Calderon
Gary C. Cornia
Tucker Hart Adams
Thomas A. Christopher
Grady Gammage, Jr.
Diana P. Herrmann
Lyle W. Hillyard
John C. Lucking
TRUSTEE EMERITUS
J. William Weeks
OFFICERS
Diana P. Herrmann, President
Maryann Bruce, Senior Vice President
Alan R. Stockman, 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
PNC Global Investment Servicing
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.
Not applicable
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
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)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of
1940.
(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
TAX-FREE FUND OF COLORADO
By: /s/ Diana P. Herrmann
- -----------------------------------
President and Trustee
September 3, 2009
By: /s/ Joseph P. DiMaggio
- -------------------------------------
Chief Financial Officer and Treasurer
September 3, 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
- -----------------------------------
Diana P. Herrmann
President and Trustee
September 3, 2009
By: /s/ Joseph P. DiMaggio
- -------------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
September 3, 2009
TAX-FREE FUND OF COLORADO
EXHIBIT INDEX
(a) (2) Certifications of principal executive officer
and principal financial officer as required by Rule 30a-2(a)
under the Investment Company Act of 1940.
(b) Certification of chief executive officer and chief financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.