TAX-FREE TRUST OF ARIZONA
SEMI-ANNUAL REPORT
"BACK TO BASICS"
January 31, 1996
Dear Investor:
OBSERVATIONS ABOUT 1995
The year 1995 was an extraordinary one in the securities market.
As measured by various popular indexes, the stock market produced what
would be considered "once in a lifetime" returns. The dazzle of spectacular
price increases among common stocks in 1995 attracted the attention and
participation of many investors. With stock price gains generally of the
magnitude of 25% or more in a year, we can see why.
Although bond prices, including those of municipal securities, also
experienced considerable gains, these were distinctly overshadowed by what
happened in the stock markets.
Consequently with all the stock price excitement, many investors were
distracted from their longer-term financial planning goals. As we all know -
but sometimes forget - things do not continuously grow to the sky.
A NEW YEAR
Here we are at the beginning of another year - 1996 - and the mid-point
of Tax-Free Trust of Arizona's current fiscal year. Accordingly, it is well
to consider the risk/reward characteristics of one's investments in light of
longer-term investment goals and what might occur this year.
Few people, including ourselves, are very good at crystal ball gazing
with the securities markets. Nevertheless, we still would hazard an opinion
that the magnitude of positive returns experienced in the stock markets in
1995 will NOT be repeated in 1996.
As a result, we feel it prudent that all investors, including all
current shareholders of the Trust, think seriously about the orientation of
their investment funds. One should think about what might be the desirable
risk/reward relationship of one's assets this year, as such orientation or
allocation suits one's longer-term investment goals and objectives.
BACK TO BASICS
It is always important to remember that stocks and bonds are entirely
different types of investments. They are appropriate for different type
investment objectives.
Stocks are attractive for capital growth prospects while bonds are
primarily used for capital preservation - and, for tax-free income in the
case of municipal bonds. Individual equity securities can
<PAGE>
appreciate in value significantly during one time period and then, when a
disappointing earnings report comes out or other adverse development occurs,
can just as easily drop in price BY 20% - 30% IN JUST ONE DAY in the highly
volatile marketplace that currently exists.
Municipal bonds, on the other hand, generally don't fluctuate in price
very significantly, unless they have long maturities or are of low quality.
They just plod along from year to year, producing a relatively high level of
capital preservation and a consistent and relatively decent level of tax-free
annual income return.
Moreover, with the relatively high level of credit safety that is
inherent to municipal securities, this kind of investment gives you a
comfort level you can count on in terms of protection of your investment and
consistency ofincome stream, particularly over the longer-term time span in
which your investment should be viewed.
Therefore, with those investors having as a key investment goal the
preservation of capital and a consistent monthly income stream, then Tax-Free
Trust of Arizona could well be the investment vehicle that could serve one
best.
WHERE THE TRUST NOW STANDS
QUALITY OF PORTFOLIO
Quality is the most important ingredient in providing the means to
protect investment capital.
That is why the investment portfolio of Tax-Free Trust of Arizona has
been constructed with such a high quality orientation. Of the nine separate
credit ratings assignable to municipal securities by the nationally renown
credit rating services, we ONLY invest in the TOP FOUR RATINGS.
It is worth emphasizing that at December 31, 1995, 92.9% of the Trust's
assets were ranked in the top three ratings - AAA, AA, AND A. Moreover,
77.6% of the assets were in the top two ratings.
This represents EXCEPTIONALLY high quality standards. Consequently, the
level of capital preservation offered to the Trust's shareholders is of the
highest order.
Moreover, the Trust's Investment Adviser, Bank One, Arizona, NA, is
constantly reviewing each and every security in the portfolio as to its
creditworthiness. We want shareholders to have the comfort of "SLEEPING WELL
AT NIGHT" knowing that someone is paying close attention to the quality
orientation of their investment in the Trust.
SHARE PRICE STABILITY
In viewing the value of one's investment in the Trust, it is essential
that regard be given to a reasonable time span.
Unless one limits the maturity of fixed-income securities to one year
or less, there will always be fluctuations in price as market conditions
vary.
A key goal that management has is to provide shareholders with a high
level of share price stability over a reasonable time period.
We believe this goal of share price stability has been achieved quite
well over the years.
In accomplishing this goal, the quality composition of the investment
portfolio is an important element.
2
<PAGE>
Also, however, the maturity structure of the portfolio is a key
ingredient. The Trust presently holds securities with very short
maturities, but also some with quite long maturities. However, the average
maturity at December 31, 1995 was 15.0 years. This helps contain
fluctuations in share price - up or down - to a modest nature.
Another factor in creating share price stability is diversification -
diversification by number of issues, by numerous municipal issuers, by
nature of projects financed and by geographic location within Arizona. The
diversification employed by the Trust encompasses all these elements. At
December 31, 1995, there were 219 separate securities in the investment
portfolio.
RATE OF RETURN
We consistently try to provide shareholders with a good level of DOUBLE
TAX-FREE income - as high as possible commensurate with the degree of capital
preservation we strive to achieve.
The accompanying chart shows the average annualized level of DOUBLE
TAX-FREE income distributed to shareholders over the past six-month period,
from July 1 through December 31, as measured against the maximum public
offering price.
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA'S DOUBLE TAX-FREE DISTRIBUTION
RATE AS COMPARED TO THE TAXABLE EQIVALENT RATE AN
INVESTOR WOULD HAVE TO EARN AT VARIOUS TAX BRACKETS
<S> <C> <C> <C> <C>
Tax Bracket 28% 31% 36% 39.6%
Taxable Equivalent Rate 7.44% 7.87% 8.55% 9.09%
Double Tax-Free Distribution Rate 5.08% 5.08% 5.08% 5.08%
</TABLE>
Since shareholders are subject to the payment of income tax at Federal
tax levels as well as payment of State of Arizona income tax, we have also
shown in this chart the rate of taxable income return one would have had to
earn in order to equate to the DOUBLE TAX-FREE income return generated by
the Trust.
No matter which Federal income tax bracket applies, you can readily see
that there is quite a difference between the taxable and the DOUBLE TAX-FREE
return levels.
3
<PAGE>
It is important to note that it would not have been possible over the
past six-month period to find taxable fixed-income investments that would
produce the same level of after tax return as that of the Trust, unless one
settled for a lesser quality and higher risk taxable investment.
SIZE OF TRUST'S ASSETS
We are pleased to report that at December 31, 1995, the total net asset
size of Tax-Free Trust of Arizona was $395,136,084. This compares with the
level of $357,637,534 at the same date a year earlier and $380,745,418 at
July 1, 1995, the start of the this current fiscal year.
Such asset size helps keep the Trust's expense ratio for its operations
significantly below the industry average for similar-type municipal bond
funds.
OUR APPRECIATION
We thank all shareholders for their continued loyalty and for the
confidence placed in the management of Tax-Free Trust of Arizona. You can be
assured that we will constantly try our best to merit your continuing
support.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
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<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995 (unaudited)
RATING
FACE ARIZONA GENERAL OBLIGATION MOODYS/
AMOUNT BONDS (25.7% OF NET ASSETS) S&P VALUE
<C> <S> <C> <C>
Apache Co.,
$ 750,000 5.100%, 7-1-99 Baa/NR $ 757,500
Bullhead City Parkway Improvement
District,
1,055,000 6.100%, 1-1-11 Baa/NR 1,084,012
1,000,000 6.100%, 1-1-12 Baa/NR 1,030,000
Chandler, Arizona,
500,000 7.100%, 7-1-04 Baa1/A+ 557,500
450,000 7.000%, 7-1-12, FGIC Insured Aaa/AAA 507,375
Cochise Co. Unified School District
No. 68 (Sierra Vista),
1,000,000 6.000%, 7-1-06, FGIC Insured Aaa/AAA 1,072,500
1,000,000 6.100%, 7-1-08, FGIC Insured Aaa/AAA 1,066,250
925,000 5.750%, 7-1-09, FGIC Insured Aaa/AAA 964,312
Coconino Co. Unified School District
No. 1 (Flagstaff),
2,000,000 5.500%, 7-1-09, AMBAC Insured Aaa/AAA 2,047,500
Coconino & Yavapai Unified School
District (Sedona),
1,000,000 5.900%, 7-1-07 NR/A- 1,045,000
1,000,000 5.700%, 7-1-07, FGIC Insured Aaa/AAA 1,052,500
Flagstaff, Arizona,
500,000 6.300%, 7-1-06, FGIC Insured Aaa/AAA 540,000
1,580,000 6.000%, 7-1-07, FGIC Insured Aaa/AAA 1,662,950
Gila Co. Unified School District No.
10 (Payson),
500,000 5.750%, 7-1-09, AMBAC Insured Aaa/AAA 523,125
La Paz Co. Unified School District
No. 27 (Parker),
800,000 6.000%, 7-1-05 Baa/NR 835,000
Maricopa Co. Elementary School
District No. 1 (Phoenix)
250,000 5.800%, 7-1-10, CGIC Insured Aaa/AAA 261,250
Maricopa Co. Elementary School
District No. 3 (Tempe),
500,000 8.000%, 7-1-01 A1/AA 587,500
750,000 5.400%, 7-1-12, FGIC Insured Aaa/AAA 760,312
2,780,000 6.000%, 7-1-13, AMBAC Insured Aaa/AAA 2,936,375
Maricopa Co. Unified School District
No. 4 (Mesa),
3,530,000 5.500%, 7-1-06, FGIC Insured Aaa/AAA 3,693,263
750,000 5.650%, 7-1-11, FGIC Insured Aaa/AAA 777,188
Maricopa Co. School District No. 6
(Washington),
300,000 8.000%, 7-1-04, MBIA Insured Aaa/AAA 369,000
Maricopa Co. School District No. 8
(Osborn),
1,010,000 7.200%, 7-1-08 A1/NR 1,116,050
Maricopa Co. Unified School
District No. 11 (Peoria),
500,000 9.250%, 7-1-01, FGIC Insured Aaa/AAA 617,500
2,000,000 6.100%, 7-1-10, AMBAC Insured Aaa/AAA 2,145,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENTS OF INVESTMENTS
RATING
FACE ARIZONA GENERAL OBLIGATION MOODYS/
AMOUNT BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Maricopa Co. Unified School
District No. 25 (Liberty),
$ 750,000 7.500%, 7-1-05 Baa/NR $ 825,000
Maricopa Co. Elementary School
District No. 28 (Kyrene),
835,000 6.000%, 7-1-02, FGIC Insured Aaa/AAA 910,150
Maricopa Co. Unified School
District No. 38 (Madison),
1,000,000 5.250%, 7-1-09, FGIC Insured Aaa/AAA 1,008,750
Maricopa Co. Unified School
District No. 41 (Gilbert),
1,000,000 5.200%, 7-1-09, FGIC Insured Aaa/AAA 1,041,250
Maricopa Co. Unified School
District No. 48 (Scottsdale),
750,000 6.750%, 7-1-09 Aa/AA 842,812
Maricopa Co. Elementary School
District No. 68 (Alhambra),
1,335,000 6.800%, 7-1-10, AMBAC Insured Aaa/AAA 1,476,844
1,000,000 5.100%, 7-1-11, AMBAC Insured Aaa/AAA 986,250
1,000,000 5.125%, 7-1-12, AMBAC Insured Aaa/AAA 990,000
Maricopa Co. Unified School
District No. 69 (Paradise Valley),
3,250,000 7.000%, 7-1-07 A1/A+ 3,700,938
1,000,000 5.000%, 7-1-08, AMBAC Insured Aaa/AAA 992,500
2,400,000 5.800%, 7-1-09, AMBAC Insured Aaa/AAA 2,568,000
Maricopa Co. Unified School
District No. 98 (Fountain Hills),
1,000,000 5.750%, 7-1-12, Ambac Insured Aaa/AAA 1,036,250
Maricopa Co. High School District
No. 205 (Glendale Union),
2,000,000 5.350%, 7-1-08 A1/AA- 2,047,500
1,000,000 5.500%, 7-1-11, FGIC Insured Aaa/AAA 1,020,000
2,000,000 5.700%, 7-1-14, FGIC Insured Aaa/AAA 2,060,000
Maricopa Co. High School District
No. 210 (Phoenix Union),
2,000,000 6.750%, 7-1-04 Aa/AA 2,247,500
2,000,000 6.200%, 7-1-06 Aa/AA 2,160,000
3,000,000 5.450%, 7-1-08 Aa/AA 3,082,500
2,000,000 5.700%, 7-1-15 Aa/AA 2,080,000
Maricopa Co. High School District
No. 213 (Tempe),
1,000,000 6.000%, 7-1-12, FGIC Insured Aaa/AAA 1,063,750
Maricopa Co. Unified School
District No. 214 (Tolleson),
1,075,000 5.000%, 7-1-10, FGIC Insured Aaa/AAA 1,054,844
Mesa, Arizona,
5,425,000 5.700%, 7-1-08, MBIA Insured Aaa/AAA 5,730,156
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
RATING
FACE ARIZONA GENERAL OBLIGAION MOODYS/
AMOUNT BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Mohave Co. Unified School
District No. 1 (Lake Havasu),
$ 650,000 5.150%, 7-1-08, AMBAC Insured Aaa/AAA $ 661,375
1,000,000 5.375%, 7-1-12, AMBAC Insured Aaa/AAA 1,013,750
Navajo Co. Unified School
District No. 1 (Winslow),
1,000,000 5.200%, 7-1-08, AMBAC Insured Aaa/AAA 1,015,000
Navajo Co. Unified School
District No. 2 (Joseph City),
550,000 6.700%, 7-1-00 NR/BBB- 591,937
Navajo Co. Unified School
District No. 27 (Kayenta),
500,000 5.750%, 7-1-01 Baa/NR 518,125
Navajo Co. Unified School
District No. 32 (Blue Ridge),
985,000 5.900%, 7-1-08, CGIC Insured Aaa/AAA 1,055,181
Phoenix, Arizona,
1,040,000 7.500%, 7-1-03 Aaa/AA+ 1,236,300
3,000,000 6.500%, 7-1-11 NR/AA+ 3,273,750
900,000 5.600%, 7-1-11 Aa1/AA+ 937,125
1,000,000 6.250%, 7-1-16 Aa1/AA+ 1,133,750
2,000,000 5.000%, 7-1-19 Aa1/AA+ 1,900,000
Pima Co. Unified School
District No. 1 (Tucson),
1,135,000 6.900%, 7-1-06 A1/A+ 1,231,475
1,000,000 6.875%, 7-1-10, MBIA Insured Aaa/AAA 1,132,500
2,000,000 6.100%, 7-1-11, FGIC Insured Aaa/AAA 2,112,500
Pinal Co. Elementary School
District No. 4 (Casa Grande),
750,000 6.000%, 7-1-04, AMBAC Insured Aaa/AAA 810,938
Pinal Co. School District
No. 8 (San Manuel),
1,000,000 6.800%, 7-1-10 NR/BBB 1,070,000
Pinal Co. High School District
No.82 (Casa Grande),
1,500,000 5.375%, 7-1-09, AMBAC Insured Aaa/AAA 1,541,250
Pinewood Sanitary District,
605,000 6.500%, 7-1-09 NR/NR* 617,100
Prescott Valley Sewer Collection
Improvement District,
500,000 7.900%, 1-1-12 NR/BBB- 561,250
Santa Cruz Co. Unified School
District No. 1 (Nogales),
400,000 7.700%, 7-1-03, AMBAC Insured Aaa/AAA 469,000
1,000,000 5.800%, 7-1-13, FSA Insured Aaa/AAA 1,027,500
Scottsdale, Arizona,
1,250,000 6.000%, 7-1-14 Aa1/AA+ 1,304,688
Tempe, Arizona,
1,000,000 5.300%, 7-1-09 Aa/AA+ 1,035,000
1,450,000 6.000%, 7-1-10 Aa/AA+ 1,526,125
1,290,000 5.400%, 7-1-11 Aa/AA+ 1,336,762
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
RATING
FACE ARIZONA GENERAL OBLIGATION MOODYS/
AMOUNT BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Tucson, Arizona,
$ 500,000 5.750%, 7-1-09, FGIC Insured Aaa/AAA $ 528,750
2,000,000 6.100%, 7-1-12, FGIC Insured Aaa/AAA 2,120,000
Yavapai Co. Unified School
District No. 28 (Camp Verde)
500,000 6.000%, 7-1-08, FGIC Insured Aaa/AAA 541,875
Yuma, Arizona,
2,000,000 6.125%, 7-1-12, AMBAC Insured Aaa/AAA 2,132,500
Total Arizona General Obligation
Bonds 101,369,462
ARIZONA REVENUE BONDS (67.5%
of Net Assets)
Airport Revenue Bonds (1.5% of
Net Assets)
Phoenix, Municipal Airport
Authority,
2,750,000 7.800%, 7-1-11, AMT Aa/AA+ 2,918,438
1,210,000 7.875%, 7-1-14, AMT Aa/AA+ 1,288,650
565,000 6.400%, 7-1-12, AMT, MBIA Insured Aaa/AAA 612,319
Tucson, Municipal Airport Authority,
1,000,000 5.700%, 6-1-13, MBIA Insured Aaa/AAA 1,035,000
Total Arizona Airport Authority Bonds 5,854,407
Basic Service Revenue Bonds (13.1% of
Net Assets)
Arizona Department of
Transportation Revenue Bonds,
1,500,000 7.000%, 7-1-06, (pre-refunded) Aaa/AAA 1,681,875
1,400,000 6.500%, 7-1-11, (pre-refunded) Aaa/AA 1,580,250
Arizona Department of
Transportation (Maricopa Co.)
Regional Area Revenue Bonds,
1,790,000 7.800%, 7-1-00, (pre-refunded) Aaa/AA- 1,924,250
Casa Grande Excise Tax Revenue
Bonds,
365,000 6.000%, 4-1-10, FGIC Insured Aaa/AAA 386,900
Chandler Water & Sewer Revenue
Bonds,
1,815,000 6.250%, 7-1-13, FGIC Insured Aaa/AAA 1,935,244
Gilbert Water & Sewer Revenue
Bonds,
2,500,000 6.500%, 7-1-12, FGIC Insured Aaa/AAA 2,750,000
Mesa Utility System Revenue Bonds,
4,000,000 5.375%, 7-1-12, FGIC Insured Aaa/AAA 4,065,000
Peoria Water & Sewer Revenue Bonds,
555,000 6.600%, 7-1-04, FGIC Insured Aaa/AAA 602,869
Phoenix, Civic Improvement Corp.
Water System Revenue Bonds,
1,885,000 5.000%, 7-1-13 A1/A 1,830,806
1,500,000 5.400%, 7-1-14 A1/AA- 1,520,625
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
RATING
FACE MOODY'S/
AMOUNT ARIZONA REVENUE BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Phoenix, Street & Highway User
Revenue Bonds,
$ 2,490,000 6.250%, 7-1-06 A1/AA $ 2,745,225
1,000,000 6.500%, 7-1-08, (pre-refunded) NR/AA 1,130,000
3,700,000 6.250%, 7-1-11 A1/AA 4,153,250
5,000,000 6.250%, 7-1-11 A/A+ 5,281,250
3,265,000 6.250%, 7-1-11 A1/AA 3,526,200
Pima County, Sewer Revenue Bonds,
1,430,000 6.750%, 7-1-01, FGIC Insured Aaa/AAA 1,610,537
1,350,000 6.750%, 7-1-15, FGIC Insured Aaa/AAA 1,478,250
Sedona Sewer Revenue Bonds,
2,600,000 8.750%, 7-1-10, (pre-refunded) NR/AAA 3,094,000
700,000 7.400%, 7-1-11 NR/BBB 802,375
1,000,000 7.000%, 7-1-12 NR/BBB 1,097,500
Sierra Vista, Street & Highway
Revenue Bonds,
500,000 6.400%, 7-1-03, AMBAC Insured Aaa/AAA 527,500
Tucson, Water System Revenue Bonds,
500,000 7.000%, 7-1-10, MBIA Insured Aaa/AAA 539,375
1,500,000 6.700%, 7-1-12 A1/A+ 1,661,250
1,700,000 6.500%, 7-1-16 A1/A+ 1,848,750
1,870,000 5.750%, 7-1-18 A1/A+ 1,923,762
2,000,000 6.750%, 7-1-19, (pre-refunded) NR/A+ 2,265,000
Total Basic Service Revenue Bonds 51,962,043
Hospital Revenue Bonds (3.8% of
Net Assets)
Arizona Health Facilities (St.
Luke's Health System),
3,260,000 7.250%, 11-1-14, (pre-refunded) Aaa/NR 3,879,400
Arizona Health Facilities (Samaritan
Health),
2,000,000 5.625%, 12-1-15, MBIA Insured Aaa/AAA 2,042,500
Chandler Industrial Development
Authority (Ahwatukee Medical
Facility),
500,000 7.000%, 7-1-22 NR/NR* 490,625
Maricopa Co. Industrial Development
Authority (Mercy Health Care
System-St. Joseph's Hospital)
Revenue Bonds,
1,005,000 7.125%, 7-1-07, MBIA Insured Aaa/AAA 1,116,806
1,015,000 7.750%, 11-1-10 Aaa/NR 1,197,700
Mesa Industrial Development Authority
(Western Health),
2,000,000 7.625%, 1-1-19, BIGI Insured Aaa/AAA 2,227,500
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT ARIZONA REVENUE BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Pima Co. Industrial Development
Authority (Tucson Medical Center)
Revenue Bonds, AMBAC Insured,
$ 1,000,000 6.375%, 4-1-12, MBIA Insured Aaa/AAA $ 1,075,000
400,000 7.000%, 4-1-14, MBIA Insured Aaa/AAA 410,364
500,000 5.000%, 4-1-15, MBIA Insured Aaa/AAA 480,000
Scottsdale Industrial Development
Authority (Scottsdale Memorial
Hospital),
2,000,000 5.500%, 9-1-12, AMBAC Insured Aaa/AAA 2,065,000
Total Hospital Revenue Bonds 14,984,895
Lease Revenue Bonds (9.4% of Net
Assets)
Arizona Certificates of Participation
Lease Revenue Bonds,
500,000 6.625%, 9-1-08, FSA Insured Aaa/AAA 550,000
2,000,000 6.500%, 3-1-08, FSA Insured Aaa/AAA 2,192,500
Arizona Municipal Finance Program
No. 7,
855,000 7.600%, 8-1-00, BIGI Insured Aaa/AAA 899,888
Arizona Municipal Finance Program
No. 15,
1,000,000 8.650%, 8-1-04, BIGI Insured Aaa/AAA 1,062,500
500,000 8.750%, 8-1-06, BIGI Insured Aaa/AAA 533,750
Arizona Municipal Finance Program
No. 20,
1,300,000 7.700%, 8-1-10, BIGI Insured Aaa/AAA 1,592,500
Arizona Municipal Finance Program
No. 34,
1,000,000 7.250%, 8-1-09, BIGI Insured Aaa/AAA 1,213,750
Avondale Municipal Facilities
Lease Revenue Bonds,
500,000 7.150%, 7-1-13, MBIA Insured Aaa/AAA 543,750
Bullhead City Municipal Property
Corp. Lease Rev.,
500,000 7.200%, 7-1-10, FGIC Insured Aaa/AAA 556,250
Cochise Co. Certificates of
Participation Lease Revenue Bonds,
390,000 6.000%, 8-1-04, MBIA Insured Aaa/AAA 398,085
Glendale Municipal Property Corp.
Lease Revenue Bonds,
1,000,000 7.000%, 7-1-09, MBIA Insured Aaa/AAA 1,083,750
Lake Havasu City Certificates of
Participation Lease Revenue Bonds,
950,000 5.625%, 6-1-04, FGIC Insured Aaa/AAA 1,004,625
500,000 7.000%, 6-1-05, FGIC Insured Aaa/AAA 558,750
Maricopa Co. Certificates of
Participation Lease Revenue Bonds,
2,000,000 5.625%, 6-1-00 Baa/BBB 2,070,000
1,000,000 6,000%, 6-1-04 Baa/BBB 1,051,250
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT ARIZONA REVENUE BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Nogales Municipal Development
Authority Lease Revenue Bonds,
$ 500,000 8.000%, 6-1-08, MBIA Insured Aaa/AAA $ 549,375
Phoenix Civic Improvement Revenue
Bonds,
1,890,000 6.300%, 7-1-14 Aa/AA+ 2,050,650
1,500,000 6.000%, 7-1-14 Aa/AA+ 1,593,750
Pinal Co. Certificates of
Participation Lease Revenue Bonds,
865,000 7.900%, 6-1-01 NR/BBB- 886,495
1,180,000 6.250%, 6-1-04 NR/AA 1,283,250
525,000 6.375%, 6-1-06 NR/AA 568,312
Scottsdale Municipal Property
Corp. Lease Revenue Bonds,
1,660,000 7.750%, 11-1-06, FGIC Insured Aaa/AAA 1,747,598
2,200,000 6.250%, 11-1-10, FGIC Insured Aaa/AAA 2,365,000
2,155,000 7.875%, 11-1-14, FGIC Insured Aaa/AAA 2,270,896
1,870,000 6.250%, 11-1-14, FGIC Insured Aaa/AAA 1,977,525
Tucson Certificates of
Participation Lease Revenue Bonds,
525,000 5.700%, 7-1-02 NR/A- 533,531
1,000,000 6.375%, 7-1-09 Baa1/AA 1,083,750
Tucson Business Development
Finance Corp,
2,275,000 6.250%, 7-1-12, FGIC Insured Aaa/AAA 2,428,562
University of Arizona Certificates of
Participation Lease Revenue Bonds,
1,000,000 5.650%, 9-1-09, CGIC Insured Aaa/AAA 1,033,750
Yuma Municipal Property Corp.
Lease Revenue Bonds,
1,385,000 5.250%, 7-1-12, AMBAC Insured Aaa/AAA 1,379,806
Total Lease Revenue Bonds 37,063,598
Mortgage Revenue Bonds (3.2% of
Net Assets)
Maricopa Co. Industrial Development
Authority Single Family Mortgage
Revenue Bonds,
545,000 7.500%, 8-1-12 Aa/NR 586,556
Peoria Industrial Development
Authority (Casa Del Rio),
2,500,000 7.300%, 2-20-28 NR/AAA 2,718,750
Phoenix Industrial Development
Authority Single Family Mortgage
Revenue,
1,750,000 6.300%, 12-1-12, AMT NR/AAA 1,828,750
Pima Co. Industrial Development
Authority (Broadway Proper),
500,000 8.150%, 12-1-25 NR/A- 553,760
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT ARIZONA REVENUE BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Pima Co. Industrial Development
Authority Single Family Mortgage
Revenue,
$ 420,000 7.625%, 2-1-12 A/NR $ 445,200
1,120,000 6.500%, 2-1-17 A/NR 1,163,400
2,000,000 6.750%, 11-1-27, AMT NR/AAA 2,115,000
Scottsdale Industrial Development
Authority (Westminster Village),
1,185,000 7.700%, 6-1-06 NR/NR* 1,264,988
500,000 10.000%, 6-1-17 NR/NR* 555,000
Tempe Industrial Development
Authority (Friendship Village),
1,500,000 6.500%, 12-1-08 NR/NR* 1,479,375
Total Mortgage Revenue Bonds 12,710,779
Pollution Control Revenue Bonds
(5.7% of Net Assets)
Casa Grande Industrial Developement
Authority (Frito Lay) Revenue Bonds,
250,000 6.650%, 12-1-14 A1/NR 275,312
Gila Co. Pollution Control (Asarco)
Revenue Bonds,
3,900,000 8.900%, 7-1-06 Baa2/BBB 4,241,250
Gilbert Industrial Development
Authority Wastewater Reclamation
Facility Revenue Bonds,
600,000 10.000%, 10-1-10 NR/NR* 697,500
Greenlee Co. Pollution Control
(Phelps Dodge) Revenue Bonds,
7,185,000 5.450%, 6-1-09 A2/A 7,328,700
Mohave Co. Industrial Development
Authority (North Star Steel)
Revenue Bonds,
4,150,000 5.500%, 12-1-20, AMT Aa3/AA- 4,134,438
Navajo Co. Pollution Control
Revenue Bonds (Arizona Public
Service),
6,000,000 5.875%, 8-15-28 Baa1/BBB 6,037,500
Total Pollution Control Revenue Bonds 22,714,700
University Revenue Bonds (10.6% of
Net Assets)
Arizona Board of Regents-Arizona
State University System Revenue
Bonds,
1,330,000 5.500%, 7-1-19 A1/AA 1,341,638
6,750,000 5.750%, 7-1-12 A1/AA 6,994,688
1,000,000 7.875%, 7-1-15 A1/AA 1,040,290
7,000,000 6.125%, 7-1-15 A1/AA 7,393,750
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT ARIZONA REVENUE BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Arizona State University Research
Park Revenue Bonds,
$ 450,000 5.000%, 7-1-08, MBIA Insured Aaa/AAA $ 447,188
Arizona Board of Regents-Northern
Arizona University System Revenue
Bonds,
500,000 9.900%, 6-1-98 A1/A+ 567,500
685,000 7.400%, 6-1-02 A1/A+ 753,500
1,000,000 6.400%, 6-1-07, FGIC Insured Aaa/AAA 1,090,000
1,480,000 7.500%, 6-1-07 A1/A+ 1,633,550
1,500,000 7.500%, 6-1-08 A1/A+ 1,655,625
3,150,000 5.800%, 6-1-08, AMBAC Insured Aaa/AAA 3,307,500
Arizona Board of Regents-University
of Arizona System Revenue Bonds,
2,750,000 6.250%, 6-1-11 A1/AA 2,952,812
3,000,000 7.000%, 6-1-15 A1/AA 3,378,750
660,000 6.625%, 6-1-15 A1/AA 744,150
Arizona Educational Loan Mktg Corp.,
1,000,000 6.000%, 9-1-01, AMT Aa/NR 1,056,250
450,000 7.000%, 3-1-05, AMT A/NR 489,938
1,720,000 5.700%, 12-1-08, AMT A/NR 1,745,800
Arizona Student Loan Revenue,
500,000 6.600%, 5-1-10 Aa/NR 536,875
East Valley Institute of Technology,
820,000 6.000%, 7-1-05, AMBAC Insured Aaa/AAA 867,150
Glendale Industrial Development
Authority (American Graduate School),
300,000 7.125%, 7-1-20, CONLEE Insured NR/AAA 345,000
Maricopa Co. Community College
District Revenue Bonds,
1,700,000 7.750%, 7-15-05 A1/AA 1,770,074
Yavapai Co. Community College
District Revenue Bonds,
1,070,000 5.400%, 7-1-10, FGIC Insured Aaa/AAA 1,090,063
500,000 6.000%, 7-1-12 NR/A- 525,000
Total University Revenue Bonds 41,727,091
Utility Revenue Bonds (20.2% of
Net Assets)
Arizona Power Authority (Hoover Dam
Project) Revenue Bonds,
2,870,000 5.300%, 10-1-06, MBIA Insured Aaa/AAA 2,981,212
8,735,000 5.375%, 10-1-13, MBIA Insured Aaa/AAA 8,833,269
2,500,000 5.250%, 10-1-17, MBIA Insured Aaa/AAA 2,475,000
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT ARIZONA REVENUE BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Arizona Wastewater Management
Authority Revenue Bonds,
$ 1,700,000 6.800%, 7-1-11 Aa/AA+ $ 1,897,625
500,000 5.750%, 7-1-15, AMBAC Insured Aaa/AAA 520,625
Central Arizona Water Conservation
District Revenue Bonds,
1,500,000 7.500%, 11-1-05 A1/AA- 1,734,375
1,500,000 4.750%, 5-1-09, MBIA Insured Aaa/AAA 1,438,125
2,000,000 5.500%, 11-1-09 A1/AA- 2,087,500
3,000,000 7.125%, 11-1-11 A1/AA- 3,420,000
4,490,000 6.500%, 11-1-11 A1/AA- 5,017,575
Maricopa Co. Industrial Development
Authority (Citizens Utility),
1,000,000 6.875%, 9-1-03 NR/AA+ 1,053,750
Mohave Co. Industrial Development
Authority (Citizens Utility),
3,000,000 7.050%, 8-1-20 NR/AA+ 3,296,250
Pima Co. Industrial Development
Authority (Tucson Electric)
Revenue Bonds,
3,500,000 7.250%, 7-15-10, FSA Insured Aaa/AAA 3,832,500
Salt River Project Agricultural
Improvement and Power Revenue
Bonds,
4,500,000 6.200%, 1-1-12 Aa/AA 4,798,125
2,000,000 5.250%, 1-1-13 Aa/AA 2,000,000
650,000 6.000%, 1-1-13 Aa/AA 610,200
8,930,000 5.750%, 1-1-19 Aa/AA 9,075,113
8,500,000 6.250%, 1-1-19 Aa/AA 9,095,000
8,000,000 6.250%, 1-1-27 Aa/AA 8,510,000
565,000 8.250%, 1-1-28, (pre-refunded) NR/AAA 680,875
3,000,000 7.300%, 1-1-30, (pre-refunded) NR/AAA 3,390,000
2,000,000 6.000%, 1-1-31 Aa/AA 2,042,500
Santa Cruz Industrial Development
Authority (Citizens Utility),
1,020,000 7.150%, 2-1-23, AMT NR/AA+ 1,099,050
Total Utility Revenue Bonds 79,888,669
Total Arizona Revenue Bonds 266,906,182
PUERTO RICO BONDS (6.4% OF NET
ASSETS)
Puerto Rico General Obligation
Bonds,
2,300,000 6.000%, 7-1-14, MBIA Insured Aaa/AAA 2,415,000
2,035,000 6.450%, 7-1-17 Baa1/A 2,179,994
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
RATING
FACE MOODYS/
AMOUNT PUERTO RICO BONDS (CONTINUED) S&P VALUE
<C> <S> <C> <C>
Puerto Rico Electric Power
Authority Revenue Bonds,
$ 6,000,000 6.125%, 7-1-09 Baa1/A- $ 6,592,500
1,740,000 5.500%, 7-1-10 Baa1/A- 1,748,700
2,000,000 6.000%, 7-1-16 Baa1/A- 2,062,500
Puerto Rico Highway Authority
Revenue Bonds,
850,000 7.600%, 7-1-02 Baa1/A 976,437
2,000,000 5.200%, 7-1-03 Baa1/A 2,050,000
Puerto Rico Industrial, Medical
& Environmental Revenue Bonds,
3,500,000 6.250%, 11-15-13, (Pepsico) A1/A 3,810,625
1,000,000 7.600%, 5-1-14, (Warner Lambert) NR/AA3 1,121,250
Puerto Rico Public Building
Authority Revenue Bonds,
1,000,000 7.875%, 7-1-07, (pre-refunded) Aaa/AAA 1,078,750
Puerto Rico Urban Renewal &
Housing Corp. Revenue Bonds,
1,000,000 7.875%, 10-1-04 Baa/BBB 1,122,500
Total Puerto Rico Bonds 25,158,256
Total Investments - 99.6%
(Cost $370,831,745) 393,433,900
Other assets in excess of
liabilities - 0.4% 1,702,184
Net Assets - 100% $ 395,136,084
<FN>
* Any security not rated must be determined by the Investment
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.
</FN>
<FN>
# Cost for Federal tax purposes is $369,627,896.
</FN>
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995 (UNAUDITED)
<S> <C>
ASSETS
Investments at value (identified cost - $370,831,745) $ 393,433,900
Cash 1,073,975
Interest receivable 9,200,442
Receivable for Trust shares sold 134,129
Other assets 5,890
Total assets 403,848,336
LIABILITIES
Payable for investment securities purchased 8,074,107
Dividends payable 219,353
Distribution fees payable 146,351
Adviser and Administrator fees payable 129,424
Accrued expenses 120,123
Payable for Trust shares redeemed 22,894
Total liabilities 8,712,252
NET ASSETS (equivalent to $10.72 per share on
36,867,080 shares outstanding) $ 395,136,084
Net Assets consist of:
Capital Stock - Authorized an unlimited number of
shares, par value $.01 per share $ 368,671
Additional paid-in capital 374,304,473
Accumulated net loss on investments (2,139,215)
Net unrealized appreciation on investments 22,602,155
$ 395,136,084
Net Asset Value, redemption price per share $ 10.72
Offering price per share (100/96 of $10.72
adjusted to nearest cent) $ 11.17
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDING DECEMBER 31, 1995 (UNAUDITED)
<S> <C> <C>
Investment Income:
Interest income $ 11,665,020
Expenses:
Investment Adviser fees (note B) $ 390,509
Administrator fees (note B) 390,509
Distribution fees (note B) 292,853
Transfer and shareholder servicing
agent fees 140,000
Shareholders meeting, reports, and
proxy statements 45,000
Legal fees 42,000
Trustees fees and expenses 39,500
Custodian fees (note F) 21,400
Registration fees and dues 18,000
Audit and accounting fees 14,500
Insurance 4,500
Miscellaneous 34,654
1,433,425
Expenses paid indirectly (note F) (21,400)
Net expenses 1,412,025
Net investment income 10,252,995
Realized and unrealized gain on investments:
Net realized gain from securities
transactions 2,248,847
Change in unrealized appreciation
on investments 10,482,841
Net realized and unrealized gain
on investments 12,731,688
Net increase in net assets
resulting from operations $ 22,984,683
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
Six Months Year Ended
Ended December June 30,
31, 1995 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 10,252,995 $ 20,536,651
Net realized gain (loss) from
securities transactions 2,248,847 (4,413,317)
Change in unrealized
appreciation on investments 10,482,841 12,083,287
Net increase in net assets
resulting from operations 22,984,683 28,206,621
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ($0.28
and $0.56 per share, respectively) (10,252,995) (20,536,651)
Net realized gain on investments - -
Total distributions (10,252,995) (20,536,651)
Net increase from investment
activities 12,731,688 7,669,970
<CAPTION>
TRUST SHARE TRANSACTIONS:
SHARES
Six Months
Ended Year Ended
December June 30,
31, 1995 1995
<S> <C> <C> <C> <C>
Shares sold 1,629,912 3,948,576 17,125,247 39,810,048
Shares issued through
reinvestment of
dividends 503,156 1,059,761 5,288,240 10,742,087
Shares redeemed (1,973,850) (4,922,268) (20,754,509) (49,569,895)
Increase in shares and
net assets derived
from Trust share
transactions 159,218 86,069 1,658,978 982,240
Total increase in net
assets 14,390,666 8,652,210
NET ASSETS:
Beginning of period 380,745,418 372,093,208
End of period $ 395,136,084 $ 380,745,418
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
TAX-FREE TRUST OF ARIZONA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Tax-Free Trust of Arizona (the "Trust"), a non-diversified, open-end
investment company, was organized on October 17, 1985, as a Massachusetts
business trust and is authorized to issue an unlimited number of shares. The
Trust commenced operations on March 13, 1986.
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
(1) Portfolio valuation:d Municipal securities which have remaining
maturities of more than 60 days are valued 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 at the mean of bid and asked
quotations and, in the case of other securities, at fair value
determined under procedures established by and under the general
supervision of the Board of Trustees. Securities which mature in 60
days or less are valued at amortized cost if their term to maturity
at purchase was 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 exceeded 60 days.
(2) 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 premiums and accretion of
discounts of securities purchased at other than par with less than
60 days to maturity.
(3) Federal income taxes: It is the policy of the Trust to qualify as a
regulated investment company by complying with the provisions of the
Internal Revenue Code applicable to certain investment companies. The
Trust intends to make distributions of income and securities profits
sufficient to relieve it from all, or substantially all, Federal
income and excise taxes.
NOTE B - MANAGEMENT ARRANGEMENTS AND FEES AND OTHER TRANSACTIONS WITH
AFFILIATES:
Management affairs of the Trust are conducted through two separate
management arrangements.
Bank One, Arizona, NA (the "Adviser"), formerly known as The Valley
National Bank of Arizona, became Investment Adviser to the Trust in March,
1986. In this role, under an Investment Advisory Agreement, the Adviser
supervises the Trusts investments and provides various services to the Trust,
including maintenance of the Trust' accounting books and records, for which
it 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 0.20 of 1% of the net
assets of the Trust.
The Trust also has an Administration Agreement with Aquila Management
Corporation (the "Administrator"), the Trust's founder and sponsor. Under
this Agreement, the Administrator provides all administrative services,
other than those relating to the management of the Trust's investments. This
includes providing the office of the Trust and all related services as well
as overseeing the activities
19
<PAGE>
TAX-FREE TRUST OF ARIZONA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
of all the various support organizations to the Trust such as the shareholder
servicing agent, custodian, legal counsel, auditors and distributor. For its
services, the Administrator 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 0.20 of 1% of the net assets of the Trust.
Specific details as to the nature and extent of the services provided by
the Adviser and the Administrator are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
The Adviser and the Administrator each agrees that the above fees shall
be reduced, but not below zero, by an amount equal to one-half of the amount,
if any, by which the total expenses of the Trust in any fiscal year,
exclusive of taxes, interest and brokerage fees, shall exceed the lesser of
(i) 2.5% of the first $30 million of average annual net assets of the Trust
plus 2% of the next $70 million of such assets and 1.5% of its average annual
net assets in excess of $100 million, or (ii) 25% of the Trusts total annual
investment income. The payment of the above fees at the end of any month will
be reduced or postponed so that at no time will there be any accrued but
unpaid liability under this expense limitation. No such reduction in fees was
required during the six months ended December 31, 1995.
For the six months ended December 31, 1995, the Trust incurred fees under
the Advisory Agreement and Administration Agreement of $390,509 and $390,509,
respectively.
Under a Distribution Agreement, Aquila Distributors, Inc. (the
"Distributor") serves as the exclusive distributor of the Trust's shares.
Through agreements between the Distributor and various broker-dealer firms
("dealers"), the Trusts shares are sold primarily through the facilities of
these dealers having offices within Arizona, with the bulk of sales
commissions inuring to such dealers. However, for the six months ended
December 31, 1995, the Distributor received sales commissions in the amount
of $44,386.
Effective October 18, 1993, the Trust adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act
of 1940. The Plan authorizes the Trust to make service fee payments at the
annual rate of 0.15% of the average net assets of the Trust to broker-dealers
or others selected by the Distributor, including, but not limited to, any
principal underwriter of the Trust, 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 Trust's shares or
servicing of shareholder accounts. During the six months ended December 31,
1995, service fees amounted to $292,853, of which the Distributor received
$8,607. Specific details about the Plan are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
NOTE C - PURCHASES AND SALES OF SECURITIES:
During the six months ended December 31, 1995, purchases of securities
and proceeds from the sales of securities aggregated $50,802,879 and
$48,051,028, respectively.
At December 31, 1995, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $23,833,817 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to $27,813
for a net unrealized appreciation of $23,806,004.
20
<PAGE>
TAX-FREE TRUST OF ARIZONA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
At December 31, 1995, for Federal income tax purposes, the Trust had a
net capital loss of $2,844,561 which will be carried forward to offset future
realized capital gains through 2002. To the extent that this loss is used to
offset future realized capital gains, it is probable the gains so offset will
not be distributed.
NOTE D - PORTFOLIO ORIENTATION:
Since the Trust invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Arizona, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Arizona and whatever
effects these may have upon Arizona issuers ability to meet their
obligations.
NOTE E - DISTRIBUTIONS:
The Trust declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share or in
cash, at the shareholders option. Net realized capital gains, if any, are
distributed annually.
The Trust 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 Arizona
income taxes. However, due to differences between financial reporting and
Federal income tax reporting requirements, distributions made by the Trust
may not be the same as the Trust's net investment income, and/or net realized
securities gains. Further, a small portion of the dividends may, under some
circumstances, be subject to ordinary income taxes. For certain shareholders,
some dividend income may be subject to the alternative minimum tax. Also,
annual capital gains distributions, if any, are taxable.
NOTE F - CUSTODIAN FEES:
The Trust has negotiated an expense offset arrangement with its
custodian, Bank One Trust Company, N.A., an affiliate of the Adviser, wherein
it receives credit toward the reduction of custodian fees whenever there are
uninvested cash balances. During the six months ended December 31, 1995, the
Trusts custodian fees amounted to $21,400, all of which were offset by such
credits. The Trust could have invested its cash balances in an
income-producing asset if it had not agreed to a reduction in fees under the
expense offset arrangement with the custodian.
21
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE TRUST OF ARIZONA
FINANCIAL HIGHLIGHTS
(UNAUDITED)
For a share outstanding thoughout each period
Six Months Year ended June 30,
ended
December
31, 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.37 $10.16 $10.84 $10.36 $9.92 $9.77
Income from Investment
Operations:
Net investment income 0.28 0.56 0.57 0.62 0.66 0.66
Net gain (loss) on
securities (both
realized and
unrealized) 0.35 0.21 (0.60) 0.54 0.43 0.15
Total from Investment
Operations 0.63 0.77 (0.03) 1.16 1.09 0.81
Less Distributions:
Dividends from net
investment income (0.28) (0.56) (0.57) (0.62) (0.65) (0.66)
Distributions from
capital gains - - (0.08) (0.06) - -
Total Distributions (0.28) (0.56) (0.65) (0.68) (0.65) (0.66)
Net Asset Value,
End of Period $10.72 $10.37 $10.16 $10.84 $10.36 $9.92
Total Return (not
reflecting sales load) 6.14%# 7.89% (0.38)% 11.45% 11.36% 8.57%
Ratios/Supplemental
Data
Net Assets, End of
Period (in thousands) $395,136 $380,745 $372,093 $349,920 $237,433 $175,342
Ratio of Expenses to
Average Net Assets 0.72%* 0.74% 0.70% 0.65% 0.57% 0.58%
Ratio of Net Investment
Income to Average
Net Assets 5.25%* 5.55% 5.36% 5.76% 6.37% 6.68%
Portfolio Turnover Rate 12.40%# 34.44% 31.20% 18.78% 23.53% 26.83%
Net investment income per share and the ratios of income and expenses to
average net assets without the Advisers and Administrators voluntary waiver
of fees and the expense offset in custodian fees for uninvested cash balances
would have been:
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income $0.28 $0.56 $0.57 $0.61 $0.65 $0.65
Ratio of Expenses to
Average Net Assets 0.73%* 0.74% 0.71% 0.73% 0.70% 0.74%
Ratio of Net Investment
Income to Average
Net Assets 5.24%* 5.55% 5.35% 5.67% 6.24% 6.52%
<FN>
# Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
REPORT ON THE ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
The Annual Meeting of Shareholders of the Trust was held on September
22, 1995 and an adjourned session of the meeting was held on October 20,
1995. At the meeting, the following matters were submitted to a shareholder
vote* and approved:
(i) the election of Lacy B. Herrmann, Philip E. Albrecht, Arthur K.
Carlson, Thomas W. Courtney, William L. Ensign, Diana P. Herrmann,
John C. Lucking, Anne J. Mills, and William T. Quinsler as Trustees
to hold office until the next annual meeting of the Trusts shareholders
or until his or her successor is duly elected (each Trustee received at
least 20,582,818 affirmative votes (97.3%); no more than 580,977 votes
(2.7%) were withheld for any Trustee),
(ii) the ratification of the selection of KPMG Peat Marwick LLP as the
Trust's independent auditors for the fiscal year ending June 30, 1996
(votes for: 20,322,664 (96.0%); votes against: 92,261 (0.4%);
abstentions: 739,960 (3.5%)),
(iii) the approval of an amendment to the Trust's Declaration of Trust to
authorize the creation of additional classes of shares (votes for:
19,108,140 (79.6%); votes against: 1,687,827 (7.0%); abstentions:
1,937,034 (8.1%); broker non-votes 1,257,956 (5.2%)), and
(iv) the approval of an amendment to the Trust's Declaration of Trust to
authorize voting by net asset value of shares (votes for: 19,255,371
(80.3%); votes against: 1,716,678 (7.2%); abstentions: 1,760,952
(7.3%); broker non-votes: 1,257,956 (5.2%)).
___________
* On the record date for this meeting, 36,741,186 shares of the Trust were
outstanding and entitled to vote. The holders of 21,163,795 shares (57.6%)
entitled to vote were present in person or by proxy at the initial session of
the meeting and the holders of 23,990,957 shares (65.3%) entitled to vote
were present in person or by proxy at the adjourned session of the meeting.
INVESTMENT ADVISER
BANK ONE, ARIZONA, NA
Bank One Center
241 North Central Avenue
Phoenix, Arizona 85004
ADMINISTRATOR AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Arthur K. Carlson
Thomas W. Courtney
William L. Ensign
Diana P. Herrmann
John C. Lucking
Anne J. Mills
William T. Quinsler
OFFICERS
Lacy B. Herrmann, President
William C. Wallace, Senior Vice President
Susan A. Cook, Vice President
Kristian P. Kjolberg, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, 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
ADMINISTRATIVE DATA
MANAGEMENT CORP.
581 Main Street
Woodbridge, New Jersey 07095-1198
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
SEMI-ANNUAL
REPORT
DECEMBER 31, 1995
A tax-free income investment
(picture of eagle)
Tax-Free Trust of Arizona
(picture of eagle)
One of the
AQUILAsm Group of Funds
