<PAGE>
MANAGER AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
BANC ONE INVESTMENT ADVISORS CORPORATION
Bank One Center
241 North Central Avenue
Phoenix, Arizona 85004
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Arthur K. Carlson
Thomas W. Courtney
William L. Ensign
Diana P. Herrmann
John C. Lucking
Anne J. Mills
OFFICERS
Diana P. Herrmann, President
Susan A. Cook, Senior Vice President
Kimball L. Young, Senior Vice President
Alan R. Stockman, 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
PFPC INC.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
INDEPENDENT AUDITORS
KPMG LLP
757 Third Avenue
New York, New York 10017
Further information is contained in the Prospectus,
which must precede or accompany this report.
ANNUAL
REPORT
JUNE 30, 2000
A TAX-FREE INCOME INVESTMENT
[Logo of Tax-Free Trust of Arizona: eagle sitting on top of flag above the words
"TAX-FREE TRUST OF ARIZONA"]
[Logo of the Aquila Group of Funds: an eagle's head]
ONE OF THE
AQUILASM GROUP OF FUNDS
</PAGE>
<PAGE>
[Logo of Tax-Free Trust of Arizona: eagle sitting on top of flag above the words
"TAX-FREE TRUST OF ARIZONA"]
SERVING ARIZONA INVESTORS FOR OVER A DECADE
TAX-FREE TRUST OF ARIZONA
ANNUAL REPORT
"CONSISTENCY"
August 18, 2000
Dear Fellow Shareholder:
If there is one word that captures the essence of Tax-Free Trust of
Arizona, that word is "CONSISTENCY."
The Trust has constantly attempted to provide:
* CONSISTENCY of share value,
* CONSISTENCY in the TAX-FREE return produced by the Trust
* CONSISTENCY of quality of investments and
* CONSISTENCY in the type of investments for the Trust.
CONSISTENCY OF SHARE VALUE
As you are aware, management of the Trust cannot control interest rates or
their effect upon the market. Interest rates are primarily controlled by the
Federal Reserve Board. The Fed increases or decreases rates as they feel is
necessary in order to maintain the stability and growth potential of the economy
of the United States.
When the Federal Reserve feels that growth in the economy is increasing at
too rapid a pace, they tend to increase interest rates and reduce the supply of
money in order to slow down the rate of growth. (This is what has happened
during the past year or so.) On the other hand, when the Federal Reserve feels
that the economy needs stimulation, there is a tendency to decrease interest
rates and increase the supply of money in order to provide an additional impetus
to the overall economy.
Interest rate changes have the effect in the marketplace of creating
changes in the share value of fixed-income securities such as the Trust. As we
have previously indicated, when interest rates go up, the share value goes down.
And, when interest rates go down, the share value goes up. What we have done is
to use various investment management techniques to dampen the swings that can
occur in the share value of the Trust.
Despite the variations in share price that have taken place since the
inception of the Trust, management of the Trust has strived to provide, to the
maximum extent possible, CONSISTENCY in the value of the Trust's shares. This
you will note from the chart below.
[Graphic of a bar chart with the following information:]
SHARE NET ASSET VALUE
12/31/86 $10.07
12/31/87 9.41
12/31/88 9.60
12/31/89 9.88
12/31/90 9.79
12/31/91 10.24
12/31/92 10.49
12/31/93 10.95
12/31/94 9.81
12/31/95 10.72
12/31/96 10.54
12/31/97 10.86
12/31/98 10.85
12/31/99 10.09
6/30/2000 10.17
</PAGE>
<PAGE>
Since the majority of investors using the Trust are pre-retirees or
retirees, this action by the Trust of maintaining a stable share value is what
we feel is in the best interest of all shareholders. We want you to know that
when you need money from your investment in the Trust, it is THERE - at
approximately the same value that it has been all along.
CONSISTENCY IN THE TAX-FREE RETURN PRODUCED BY THE TRUST
When you look at the Trust in terms of income produced on a year-by-year
basis, you will observe that we have tried to provide the maximum level of
yearly TAX-FREE return as can be produced by a quality-oriented portfolio of
municipal securities.
As you are aware, this level of return will vary from year to year as
interest rate changes by the Federal Reserve affect the overall marketplace.
Nevertheless, there is a CONSISTENCY to the level of return that the Trust would
like to provide for you and other shareholders.
Although the income level received by shareholders will vary from year to
year, it does have a CONSISTENCY to it. And, this is why shareholders buy and
own the Trust - for that CONSISTENCY of TAX-FREE income.
During recent years, the level of SPENDABLE TAX-FREE return provided to
shareholders has ranged between 4.46% to 5.04% based upon an average share value
of the Trust.
Shareholders of Tax-Free Trust of Arizona should not buy or sell the Trust
based upon capital appreciation, such as they would with an equity or stock
fund.
An analogy for a shareholder of Tax-Free Trust of Arizona would be a person
buying a dairy cow for the steady stream of milk it supplies, not for what it
might be worth when he/she sells it.
What the Trust is providing is a relatively steady stream of TAX-FREE
income and a relatively stable share value.
Shareholders buy and hold their position in Tax-Free Trust of Arizona for
the longer term, not for a quick in and out. Therefore, shareholders do NOT and
should NOT look upon the Trust for its total return - but, rather for the income
stream it provides in the form of TAX-FREE dividends.
Also, when you look at the recent level of TAX-FREE income provided by the
Trust and measure that against the taxable income required to provide the same
amount of money in your pocket, here's what things look like.
[Graphic of a bar chart with the following information:]
TAX-FREE TRUST OF ARIZONA'S DOUBLE TAX-FREE DISTRIBUTION
RATE AS COMPARED TO THE TAXABLE EQUIVALENT RATE AN
INVESTOR WOULD HAVE TO EARN AT VARIOUS TAX BRACKETS
TAX BRACKET DOUBLE TAX-FREE DISTRIBUTION RATE TAXABLE EQUIVALENT RATE
28% 4.83% 7.04%
31% 4.83% 7.45%
36% 4.83% 8.08%
40% 4.83% 8.59%
</PAGE>
<PAGE>
CONSISTENCY OF QUALITY OF INVESTMENTS
Since inception of the Trust, management has CONSISTENTLY sought
high-quality investments for its shareholders.
We don't like surprises. Nor, do shareholders like surprises. We believe
the best way to avoid surprises is to stick with quality.
The pie chart below gives you a breakdown of the quality of the individual
securities of the Trust as at the Annual Report date of June 30, 2000.
[Graphic of a pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY QUALITY
AAA 56.4%
AA 26.6%
A 11.7%
Below A and not rated 5.3%
As you will recall, the Trust's prospectus restricts its investments to
only the top four quality securities - AAA, AA, A, Baa - although there are nine
different grades of quality associated with municipal bond investing ranging
from the highest to the lowest. We have always tried to make sure that
shareholders know that, to the maximum extent possible, their invested money
will be there when they need it. The best way we know to accomplish this
objective is by sticking with quality.
This is why we CONSISTENTLY seek to maintain most of the Trust's money in
the upper quality securities - AAA AND AA. As you will appreciate, the exact
level of quality will vary from time to time based upon availability of
securities in the marketplace to achieve the Trust's objective.
CONSISTENCY IN THE TYPE OF INVESTMENTS FOR THE TRUST
Management of Tax-Free Trust of Arizona has CONSISTENTLY embraced the idea
that your investment should not only help shareholders financially, but also
help your state and its communities. Thus, investments in the Trust are as
diversified as possible. Diversification geographically and by type of project
is another way of ensuring that your money is doing the best job possible for
not only you, but also for your community and state.
[Graphic of a pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY MARKET SECTOR
City and County 7.7%
School Districts 19.2%
Other 1.6%
Basic Services 15.5%
Healthcare 7.8%
Mortgages 8.4%
Pollution Control 7.0%
Universities 10.9%
Utilities 12.6%
Leases 6.9%
Airports 2.4%
SUMMARY
As we have tried to illustrate in this report to you, the essence of
Tax-Free Trust of Arizona is CONSISTENCY. This is what we feel that shareholders
are primarily interested in. And, this is exactly what we are trying to provide
to you and other shareholders.
CONSISTENCY OF APPRECIATION
As always, we again wish to express our appreciation for the confidence you
have shown by your investment in Tax-Free Trust of Arizona. We can assure you
that we will CONSISTENTLY do our best to merit your continued level of trust.
Sincerely,
/s/ Diana P. Herrmann
----------------------
Diana P. Herrmann
President
/s/ Lacy B. Herrmann
---------------------
Lacy B. Herrmann
Chairman, Board of Trustees
</PAGE>
<PAGE>
PERFORMANCE REPORT
The following graph illustrates the value of $10,000 invested in
the Class A shares of Tax-Free Trust of Arizona for the 10-year period ended
June 30, 2000 as compared with the Lehman Brothers Quality Intermediate
Municipal Bond Index and the Consumer Price Index (a cost of living index).
The performance of each of the other classes is not shown in the graph but is
included in the table below. It should be noted that the Lehman Index does
not include any operating expenses nor sales charges and being nationally
oriented, does not reflect state specific bond market performance.
[Graphic of a line chart with the following information:]
<TABLE>
<CAPTION>
LEHMAN BROTHERS QUALITY INTERMEDIATE TRUST'S CLASS A SHARES
MUNICIPAL BOND INDEX TRUST WITH SALES CHARGE TRUST WITHOUT SALES CHARGE COST OF LIVING INDEX
</CAPTION>
<S> <C> <C> <C> <C>
6/90 $10,000 $ 9,600 $10,000 $10,000
6/91 10,882 10,378 10,814 10,470
6/92 12,002 11,571 12,056 10,793
6/93 13,156 12,901 13,443 11,116
6/94 13,328 12,945 13,488 11,393
6/95 14,393 14,036 14,625 11,740
6/96 15,193 14,553 15,163 12,063
6/97 16,232 15,757 16,418 12,340
6/98 17,529 16,967 17,679 12,548
6/99 18,060 17,296 18,022 12,794
6/00 18,789 17,723 18,466 13,264
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED JUNE 30, 2000
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
Class A (3/13/86)
With Sales Charge (1.92)% 4.13% 5.89% 6.46%
Without Sales Charge 2.19 4.98 6.33 6.76
Class C (4/1/96)
With CDSC 0.31 n/a n/a 3.97
Without CDSC 1.33 n/a n/a 3.97
Class Y (4/1/96)
No Sales Charge 2.45 n/a n/a 5.48
Lehman Index 4.00 5.47 6.51 6.46* (Class A)
4.00 n/a n/a 5.23 (Class C&Y)
* From commencement of the index on 1/1/87.
Total return figures shown for the Trust reflect any change in price and assume
all distributions within the period were invested in additional shares. Returns
for Class A shares are calculated with and without the effect of the initial 4%
maximum sales charge. Returns for Class C shares are calculated with and without
the effect of the 1% contingent deferred sales charge (CDSC), imposed on
redemptions made within the first 12 months after purchase. Class Y shares are
sold without any sales charge. The rates of return will vary and the principal
value of an investment will fluctuate with market conditions. Shares, if
redeemed, may be worth more or less than their original cost. A portion of each
classes' income may be subject to federal and state income taxes and/or the
federal alternative minimum tax. Past performance is not predictive of future
investment results.
</PAGE>
<PAGE>
MANAGEMENT DISCUSSION
THIS PAST FISCAL YEAR
During the past fiscal year ended June 30, 2000, the fixed income market
continued to be influenced by our ever expanding economy. For the twelve months,
the U.S. economy grew at an unprecedented 5.50% pace and continued its longest
post war expansionary period. With unemployment hitting thirty-year lows,
inflation worries led the Federal Reserve to a string of interest rate
increases. During the year the Fed Funds rate was increased six times from 4.75%
to 6.50%. The result was higher interest rates and lower values for most fixed
income securities. The yield on the five-year Treasury note increased from 5.70%
to 6.20%. Likewise, ten-year Treasury notes increased from 5.85% to 6.05%. The
noteable exception was the yield on the "bell-weather" thirty-year Treasury bond
which dropped from 6.10% to 5.90%. The thirty-year benefited from the government
surplus and the buyback program of long-term debt. Municipal bonds did not
escape the trend of higher interest rates. Ten year insured municipal yields
increased from 5.0% to 5.15% and thirty-year municipal yields increased from
5.50% to 5.85%.
As such, the net asset value of the A shares of the Trust declined from
$10.51 to $10.17 or 3.2%. Income per share was $0.513 and capital gains paid in
December, 1999, equaled $0.042 per share for a positive total return during the
twelve months of 2.19%. The range of the A shares net asset value was a high of
$10.57 on July 16, 1999, and a low of $9.96 on May 18, 2000.
Throughout the year we maintained our emphasis on quality issues. 83% of
the Trust is in AAA insured or AA rated bonds. Likewise, sector distributions
did not change dramatically with 30% of the portfolio invested in general
obligation bonds and 70% in revenue specific bonds. Moreover, the Trust limited
its participation in the volatile health care sector by emphasizing hospital
credits with the added credit protection of insurance. Furthermore, the
portfolio maintained an intermediate term duration structure throughout the year
of 6.0 to 6.5 years. Duration represents an estimate of the percentage change in
the price of a security for a 1% change in yields. Short duration securities are
less sensitive to changes in yields than long duration issues. Thus, the
intermediate term duration structure helped limit our volatility to higher
interest rates during the year.
The Trust did not escape the national trend of sizeable withdrawals from
bond funds during the past year as investors continued to favor stocks and stock
funds. Also, a relatively flat municipal yield curve improved the attractiveness
of individual bonds. As such, trading activity during the year concentrated
first on maintaining cash reserves to meet liquidity needs and second on
improving the portfolios income return and call protection.
THE YEAR AHEAD
We anticipate the year ahead to bring new challenges. First, we believe
investor's fascination with stocks will begin to cool and that the income flows
of bonds funds will once again become attractive. This increased demand for
fixed income securities will be met by a declining supply of government debt and
a declining issuance of municipal debt. Year over year issuance of municipal
debt was down 22% as of June 30, 2000. Arizona issuance declined 11%. In
addition, we in Arizona will vote this November on initiatives ranging from
school funding to controlling growth to the need of a state income tax. All of
these issues will influence the issuance of debt within the state.
On the overall market, we expect the six Fed Fund increases to start
slowing the national economy which should lead to slightly lower interest rates.
However, we are still suspect of inflationary pressures from labor shortages,
gasoline prices and price increases to maintain corporate earnings growth. Thus,
we believe the year ahead will see interest rates stay within recent ranges. Our
task then becomes to take advantage of higher yields when presented to improve
income without jeopardizing the Trust's ability to increase the net asset value
should interest rates decline. With the decline in Arizona issuance,
accomplishing our task will be an exciting achievement.
</PAGE>
<PAGE>
[Logo of KPMG LLP:four solid rectangles with the letters KPMG in front of them]
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Tax-Free Trust of Arizona:
We have audited the accompanying statement of assets and liabilities of
Tax-Free Trust of Arizona, including the statement of investments, as of June
30, 2000, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of June 30, 2000, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Tax-Free Trust of Arizona as of June 30, 2000, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
--------------
New York, New York
August 4, 2000
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT ARIZONA GENERAL OBLIGATION BONDS (28.4%) S&P VALUE
</CAPTION>
<S> <C> <C> <C> <C> <C>
Apache Co. Unified School District No. 1 (St. John's),
$ 500,000 4.800%, 7-1-04 Baa3/NR $ 491,875
Bullhead City Parkway Improvement District,
1,055,000 6.100%, 1-1-11 Baa2/NR 1,080,056
1,000,000 6.100%, 1-1-12 Baa2/NR 1,018,750
Chandler, Arizona,
95,000 7.000%, 7-1-12, (pre-refunded) Aaa/AAA 98,333
355,000 7.000%, 7-1-12, FGIC Insured Aaa/AAA 365,785
1,500,000 5.125%, 7-1-14, MBIA Insured Aaa/AAA 1,466,250
Cochise Co. Unified School District No. 68
(Sierra Vista),
1,000,000 6.000%, 7-1-06, FGIC Insured Aaa/AAA 1,030,000
1,000,000 6.100%, 7-1-08, FGIC Insured Aaa/AAA 1,031,250
925,000 5.750%, 7-1-09, FGIC Insured Aaa/AAA 952,750
Coconino Co. Unified School District No. 1 (Flagstaff),
1,615,000 5.125%, 7-1-08, FSA Insured Aaa/AAA 1,635,188
2,000,000 5.500%, 7-1-09, AMBAC Insured Aaa/AAA 2,052,500
Coconino & Yavapai Unified School District (Sedona),
1,000,000 5.900%, 7/1/07 NR/A- 1,037,500
1,000,000 5.700%, 7-1-07, FGIC Insured Aaa/AAA 1,023,750
Flagstaff, Arizona,
500,000 6.300%, 7-1-06, FGIC Insured Aaa/AAA 508,900
Gila Co. Unified School District No. 10 (Payson),
500,000 5.750%, 7-1-09, AMBAC Insured Aaa/AAA 518,125
Graham Co. Unified School District No. 1 (Safford),
300,000 5.000%, 7-1-10, FGIC Insured Aaa/NR 299,625
675,000 4.700%, 7-1-11, MBIA Insured Aaa/NR 642,094
Graham Co. Unified School District No. 4 (Thatcher),
400,000 5.000%, 7-1-10, FSA Insured Aaa/NR 399,500
LaPaz Co. Unified School District No. 27 (Parker),
800,000 6.000%, 7-1-05 Baa2/NR 823,000
Maricopa Co. Elementary School District No. 1
(Phoenix),
250,000 5.800%, 7-1-10, FSA Insured Aaa/AAA 260,000
Maricopa Co. Elementary School District No. 3
(Tempe),
1,000,000 5.400%, 7-1-12, FGIC Insured Aaa/AAA 1,011,250
540,000 6.000%, 7-1-13, AMBAC Insured (pre-refunded) Aaa/AAA 573,750
1,140,000 6.000%, 7-1-13, AMBAC Insured Aaa/AAA 1,181,325
</PAGE>
<PAGE>
1,025,000 5.500%, 7-1-14, FGIC Insured Aaa/AAA 1,036,531
Maricopa Co. Unified School District No. 4 (Mesa),
$ 775,000 5.500%, 7-1-06, FGIC Insured Aaa/AAA $ 792,437
2,150,000 5.400%, 7-1-09, FSA Insured Aaa/AAA 2,209,125
Maricopa Co. School District No. 8 (Osborn),
1,945,000 6.100%, 7-1-05 A1/A 2,049,544
Maricopa Co. Unified School District No. 9
(Wickenburg),
1,030,000 5.600%, 7-1-15, AMBAC Insured Aaa/AAA 1,039,012
Maricopa Co. Unified School District No. 11 (Peoria),
500,000 9.250%, 7-1-01, FGIC Insured Aaa/AAA 523,395
2,000,000 6.100%, 7-1-10, AMBAC Insured Aaa/AAA 2,092,500
2,845,000 5.250%, 7-1-13, FGIC Insured Aaa/AAA 2,837,887
500,000 5.500%, 7-1-15, FGIC Insured Aaa/AAA 502,500
Maricopa Co. Elementary School District No. 28
(Kyrene),
1,875,000 6.000%, 7-1-14, FGIC Insured Aaa/AAA 1,917,187
Maricopa Elementary School District No. 38
(Madison),
1,150,000 5.400%, 7-1-11, FGIC Insured Aaa/AAA 1,171,562
2,000,000 5.800%, 7-1-15, MBIA Insured Aaa/AAA 2,045,000
Maricopa Co. Unified School District No. 41 (Gilbert),
2,500,000 6.250%, 7-1-15, FSA Insured Aaa/AAA 2,631,250
Maricopa Co. Unified School District No. 48
(Scottsdale),
750,000 6.750%, 7-1-09, (pre-refunded) Aa2/AA 774,150
1,000,000 5.000%, 7-1-14 Aa2/AA 960,000
2,000,000 5.125%, 7-1-14 Aa2/AA 1,945,000
Maricopa Co. Elementary School District No. 68
(Alhambra),
1,335,000 6.800%, 7-1-10, AMBAC Insured Aaa/AAA 1,429,665
Maricopa Co. Unified School District No. 69
(Paradise Valley),
3,150,000 7.000%, 7-1-07 A1/A+ 3,429,563
2,400,000 5.800%, 7-1-09, AMBAC Insured Aaa/AAA 2,541,000
1,000,000 5.300%, 7-1-11, MBIA Insured Aaa/AAA 1,018,750
Maricopa Co. Unified School District No. 80
(Chandler),
465,000 5.800%, 7-1-09, FGIC Insured (pre-refunded) Aaa/AAA 489,994
Maricopa Co. Unified School District No. 98
(Fountain Hills)
</PAGE>
<PAGE>
$ 1,000,000 5.750%, 7-1-12, AMBAC Insured Aaa/AAA $ 1,033,750
Maricopa Co. High School District No. 205
(Glendale Union),
1,000,000 5.500%, 7-1-11, FGIC Insured Aaa/AAA 1,025,000
5,000,000 5.700%, 7-1-14, FGIC Insured (pre-refunded) Aaa/AAA 5,250,000
Maricopa Co. High School District No. 210
(Phoenix Union),
1,000,000 5.375%, 7-1-13, (pre-refunded) Aa3/AA 1,036,250
2,000,000 5.700%, 7-1-15, (pre-refunded) Aa3/AA 2,100,000
2,000,000 5.500%, 7-1-17, (pre-refunded) Aa3/AA 2,085,000
500,000 4.750%, 7-1-17, Aa3/AA 445,625
Maricopa Co. High School District No. 213 (Tempe),
580,000 6.000%, 7-1-12, FGIC Insured, (pre-refunded) Aaa/AAA 611,900
295,000 6.000%, 7-1-12, FGIC Insured Aaa/AAA 306,431
Mohave Co. Unified School District No. 1
(Lake Havasu),
1,000,000 4.900%, 7-1-13, FGIC Insured Aaa/AAA 952,500
Navajo Co. Unified School District No. 10
(Show Low),
1,000,000 5.250%, 7-1-16, FGIC Insured Aaa/NR 971,250
Navajo Co. Unified School District No. 32
(Blue Ridge),
985,000 5.900%, 7-1-08,FSA Insured Aaa/AAA 1,033,019
640,000 5.800%, 7-1-14, FGIC Insured Aaa/AAA 656,800
Peoria, Arizona,
850,000 5.500%, 4-1-16, FGIC Insured Aaa/NR 847,875
Phoenix, Arizona,
1,040,000 7.500%, 7-1-03 Aaa/AAA 1,120,600
1,000,000 6.250%, 7/1-16 Aa1/AA+ 1,087,500
1,240,000 6.250%, 7-1-17 Aa1/AA+ 1,345,400
3,000,000 5.000%, 7-1-19 Aa1/AA+ 2,741,250
Pima Co. Unified School District No. 8 (Flowing Wells),
1,090,000 5.900%, 7-1-13, (pre-refunded) A3/NR 1,156,763
Pima Co. Unified School District No. 12 (Sunnyside),
1,250,000 5.500%, 7-1-10, MBIA Insured Aaa/AAA 1,281,250
Pinal Co. Unified School District No. 43
(Apache Junction),
</PAGE>
<PAGE>
$ 1,500,000 5.850%, 7-1-15, FGIC Insured Aaa/AAA $ 1,539,375
Pinewood Sanitary District,
605,000 6.500%, 7-1-09 NR/NR* 626,175
Prescott, Arizona
1,120,000 4.500%, 7-1-12, FGIC Insured Aaa/AAA 1,029,000
Prescott Valley Sewer Collection Improvement District,
500,000 7.900%, 1-1-12 NR/BBB- 541,250
Santa Cruz Co. Unified School District No. 1 (Nogales),
400,000 7.700%, 7-1-03, (pre-refunded) Aaa/AAA 416,708
1,000,000 5.800%, 7-1-13, FSA Insured Aaa/AAA 1,010,000
Scottsdale, Arizona,
850,000 6.000%, 7-1-14, (pre-refunded) Aa1/AA+ 879,750
2,350,000 6.000%, 7-1-13 Aa1/AA+ 2,467,500
1,050,000 5.750%, 7-1-18 Aa1/AA+ 1,063,125
2,825,000 5.500%, 7-1-22+ Aa1/AA+ 2,740,250
Tempe, Arizona,
1,015,000 5.400%, 7-1-11 Aa1/AA+ 1,040,375
2,270,000 4.500%, 7-1-14 Aa1/AA+ 2,014,625
Tucson, Arizona,
500,000 5.750%, 7-1-09, FGIC Insured Aaa/AAA 520,625
2,195,000 6.100%, 7-1-12, FGIC Insured Aaa/AAA 2,269,081
2,150,000 5.750%, 7-1-20, (pre-refunded) Aa3/AA 2,257,500
Yavapai Co. Unified School District No. 28
(Camp Verde),
500,000 6.000%, 7-1-08, FGIC Insured Aaa/AAA 526,875
Yuma, Arizona,
2,000,000 6.125%, 7-1-12, AMBAC Insured (pre-refunded) Aaa/AAA 2,097,500
Total Arizona General Obligation Bonds 103,065,485
ARIZONA REVENUE BONDS (68.1%)
AIRPORT REVENUE BONDS (2.5%)
Phoenix Municipal Airport Authority,
1,795,000 6.300%, 7-1-10, AMT, MBIA Insured Aaa/AAA 1,900,456
565,000 6.400%, 7-1-12, AMT, MBIA Insured Aaa/AAA 596,075
Phoenix Civic Improvement Corp. Airport
Revenue Bonds,
</PAGE>
<PAGE>
$ 1,890,000 6.300%, 7-1-14 Aa2/AA+ $ 1,984,500
1,000,000 5.000%, 7-1-25, FSA Insured Aaa/AAA 887,500
Tucson Municipal Airport Authority,
3,500,000 5.700%, 6-1-13, MBIA Insured Aaa/AAA 3,561,250
Total Airport Revenue Bonds 8,929,781
BASIC SERVICE REVENUE BONDS (11.4%)
Arizona Transportation Highway Revenue Bonds,
1,000,000 6.250%, 7-1-16 Aa1/AAA 1,060,000
Arizona Transportation Board Revenue Bonds,
1,100,000 6.500%, 7-1-04, AMBAC Insured Aaa/AAA 1,168,750
Buckeye Excise Tax Revenue Bonds,
500,000 5.900%, 8-1-20, AMBAC Insured Aaa/AAA 507,500
Casa Grande Excise Tax Revenue Bonds,
365,000 6.000%, 4-1-10, FGIC Insured Aaa/AAA 376,862
440,000 5.200%, 4-1-17, MBIA Insured Aaa/NR 421,850
Chandler Street & Highway User Revenue Bonds,
1,000,000 5.400%, 7-1-13, MBIA Insured Aaa/AAA 1,007,500
1,000,000 5.500%, 7-1-16 A1/A+ 998,750
Chandler Water & Sewer Revenue Bonds,
2,015,000 6.250%, 7-1-13, FGIC Insured Aaa/AAA 2,085,525
Gilbert Water & Sewer Revenue Bonds,
2,500,000 6.500%, 7-1-12, FGIC Insured Aaa/AAA 2,646,875
Greater Arizona Development Authority
Revenue Bonds,
1,165,000 5.600%, 8-1-16, MBIA Insured Aaa/AAA 1,172,281
Lake Havasu City Excise Tax Revenue Bonds,
350,000 4.100%, 6-1-07, AMBAC Insured Aaa/AAA 326,812
Mesa Utility System Revenue Bonds,
3,000,000 5.375%, 7-1-14, FGIC Insured Aaa/AAA 3,003,750
Peoria Water & Sewer Revenue Bonds,
475,000 5.000%, 7-1-14, FGIC Insured+ Aaa/AAA 456,594
Phoenix Civic Improvement Corp. Excise Tax
Revenue Bonds (Courthouse Project),
</PAGE>
<PAGE>
$ 1,500,000 5.250%, 7-1-24 Aa2/AA+ $ 1,387,500
Phoenix Civic Improvement Corp. Water System
Revenue Bonds,
1,090,000 6.000%, 7-1-03 Aa3/AA- 1,129,512
1,500,000 5.400%, 7-1-14 Aa3/AA- 1,503,750
1,250,000 5.000%, 7-1-18 Aa3/A 1,157,813
Phoenix Street & Highway User Revenue Bonds,
2,190,000 6.250%, 7-1-06 A1/AA 2,288,550
5,000,000 6.250%, 7-1-11 A2/A+ 5,193,750
3,265,000 6.250%, 7-1-11, MBIA Insured Aaa/AAA 3,403,763
Pima County Sewer Revenue Bonds,
2,000,000 6.750%, 7-1-15, FGIC Insured Aaa/AAA 2,054,820
Prescott Valley Water District Revenue Bonds,
1,000,000 4.875%, 1-1-19, MBIA Insured Aaa/AAA 890,000
Scottsdale Preserve Authority Excise Tax
Revenue Bonds,
1,990,000 5.625%, 7-1-18, FGIC Insured Aaa/AAA 1,990,000
Sedona Sewer Revenue Bonds,
1,055,000 7.000%, 7-1-12 NR/BBB+ 1,116,981
Tucson Water System Revenue Bonds,
3,990,000 5.750%, 7-1-18 A1/A+ 4,004,963
Total Basic Service Revenue Bonds 41,354,451
HOSPITAL REVENUE BONDS (6.2%)
Arizona Health Facilities (Northern Arizona
Healthcare System),
1,000,000 5.250%, 10-1-16, AMBAC Insured Aaa/AAA 961,250
Arizona Health Facilities (Phoenix Children's),
650,000 5.200%, 11-15-07, A2/NR 628,875
Arizona Health Facilities (Samaritan Health),
2,500,000 5.625%, 12-1-15, MBIA Insured Aaa/AAA 2,553,125
Chandler Industrial Development Authority
(Ahwatukee Medical Facility),
900,000 7.000%, 7-1-22 (pre-refunded) NR/NR* 1,020,375
Maricopa Co. Industrial Development Authority
(Mercy Health Care System-St. Joseph's Hospital)
880,000 7.750%, 11-1-10 NR/AAA 996,600
Mesa Industrial Development Authority
(Lutheran Health),
</PAGE>
<PAGE>
$ 2,000,000 5.000%, 1-1-19, MBIA Insured NR/AAA $ 1,802,500
Mesa Industrial Development Authority
(Discovery Health),
1,000,000 5.750%, 1-1-29, MBIA Insured Aaa/AAA 988,750
Mohave Co. Industrial Development Authority
(Baptist Hospital),
1,150,000 5.700%, 9-1-15, MBIA Insured Aaa/AAA 1,220,438
Phoenix Industrial Development Authority (John C.
Lincoln Hospital),
1,270,000 5.500%, 12-1-13, FSA Insured Aaa/AAA 1,281,112
Pima Co. Industrial Development Authority
(Tucson Medical Center),
1,000,000 6.375%, 4-1-12, MBIA Insured Aaa/AAA 1,041,250
1,000,000 5.000%, 4-1-15, MBIA Insured Aaa/AAA 946,250
Pima Co. Industrial Development Authority
(Healthpartners),
1,000,000 5.625%, 4-1-14, MBIA Insured Aaa/AAA 1,012,500
Scottsdale Industrial Development Authority
(Scottsdale Memorial Hospital),
2,000,000 6.500%, 9-1-03, AMBAC Insured Aaa/AAA 2,100,000
530,000 6.500%, 9-1-06, AMBAC Insured Aaa/AAA 573,725
2,000,000 5.500%, 9-1-12, AMBAC Insured Aaa/AAA 2,045,000
1,770,000 6.125%, 9-1-17, AMBAC Insured Aaa/AAA 1,831,950
Yavapai Co. Industrial Development Authority
(Yavapai Regional Medical Center),
1,130,000 5.125%, 12-1-13, FSA Insured Aaa/AAA 1,103,163
Yuma Co. Industrial Development Authority (Yuma
Regional Medical Center),
500,000 5.850%, 8-1-08, MBIA Insured Aaa/AAA 523,750
Total Hospital Revenue Bonds 22,630,613
LEASE REVENUE BONDS (7.9%)
Arizona Certificates of Participation Lease
Revenue Bonds,
840,000 6.625%, 9-1-08, FSA Insured Aaa/AAA 874,650
2,000,000 6.500%, 3-1-08, FSA Insured Aaa/AAA 2,097,500
Arizona Municipal Finance Program No. 20,
</PAGE>
<PAGE>
$ 1,300,000 7.700%, 8-1-10, MBIA Insured Aaa/AAA $ 1,538,875
Arizona Municipal Finance Program No. 34,
1,000,000 7.250%, 8-1-09, MBIA Insured Aaa/AAA 1,163,750
Avondale Municipal Facilities Lease Revenue Bonds,
1,000,000 5.000%, 7-1-19, FGIC Insured Aaa/AAA 912,500
Bullhead City Municipal Property Corp.Lease
Revenue Bonds,
400,000 5.200%, 7-1-09, MBIA Insured Aaa/AAA 405,000
Cave Creek Certificates of Participation Lease
Revenue Bonds,
365,000 5.750%, 7-1-19 NR/BBB- 334,431
Lake Havasu City Certificates of Participation Lease
Revenue Bonds,
500,000 7.000%, 6-1-05, FGIC Insured Aaa/AAA 516,250
Maricopa Co. Certificates of Participation Lease
Revenue Bonds,
1,000,000 6.000%, 6-1-04 A1/BBB+ 1,028,750
Navajo Co. Municipal Property Corp. Lease
Revenue Bonds,
1,000,000 6.250%, 7-1-20, ACA Insured NR/A 1,000,000
Oro Valley Municipal Property Corp. Lease
Revenue Bonds,
1,000,000 5.200%, 7-1-10, MBIA Insured Aaa/AAA 1,013,750
1,050,000 5.550%, 7-1-17, MBIA Insured Aaa/AAA 1,046,063
1,835,000 5.375%, 7-1-26, MBIA Insured Aaa/AAA 1,729,488
Phoenix Civic Plaza Building Revenue Bonds,
1,500,000 6.000%, 7-1-14 Aa2/AA+ 1,552,500
Pinal Co. Certificates of Participation Lease
Revenue Bonds,
1,145,000 6.250%, 6-1-04 (pre-refunded) NR/AA 1,177,919
Scottsdale Municipal Property Corp Lease
Revenue Bonds,
2,200,000 6.250%, 11-1-10, FGIC Insured Aaa/AAA 2,274,250
2,620,000 6.250%, 11-1-14, FGIC Insured Aaa/AAA 2,669,125
Sierra Vista Municipal Property Corp Lease
Revenue Bonds,
</PAGE>
<PAGE>
$ 1,265,000 5.000%, 1-1-18, AMBAC Insured Aaa/AAA $ 1,163,800
Surprise Municipal Property Corp Lease
Revenue Bonds,
2,500,000 5.700%, 7-1-20, AMBAC Insured NR/AAA 2,496,875
Tucson Certificate of Participation Lease
Revenue Bonds,
1,000,000 6.375%, 7-1-09, (pre-refunded) Baa1/AA 1,060,000
Tucson Business Development Finance Corp.
1,585,000 6.250%, 7-1-12, FGIC Insured Aaa/AAA 1,662,269
University of Arizona Certificates of Participation
Lease Revenue Bonds,
1,000,000 5.650%, 9-1-09, FSA Insured Aaa/AAA 1,035,000
Total Lease Revenue Bonds 28,752,745
MORTGAGE REVENUE BONDS (6.0%)
Maricopa Co. Industrial Development Authority
Multi Family Mortgage Revenue Bonds
(Advantage Point Project),
1,000,000 6.500%, 7-1-16 NR/AAA 1,083,750
Maricopa Co. Industrial Development Authority
Multi Family Mortgage Revenue Bonds
(National Health Project),
1,300,000 5.500%, 1-1-18, FSA Insured Aaa/AAA 1,254,500
Maricopa Co. Industrial Development Authority
Multi Family Mortgage Revenue Bonds (Pines at
Camelback Project),
450,000 5.400%, 5-1-18 NR/AA 426,937
Maricopa Co. Industrial Development Authority
Single Family Mortgage Revenue,
1,420,000 6.625%, 7-1-21 Aaa/NR 1,459,050
Mohave Co. Industrial Development Authority
(Chris Ridge Village),
1,040,000 6.250%, 11-1-16 NR/AAA 1,060,800
Peoria Industrial Development Authority
(Casa Del Rio),
</PAGE>
<PAGE>
$ 2,500,000 7.300%, 2-20-28 NR/AAA $ 2,659,375
Phoenix Industrial Development Authority Single
Family Mortgage Revenue,
1,080,000 6.300%, 12-1-12, AMT NR/AAA 1,111,050
750,000 5.875%, 12-1-16, NR/AAA 754,688
2,000,000 5.300%, 4-1-20, AMT NR/AAA 1,830,000
985,000 5.350%, 6-1-20, AMT NR/AAA 914,819
Pima Co. Industrial Development Authority Single
Family Mortgage Revenue,
145,000 7.625%, 2-1-12 A2/NR 148,625
720,000 6.500%, 2-1-17 A/NR 738,900
1,140,000 6.750%, 11-1-27, AMT NR/AAA 1,174,200
1,625,000 6.250%, 11-1-29, AMT NR/AAA 1,653,437
Scottsdale Industrial Development Authority
(Westminster Village),
1,185,000 7.700%, 6-1-06 NR/NR* 1,222,031
Tempe Industrial Development Authority
(Friendship Village),
1,500,000 6.500%, 12-1-08 NR/NR* 1,440,000
Yuma Industrial Development Authority
Multi Family Mortgage Revenue Bonds
(Alexandrite Sands),
3,000,000 6.100%, 9-20-34 NR/AAA 3,018,750
Total Mortgage Revenue Bonds 21,950,912
POLLUTION CONTROL REVENUE BONDS (6.6%)
Casa Grande Industrial Development Authority
(Frito Lay) Revenue Bonds,
250,000 6.650%, 12-1-14 A1/lNR 264,062
Coconino Co. Pollution Control (Nevada Power)
Revenue Bonds,
5,500,000 5.350%, 10-1-22 NR/BBB 4,675,000
Gilbert Industrial Development Authority
Wastewater Reclamation Facility Revenue Bonds,
</PAGE>
<PAGE>
$ 600,000 10.000%, 10-1-10, (pre-refunded) NR/NR* $ 613,554
775,000 6.875%, 4-1-14, (pre-refunded) NR/NR* 779,433
225,000 6.875%, 4-1-14 NR/NR* 225,563
Greenlee Co. Pollution Control (Phelps Dodge)
Revenue Bonds,
9,500,000 5.450%, 6-1-09 A2/BBB 9,333,750
Mohave Co. Industrial Development Authority
(North Star Steel) Revenue Bonds,
4,150,000 5.500%, 12-1-20, AMT NR/A+ 3,823,187
Navajo Co. Pollution Control Revenue Bonds
(Arizona Public Service),
3,000,000 5.875%, 8-15-28, MBIA Insured Aaa/AAA 3,007,500
1,250,000 5.875%, 8-15-28, MBIA Insured Aaa/AAA 1,253,125
Total Pollution Control Revenue Bonds 23,975,174
UNIVERSITY REVENUE BONDS (11.0%)
Arizona Board of Regents-Arizona State
University System Revenue Bonds,
6,850,000 5.750%, 7-1-12 A1/AA 6,952,750
7,000,000 6.125%, 7-1-15 A1/AA 7,206,080
1,400,000 5.500%, 7-1-19 A1/AA 1,365,000
735,000 5.850%, 7-1-18, MBIA Insured Aaa/AAA 746,944
Arizona Board of Regents-Northern Arizona
University System Revenue Bonds,
3,000,000 5.800%, 6-1-08 AMBAC Insured Aaa/AAA 3,097,500
3,000,000 5.200%, 6-1-13, FGIC Insured Aaa/AAA 2,977,500
Arizona Board of Regents-University of Arizona
System Revenue Bonds,
2,750,000 6.250%, 6-1-11 A1/AA 2,863,438
750,000 5.800%, 6-1-24, FGIC Insured Aaa/AAA 750,938
Arizona Educational Loan Mktg. Corp.,
1,000,000 6.000%, 9-1-01, AMT Aa/NR 1,012,500
450,000 7.000%, 3-1-05, AMT Aa2/NR 463,500
500,000 6.625%, 9-1-05, AMT Aa2/NR 515,625
1,720,000 5.700%, 12-1-08, AMT Aa2/NR 1,720,000
Arizona Student Loan Revenue
</PAGE>
<PAGE>
$ 500,000 6.600%, 5-1-10, AMT Aa/NR $ 517,500
1,000,000 5.875%, 5-1-18, AMT Aaa/NR 1,002,500
1,000,000 5.900%, 5-1-19, AMT Aaa/NR 1,001,250
1,000,000 6.150%, 5-1-29, AMT A2/NR 998,750
Glendale Industrial Development Authority
(American Graduate School),
2,100,000 5.625%, 7-1-20, AMBAC Insured NR/AAA 2,063,250
Glendale Industrial Development Authority
(Midwestern University)
2,250,000 5.375%, 5-15-28 NR/BBB+ 1,994,062
Pinal Co. Community College District
Revenue Bonds,
1,055,000 5.100%, 7-1-14, AMBAC Insured Aaa/NR 1,028,625
Yavapai Co. Community College District
Revenue Bonds,
1,070,000 5.400%, 7-1-10, FGIC Insured Aaa/AAA 1,087,387
500,000 6.000%, 7-1-12 NR/BBB+ 506,875
Total University Revenue Bonds 39,871,974
UTILITY REVENUE BONDS (16.5%)
Arizona Power Authority (Hoover Dam Project)
Revenue Bonds,
2,720,000 5.300%, 10-1-06, MBIA Insured Aaa/AAA 2,774,400
8,500,000 5.375%, 10-1-13, MBIA Insured++ Aaa/AAA 8,531,875
2,425,000 5.250%, 10-1-17, MBIA Insured Aaa/AAA 2,337,094
Arizona Wastewater Management Authority
Revenue Bonds,
1,700,000 6.800%, 7-1-11, (pre-refunded) Aa1/AA+ 1,802,000
1,940,000 5.600%, 7-1-12, AMBAC Insured. Aaa/AAA 1,995,775
1,240,000 5.625%, 7-1-15, AMBAC Insured. Aaa/AAA 1,311,300
Arizona Water Infrastructure Finance Authority
Revenue Bonds,
1,465,000 5.750%, 10-1-11 Aa2/NR 1,541,913
500,000 5.000%, 7-1-17, MBIA Insured Aaa/AAA 463,750
2,000,000 5.500%, 10-1-17 Aa2/NR 1,990,000
Central Arizona Water Conservation District
Revenue Bonds,
</PAGE>
<PAGE>
$ 1,500,000 5.500%, 11-1-09 A1/AA- $ 1,548,750
1,000,000 5.500%, 11-1-10 A1/AA- 1,031,250
1,000,000 7.125%, 11-1-11, (pre-refunded) NR/AA- 1,028,460
Mohave Co. Industrial Development Authority
(Citizens Utility),
1,700,000 4.750%, 8-1-20 NR/A+ 1,619,250
3,000,000 7.050%, 8-1-20 NR/A+ 3,065,130
Pima Co. Industrial Development Authority (Tucson
Electric), Revenue Bonds,
2,320,000 7.250%, 7-15-10, FSA Insured Aaa/AAA 2,470,800
Salt River Project Agricultural Improvement and
Power Revenue Bonds
2,000,000 5.500%, 1-1-10 Aa2/AA 2,067,500
4,485,000 6.200%, 1-1-12 Aa2/AA 4,658,794
650,000 6.000%, 1-1-13 Aa2/AA 665,437
2,155,000 6.000%, 1-1-16 Aa2/AA 2,192,713
9,500,000 6.250%, 1-1-19 Aa2/AA 9,701,876
5,780,000 6.250%, 1-1-27 Aa2/AA 5,873,925
Santa Cruz Industrial Development Authority
(Citizens Utility),
1,220,000 7.150%, 2-1-23, AMT NR/A+ 1,229,406
Total Utility Revenue Bonds 59,901,398
Total Arizona Revenue Bonds 247,367,048
ZERO COUPON BONDS (1.6%)
Maricopa Co. Industrial Development Authority
Single Family Mortgage Revenue Bonds,
2,035,000 0.000%, 12-31-14 Aaa/AAA 890,312
2,000,000 0.000%, 2-1-16 Aaa/AAA 810,000
2,695,000 0.000%, 12-31-16 Aaa/AAA 1,057,787
Phoenix Industrial Development Authority Single
Family Mortgage Revenue,
1,500,000 0.000%, 12-1-14 Aaa/AAA 660,000
Sedona Wastewater Municipal Property Corp.
Revenue Bonds,
2,210,000 0.000%, 7-1-24, MBIA Insured NR/AAA 535,925
Tucson & Pima Co. Single Family Mortgage
Revenue Bonds
</PAGE>
<PAGE>
$ 4,095,000 0.000%, 12-1-14 Aaa/AAA $ 1,812,037
Total Zero Coupon Bonds 5,766,061
U.S TERRITORIAL BONDS (0.9%)
Guam Housing Development Corp. Single Family
Mortgage Revenue Bonds,
1,000,000 5.350%, 9-1-18, AMT NR/AAA 937,500
Puerto Rico General Obligation Bonds,
1,000,000 6.250%, 7-1-10 Baa1/A 1,038,750
1,035,000 6.450%, 7-1-17 (pre-refunded) Aaa/AAA 1,122,975
Total U.S. Territorial Bonds 3,099,225
Total Investments (cost $353,812,703)** 99.0% 359,297,819
Other assets in excess of liabilities 1.0 3,513,735
Net Assets 100.0% $ 362,811,554
</TABLE>
* Any security not rated 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 was to be assigned by a rating service.
+ When-issued security.
++ This security is pledged as collateral for the Trust's
when-issued commitments.
** Cost for Federal tax purposes is identical.
PORTFOLIO ABBREVIATIONS:
ACA - ACA Financial Guaranty Corp.
AMBAC - American Municipal Bond Assurance Corp.
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Security Assurance Co.
MBIA - Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $353,812,703) $359,297,819
Interest receivable 8,096,097
Receivable for investment securities sold 2,231,066
Receivable for Trust shares sold 388,496
Other assets 2,716
Total assets 370,016,194
LIABILITIES
Payable for investment securities purchased 5,759,749
Payable for Trust shares redeemed 696,314
Dividends payable 348,637
Distribution fees payable 139,579
Management fee payable 118,573
Accrued expenses 87,609
Cash overdraft 54,179
Total liabilities 7,204,640
NET ASSETS $362,811,554
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $.01 per share $ 356,629
Additional paid-in capital 361,891,046
Net unrealized appreciation on investments 5,485,116
Accumulated net realized loss on investments (4,572,600)
Distributions in excess of net investment income (348,637)
$362,811,554
CLASS A
Net Assets $358,153,851
Capital shares outstanding 35,205,520
Net asset value and redemption price per share $ 10.17
Offering price per share (100/96 of $10.17 adjusted to nearest cent) $ 10.59
CLASS C
Net Assets $ 2,919,720
Capital shares outstanding 286,939
Net asset value and offering price per share $ 10.18
Redemption price per share (*a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower,
if redeemed during the first 12 months after purchase) $ 10.18*
CLASS Y
Net Assets $ 1,737,983
Capital shares outstanding 170,404
Net asset value, offering and redemption price per share $ 10.20
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 21,136,926
Expenses:
Management fee (note 3) $ 1,495,669
Distribution and service fees (note 3) 574,600
Transfer and shareholder servicing agent fees 203,204
Trustees' fees and expenses (note 8) 79,035
Shareholder's meeting, reports and proxy statements 64,854
Legal fees 45,434
Custodian fees 39,628
Registration fees and dues 31,533
Audit and accounting fees 27,000
Insurance 15,232
Miscellaneous 41,897
2,618,086
Expenses paid indirectly (note 7) (37,611)
Net expenses 2,580,475
Net investment income 18,556,451
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from securities transactions (4,572,600)
Change in unrealized appreciation on investments (6,253,235)
Net realized and unrealized loss on investments (10,825,835)
Net increase in net assets resulting from operations $ 7,730,616
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999
</CAPTION>
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 18,556,451 $ 18,742,956
Net realized gain (loss) from securities transactions (4,572,600) 1,824,861
Change in unrealized appreciation on investments (6,253,235) (11,997,799)
Change in net assets resulting from operations 7,730,616 8,570,018
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income (18,647,193) (18,969,170)
Net realized gain on investments (1,507,740) (2,903,122)
Class C Shares:
Net investment income (82,729) (45,516)
Net realized gain on investments (7,399) (8,159)
Class Y Shares:
Net investment income (106,050) (50,079)
Net realized gain on investments (8,384) (1,607)
Change in net assets from distributions (20,359,495) (21,977,653)
CAPITAL SHARE TRANSACTIONS (NOTE 9):
Proceeds from shares sold 37,513,857 49,036,624
Reinvested dividends and distributions 11,333,881 12,496,044
Cost of shares redeemed (68,785,609) (47,486,728)
Change in net assets from capital share transactions (19,937,871) 14,045,940
Change in net assets (32,566,750) 638,305
NET ASSETS:
Beginning of period 395,378,304 394,739,999
End of period $ 362,811,554 $ 395,378,304
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
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 commenced operations on March 13, 1986. The Trust is
authorized to issue an unlimited number of shares and, since its inception to
April 1, 1996, offered only one class of shares. On that date, the Trust 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 service 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. 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 October 31,
1997 the Trust established Class I shares, which are offered and sold only
through financial intermediaries and are not offered directly to retail
investors. At June 30, 2000, there were no Class I shares 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 Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles 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 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.
</PAGE>
<PAGE>
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses from
securities transactions are reported on the identified cost basis. Interest
income is recorded daily on the accrual basis and is adjusted for
amortization of premium and accretion of original issue discount. Market
discount is recognized upon disposition of the security.
c) 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.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are
allocated daily to each class of shares based on the relative net assets of
each class. Class-specific expenses, which include distribution and service
fees and any other items that are specifically attributed to a particular
class, are charged directly to such class.
e) USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles 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.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Aquila Management Corporation (the "Manager"), the Trust's founder and
sponsor, serves as the Manager for the Trust under an Advisory and
Administration Agreement with the Trust. The portfolio management of the Trust
has been delegated to a Sub-Adviser as described below. Under the Advisory and
Administrative Agreement, the Manager provides all administrative services to
the Trust, other than those relating to the day-to-day portfolio management. The
Manager's services include providing the office of the Trust and all related
services as well as overseeing the activities of the Sub-Adviser and all the
various support organizations to the Trust such as the shareholder servicing
agent, custodian, legal counsel, auditors and distributor. 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 0.40 of 1% on the Trust's
net assets.
Banc One Investment Advisors Corporation (the "Sub-Adviser") serves as the
Investment Sub-Adviser for the Trust 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
Trust, the investment program of the Trust and the composition of its portfolio,
arranges for the purchases and sales of portfolio securities, maintains the
Trust's accounting books and records, and provides for daily pricing of the
Trust'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 Trust's net assets.
</PAGE>
<PAGE>
For the year ended June 30, 2000, the Trust incurred fees for advisory and
administrative services of $1,495,669.
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.
</PAGE>
<PAGE>
b) DISTRIBUTION AND SERVICE FEES:
The Trust 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 Trust is authorized to make
service fee payments to broker-dealers or others ("Qualified Recipients")
selected by Aquila Distributors, Inc. ("the Distributor") including, but not
limited to, any principal underwriter of the 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. The Trust makes payment of this service
fee at the annual rate of 0.15% of the Trust's average net assets represented by
Class A Shares. For the year ended June 30, 2000, service fees on Class A Shares
amounted to $554,839, of which the Distributor received $23,661.
Under another part of the Plan, the Trust 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 Trust's Class C Shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Trust's net assets represented by Class C Shares and for the year
ended June 30, 2000 amounted to $14,821 In addition, under a Shareholder
Services Plan, the Trust 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 the Trust's net assets represented by Class C Shares and for the
year ended June 30, 2000, amounted to $4,940. The total of these payments with
respect to Class C Shares amounted to $19,761, of which the Distributor received
$13,630.
Specific details about the Plans are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive
distributor of the Trust's shares. Through agreements between the Distributor
and various broker-dealer firms ("dealers"), the Trust's shares are sold
primarily through the facilities of these dealers having offices within Arizona,
with the bulk of sales commissions inuring to such dealers. For the year ended
June 30, 2000, total commissions on sales of Class A Shares amounted to
$721,539, of which the Distributor received $137,591.
4. PURCHASES AND SALES OF SECURITIES
During the year ended June 30, 2000, purchases of securities and proceeds
from the sales of securities aggregated $79,202,627 and $100,998,453
respectively.
At June 30, 2000, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted to
$9,227,095 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value amounted to $3,741,979
for a net unrealized appreciation of $5,485,116.
</PAGE>
<PAGE>
At June 30, 2000, the Trust has a capital loss carryover of $2,303,749
which expires on June 30, 2008. 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 is used to offset future
realized capital gains, it is probable the gains so offset will not be
distributed.
5. 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.
The Trust is also permitted to invest in U.S. territorial municipal obligations
meeting comparable quality standards and providing incom e which is exempt from
both regular Federal and Arizona income taxes. The general policy of the Trust
is to invest in such securities only when comparable securities of Arizona
issuers are not available in the market. At June 30, 2000, the Trust had 0.9%
of its net assets invested in three such municipal issues.
6. DISTRIBUTIONS
The Trust declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share, in cash,
or in a combination of both, at the shareholder's option. Net realized capital
gains, if any, are distributed annually and are taxable.
The 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 statement 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 taxes at ordinary income and/or capital gain rates. For certain
shareholders, some dividend income may, under some circumstances, be subject to
the alternative minimum tax.
7. EXPENSES
The Trust has negotiated an expense offset arrangement with its custodian
wherein it receives credit toward the reduction of custodian fees and other
Trust expenses whenever there are uninvested cash balances. The Statement of
Operations reflects the total expenses before any offset, the amount of offset
and the net expenses. It is the general intention of the Trust to invest, to the
extent practicable, some or all of cash balances in income-producing assets
rather than leave cash on deposit.
</PAGE>
<PAGE>
8. TRUSTEES' FEES AND EXPENSES
During the fiscal year there were seven Trustees, two of whom are
affiliated with the Manager and are not paid any trustee fees. Trustees' fees
paid during the year were at the annual rate of $8,200 for carrying out their
responsibilities and attendance at regularly scheduled Board Meetings. If
additional or special meetings are scheduled for the Trust, separate meeting
fees are paid for each such meeting to those Trustees in attendance. The Trust
also reimburses Trustees for expenses such as travel, accommodations, and meals
incurred in connection with attendance at regularly scheduled or special Board
Meetings and at the Annual Meeting and outreach meetings of Shareholders. For
the fiscal year ended June 30, 2000, such reimbursements averaged approximately
$4,500 per Trustee.
9. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999
SHARES AMOUNT SHARES AMOUNT
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 3,470,893 $ 35,429,737 4,164,887 $ 45,185,020
Reinvested distributions 1,096,738 11,163,766 1,146,007 12,417,382
Cost of shares redeemed (6,632,707) (67,523,007) (4,303,789) (46,633,346)
Net change (2,065,076) (20,929,504) 1,007,105 10,969,056
CLASS C SHARES:
Proceeds from shares sold 184,421 1,885,934 107,822 1,169,532
Reinvested distributions 6,256 63,628 2,590 28,041
Cost of shares redeemed (31,387) (317,549) (55,973) (597,882)
Net change 159,290 1,632,013 54,439 599,691
CLASS Y SHARES:
Proceeds from shares sold 19,213 198,186 246,354 2,682,072
Reinvested distributions 10,423 106,487 4,703 50,621
Cost of shares redeemed (91,773) (945,053) (23,725) (255,500)
Net change (62,137) (640,380) 227,332 2,477,193
Total transactions in Trust
shares (1,967,923) $ (19,937,871) 1,288,876 $ 14,045,940
</TABLE>
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
YEAR ENDED JUNE 30,
2000 1999 1998 1997 1996
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.51 $10.86 $10.58 $10.38 $10.37
Income from Investment Operations:
Net investment income 0.51 0.51 0.52 0.53 0.55
Net gain (loss) on securities (both realized and
unrealized) (0.30) (0.26) 0.29 0.22 0.01
Total from Investment Operations 0.21 0.25 0.81 0.75 0.56
Less Distributions (note 6):
Dividends from net investment income (0.51) (0.52) (0.53) (0.55) (0.55)
Distributions from capital gains (0.04) (0.08) - - -
Total Distributions (0.55) (0.60) (0.53) (0.55) (0.55)
Net Asset Value, End of Period $10.17 $10.51 $10.86 $10.58 $10.38
Total Return (not reflecting sales charge)(%) 2.19 2.23 7.83 7.36 5.49
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 358,154 391,586 393,887 391,737 389,083
Ratio of Expenses to Average Net Assets (%) 0.70 0.71 0.73 0.73 0.73
Ratio of Net Investment Income to Average Net
Assets (%) 4.96 4.66 4.81 5.02 5.30
Portfolio Turnover Rate (%) 21.35 16.66 19.68 19.98 27.37
The expense ratios after giving effect to the expense offset for uninvested
cash balances were:
Ratio of Expenses to Average Net Assets (%) 0.69 0.70 0.72 0.72 0.72
</TABLE>
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C CLASS Y
PERIOD PERIOD
YEAR ENDED JUNE 30, ENDED YEAR ENDED JUNE 30, ENDED
2000 1999 1998 1997 6/30/96(1) 2000 1999 1998 1997 6/30/96(1)
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.52 $10.88 $10.60 $10.38 $10.45 $10.53 $10.89 $10.59 $10.38 $10.45
Income from Investment Operations.
Net investment income 0.41 0.42 0.43 0.44 0.13 0.52 0.51 0.58 0.70 0.15
Net gain (loss) on securities
(both realized and unrealized) (0.28) (0.28) 0.29 0.23 (0.07) (0.28) (0.26) 0.31 0.21 (0.07)
Total from Investment Operations 0.13 0.14 0.72 0.67 0.06 0.24 0.25 0.89 0.91 0.08
Less Distributions (note 6):
Dividends from net investment income (0.43) (0.42) (0.44) (0.45) (0.13) (0.53) (0.53) (0.59) (0.70) (0.15)
Distributions from capital gains (0.04) (0.08) - - - (0.04) (0.08) - - -
Total Distributions (0.47) (0.50) (0.44) (0.45) (0.13) (0.57) (0.61) (0.59) (0.70) (0.15)
Net Asset Value, End of Period $10.18 $10.52 $10.88 $10.60 $10.38 $10.20 $10.53 $10.89 $10.59 $10.38
Total Return (not reflecting sales
charge) (%) 1.33 1.26 6.90 6.64 0.57+ 2.45 2.28 8.63 9.10 0.76+
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 2,920 1,343 797 200 6 1,738 2,450 57 0.1 0.1
Ratio of Expenses to Average Net
Assets (%) 1.54 1.56 1.57 1.58 0.40+ 0.55 0.56 0.58 0.58 0.15+
Ratio of Net Investment Income to
Average Net Assets (%) 4.09 3.79 3.89 4.17 1.17+ 5.10 4.87 4.96 5.17 1.42+
Portfolio Turnover Rate (%) 21.35 16.66 19.68 19.98 27.37 21.35 16.66 19.68 19.98 27.37
The expense ratios after giving effect to the expense offset for uninvested
cash balnaces were:
Ratio of Expenses to Average Net
Assets (%) 1.53 1.55 1.56 1.57 0.40+ 0.54 0.55 0.57 0.57 0.15+
</TABLE>
(1) For the period April 1, 1996 (commencement of operations) through June
30, 1996.
+ Not annualized.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement of the
Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF SHAREHOLDERS IS
REQUIRED.
For the fiscal year ended June 30, 2000, $18,518,577 of dividends paid by
Tax-Free Trust of Arizona, constituting 91.11% of total dividends paid during
fiscal 2000, were exempt-interest dividends; $1,523,280 of dividends paid,
constituting 7.49% of total dividends paid during fiscal 2000, were capital gain
dividends; and the balance was ordinary dividend income.
Prior to January 31, 2000, shareholders were mailed IRS Form 1099-DIV which
contained information on the status of distributions paid for the 1999 CALENDAR
YEAR.
</PAGE>
