<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
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, 1999
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
SEMI-ANNUAL REPORT
"WE TAKE SPECIAL CARE TO ENSURE YOUR SAFETY"
February 15, 2000
Dear Fellow Shareholders:
Every now and then, we come across something that triggers a special point
worth considering. This happened to us on a recent trip on United Airlines. When
a pre-flight announcement was made that stated, "We take special care to ensure
your safety," that remark brought home to us a point that we practice on a
continuous basis with Tax-Free Trust of Arizona.
We know from our surveys that most of the shareholders of Tax-Free Trust of
Arizona are looking forward to retiring or have already retired. These are a
very special group of people - and we work very hard to make sure that we are
addressing their needs.
Once one is no longer in the work force, it is essential that very careful
attention be paid to whatever financial resources are available to ensure that
these resources are available when needed. It is just as important that these
financial resources produce the kind of return, on a consistent basis, that our
shareholders can count on.
SAFETY
Safety with municipal securities is a very important factor to which
management of your Trust pays considerable attention. Just like the United
Airlines announcement, "we take special care to ensure your safety" with all the
municipal securities in the Trust.
As you probably know, municipal securities have various credit ratings.
These ratings attempt to measure the kind of safety and trustworthiness that the
securities represent. With Tax-Free Trust of Arizona, we specifically limit the
credit ratings to those within the top four grades - AAA, AA, A, and Baa. This
world in which we live is changing extremely rapidly. Therefore, we feel it is
important that we ensure that the majority of securities in the Trust's
portfolio are within the top TWO credit grades - AAA and AA - for your safety.
Through our portfolio management, we very carefully monitor the characteristics
of each investment and every type of investment in the portfolio. Therefore, we
do not expect "surprises" from any of the securities that are in the portfolio
of the Trust.
Recently, the marketplace for municipal securities has made it such that
the difference in yield for a AAA or AA credit rating versus a Baa credit rating
is relatively little. Therefore, our approach is to go with the best. Obviously,
if one can buy securities which provide a top rating without paying any
significant premium for them, we prefer to go in that direction.
We want you to know, that at the report date of December 31, 1999, the
combination of AAA and AA securities amounted to almost 85% of the total assets
in the portfolio of your Trust.
In this way, we feel that "we take special care to ensure your safety."
</PAGE>
<PAGE>
MATURITY OF TAX-FREE MUNICIPAL BONDS
Another factor that we feel is important in building quality for your
investment is the maturity structure of the municipal bonds in the portfolio.
As we have explained to you in the past, longer-term maturity bonds will
usually produce a higher return than short-term bonds. However, such longer
maturity bonds also have a higher degree of volatility of price fluctuations.
Therefore, we have structured the average maturity of Tax-Free Trust of
Arizona to be at a somewhat intermediate level - currently 13.8 years. This
level is produced by using a "laddered" approach to the selection of bonds in
terms of their maturity. We have a certain number of short-term bonds and a
certain number of long-term bonds, but the overall average of these maturities
run at an intermediate level. In this way, we can capture a substantial amount
of possible income level available from the bonds, without exposing the
portfolio to an undue level of volatility.
Our goal is to maintain a reasonably high level of stability for the share
net asset value of the Trust, while producing the kind of tax-free return that
people want to see from their investment.
This is another strategy that we use in building quality, safety, and
stability into your investment in Tax-Free Trust of Arizona.
RELIABILITY OF PAYMENTS
We also recognize that most of our shareholders depend upon the monthly
tax-free income produced by Tax-Free Trust of Arizona. Shareholders want to know
that the income from the Trust is there when the time comes to pay various
bills.
The quality character of the portfolio ensures that this is the case.
We want to make sure that, to the best of our ability, the monthly payments
add up to a satisfactory level of income that you can be SURE will be there when
you need it.
YOUR CONFIDENCE IS APPRECIATED
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 continually do our best to merit your continued level of trust.
Sincerely,
Diana P. Herrmann
President
Lacy B. Herrmann
Chairman, Board of Trustees
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF INVESTMENTS
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT ARIZONA GENERAL OBLIGATION BONDS (29.1%) 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 $ 491,250
Bullhead City Parkway Improvement District,
1,055,000 6.100%, 1-1-11 Baa2/NR 1,082,694
1,000,000 6.100%, 1-1-12 Baa2/NR 1,020,000
Chandler, Arizona,
450,000 7.000%, 7-1-12, FGIC Insured Aaa/AAA 469,481
1,500,000 5.125%, 7-1-14, MBIA Insured Aaa/AAA 1,404,375
Cochise Co. Unified School District No. 68
(Sierra Vista),
1,000,000 6.000%, 7-1-06, FGIC Insured Aaa/AAA 1,033,750
1,000,000 6.100%, 7-1-08, FGIC Insured Aaa/AAA 1,032,500
925,000 5.750%, 7-1-09, FGIC Insured Aaa/AAA 948,125
Coconino Co. Unified School District No. 1
(Flagstaff),
2,000,000 5.500%, 7-1-09, AMBAC Insured Aaa/AAA 2,030,000
Coconino & Yavapai Unified School Distict
(Sedona),
1,000,000 5.900%, 7/1/07 NR/A- 1,038,750
1,000,000 5.700%, 7-1-07, FGIC Insured Aaa/AAA 1,025,000
Flagstaff, Arizona,
500,000 6.300%, 7-1-06, FGIC Insured Aaa/AAA 508,680
1,000,000 5.000%, 7-1-12, FGIC Insured Aaa/AAA 950,000
Gila Co. Unified School District No. 10
(Payson),
500,000 5.750%, 7-1-09, AMBAC Insured Aaa/AAA 514,375
Graham Co. Unified School District No. 1
(Safford),
300,000 5.000%, 7-1-10, FGIC Insured Aaa/NR 292,500
675,000 4.700%, 7-1-11, MBIA Insured Aaa/NR 632,812
Graham Co. Unified School District No. 4
(Thatcher),
400,000 5.000%, 7-1-10, FSA Insured Aaa/NR 390,000
</PAGE>
<PAGE>
LaPaz Co. Unified School District No. 27
(Parker),
800,000 6.000%, 7-1-05 Baa2/NR 824,000
Maricopa Co. Elementary School District No. 1
(Phoenix),
250,000 5.800%, 7-1-10, FSA Insured Aaa/AAA 256,562
Maricopa Co. Elementary School District No. 3
(Tempe),
1,000,000 5.400%, 7-1-12, FGIC Insured Aaa/AAA 997,500
640,000 6.000%, 7-1-13, AMBAC Insured (pre-refunded) Aaa/AAA 683,200
1,140,000 6.000%, 7-1-13, AMBAC Insured Aaa/AAA 1,177,050
1,025,000 5.500%, 7-1-14, FGIC Insured Aaa/AAA 1,013,469
Maricopa Co. Unified School District No. 4 (Mesa),
775,000 5.500%, 7-1-06, FGIC Insured Aaa/AAA 791,469
2,150,000 5.400%, 7-1-09, FSA Insured Aaa/AAA 2,176,875
Maricopa Co. School District No. 8 (Osborn),
1,945,000 6.100%, 7-1-05 A1/A 2,056,838
Maricopa Co. Unified School District No. 9
(Wickenburg)
1,030,000 5.600%, 7-1-15, AMBAC Insured Aaa/AAA 1,018,412
Maricopa Co. Unified School District No. 11 (Peoria),
500,000 9.250%, 7-1-01, FGIC Insured Aaa/AAA 535,000
2,000,000 6.100%, 7-1-10, AMBAC Insured Aaa/AAA 2,082,500
2,845,000 5.250%, 7-1-13, FGIC Insured Aaa/AAA 2,741,869
Maricopa Co. Elementary School District No. 28
(Kyrene),
1,125,000 6.000%, 7-1-14, FGIC Insured Aaa/AAA 1,146,094
Maricopa Co. School District No. 31 (Balsz),
1,000,000 5.375%, 7-1-12, AMBAC Insured NR/AAA 993,750
Maricopa Elementary School District No. 38
(Madison),
1,150,000 5.400%, 7-1-11, FGIC Insured Aaa/AAA 1,148,562
2,000,000 5.800%, 7-1-15, MBIA Insured Aaa/AAA 2,005,000
Maricopa Co. Unified School District No. 41
(Gilbert),
1,750,000 6.250%, 7-1-15, FSA Insured Aaa/AAA 1,817,812
</PAGE>
<PAGE>
Maricopa Co. Unified School District No. 48
(Scottsdale),
750,000 6.750%, 7-1-09, (pre-refunded) Aa2/AA 781,875
1,000,000 5.000%, 7-1-14 Aa2/AA 935,000
Maricopa Co. Elementary School District No. 68
(Alhambra),
1,335,000 6.800%, 7-1-10, AMBAC Insured Aaa/AAA 1,428,183
Maricopa Co. Unified School District No. 69
(Paradise Valley),
3,150,000 7.000%, 7-1-07 A1/A+ 3,461,062
2,400,000 5.800%, 7-1-09, AMBAC Insured Aaa/AAA 2,502,000
1,000,000 5.300%, 7-1-11, MBIA Insured Aaa/AAA 986,250
Maricopa Co. Unified School District No. 80
(Chandler),
715,000 5.800%, 7-1-09, FGIC Insured (pre-refunded) Aaa/AAA 754,325
Maricopa Co. Unified School District No. 98
(Fountain Hills),
1,000,000 5.750%, 7-1-12, AMBAC Insured Aaa/AAA 1,022,500
Maricopa Co. High School District No. 205
(Glendale Union),
1,000,000 5.500%, 7-1-11, FGIC Insured Aaa/AAA 1,005,000
5,400,000 5.700%, 7-1-14, FGIC Insured (pre-refunded) Aaa/AAA 5,670,000
Maricopa Co. High School District No. 210
(Phoenix Union),
3,000,000 5.450%, 7-1-08, (pre-refunded) Aa3/AA 3,101,250
1,000,000 5.375%, 7-1-13, (pre-refunded) Aa3/AA 1,033,750
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 2,080,000
500,000 4.750%, 7-1-17, Aa3/AA 428,125
Maricopa Co. High School District No. 213 (Tempe),
705,000 6.000%, 7-1-12, FGIC Insured, (pre-refunded) Aaa/AAA 746,419
295,000 6.000%, 7-1-12, FGIC Insured Aaa/AAA 304,956
Mesa, Arizona
1,425,000 5.700%, 7-1-08, MBIA Insured (pre-refunded) Aaa/AAA 1,490,906
</PAGE>
<PAGE>
Mohave Co. Unified School District No. 1
(Lake Havasu),
1,000,000 4.900%, 7-1-13, FGIC Insured Aaa/AAA 933,750
Navajo Co. Unified School District No. 10
(Show Low),
1,000,000 5.250%, 7-1-16, FGIC Insured Aaa/NR 928,750
Navajo Co. Unified School District No. 32
(Blue Ridge),
985,000 5.900%, 7-1-08, FSA Insured Aaa/AAA 1,024,400
640,000 5.800%, 7-1-14, FGIC Insured Aaa/AAA 648,000
Phoenix, Arizona,
1,040,000 7.500%, 7-1-03 Aaa/AAA 1,134,900
1,000,000 5.800%, 7-1-07, (pre-refunded) Aa1/AA+ 1,060,000
1,000,000 6.250%, 7-1-16 Aa1/AA+ 1,058,750
1,240,000 6.250%, 7-1-17 Aa1/AA+ 1,308,200
3,000,000 5.000%, 7-1-19 Aa1/AA+ 2,640,000
Pima Co. Unified Scool District No. 8
(Flowing Wells),
1,090,000 5.900%, 7-1-13, (pre-refunded) A3/NR 1,155,400
Pima Co. Unified School District No. 12 (Sunnyside),
1,250,000 5.500%, 7-1-10, MBIA Insured Aaa/AAA 1,262,500
Pinal Co. Unified School District No. 43
(Apache Junction),
1,500,000 5.850%, 7-1-15, FGIC Insured Aaa/AAA 1,509,375
Pinewood Sanitary District,
605,000 6.500%, 7-1-09 NR/NR* 622,394
Prescott, Arizona,
1,120,000 4.500%, 7-1-12, FGIC Insured Aaa/AAA 1,020,600
Prescott Valley Sewer Collection Improvement
District,
500,000 7.900%, 1-1-12 NR/BBB- 545,000
Santa Cruz Co. Unified School District No. 1
(Nogales),
400,000 7.700%, 7-1-03, (pre-refunded) Aaa/AAA 422,500
Scottsdale, Arizona,
1,000,000 5.500%, 7-1-10 Aa1/AA+ 1,025,000
</PAGE>
<PAGE>
1,250,000 6.000%, 7-1-14, (pre-refunded) Aa1/AA+ 1,301,563
2,350,000 6.000%, 7-1-13 Aa1/AA+ 2,435,187
1,050,000 5.750%, 7-1-18 Aa1/AA+ 1,042,125
Tempe, Arizona,
1,000,000 5.300%, 7-1-09 Aa1/AA+ 1,012,500
1,450,000 6.000%, 7-1-10 (pre-refunded) Aa1/AA+ 1,509,812
1,015,000 5.400%, 7-1-11 Aa1/AA+ 1,026,425
830,000 5.400%, 7-1-11 Aa1/AA+ 836,225
2,270,000 4.500%, 7-1-14 Aa1/AA+ 1,974,900
Tucson, Arizona,
500,000 5.750%, 7-1-09, FGIC Insured Aaa/AAA 516,250
2,195,000 6.100%, 7-1-12, FGIC Insured Aaa/AAA 2,285,546
2,500,000 5.750%, 7-1-20, (pre-refunded) Aa3/AA 2,621,875
2,000,000 5.000%, 7-1-18 Aa3/AA 1,770,000
Yavapai Co. Unified School District No. 28
(Camp Verde),
500,000 6.000%, 7-1-08, FGIC Insured Aaa/AAA 523,750
Yuma, Arizona,
2,000,000 6.125%, 7-1-12, AMBAC Insured (pre-refunded) Aaa/AAA 2,110,000
Total Arizona General Obligation Bonds 107,427,532
ARIZONA REVENUE BONDS (68.1%)
AIRPORT REVENUE BONDS (1.7%)
Phoenix Municipal Airport Authority,
565,000 6.400%, 7-1-12, AMT, MBIA Insured Aaa/AAA 598,194
Phoenix Civic Improvement Corp.
Airport Revenue Bonds
1,890,000 6.300%, 7-1-14 Aa2/AA+ 1,967,963
1,000,000 5.000%, 7-1-25, FSA Insured Aaa/AAA 858,750
Tucson Municipal Airport Authority,
3,000,000 5.700%, 6-1-13, MBIA Insured Aaa/AAA 3,015,000
Total Airport Revenue Bonds 6,439,907
BASIC SERVICE REVENUE BONDS (12.8%)
Arizona Transportation Highway Revenue Bonds,
1,000,000 6.250%, 7-1-16 Aa1/AAA 1,033,750
</PAGE>
<PAGE>
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/AAA 410,850
Chandler Street & Highway User Revenue Bonds,
1,300,000 5.400%, 7-1-13, MBIA Insured Aaa/AAA 1,282,125
1,000,000 5.500%, 7-1-16 A1/A+ 952,500
Chandler Water & Sewer Revenue Bonds,
2,015,000 6.250%, 7-1-13, FGIC Insured Aaa/AAA 2,083,006
Gilbert Water & Sewer Revenue Bonds,
2,500,000 6.500%, 7-1-12, FGIC Insured Aaa/AAA 2,665,625
Lake Havasu City Excise Tax Revenue Bonds,
1,000,000 4.100%, 6-1-07, AMBAC Insured Aaa/AAA 701,250
Mesa Utility System Revenue Bonds,
4,000,000 5.375%, 7-1-12, FGIC Insured Aaa/AAA 3,975,000
3,000,000 5.375%, 7-1-14, FGIC Insured Aaa/AAA 2,925,000
Phoenix Civic Improvement Corp. Excise Tax
Revenue Bonds (Courthouse Project),
1,500,000 5.250%, 7-1-24 Aa2/AA+ 1,344,375
1,605,000 5.375%, 7-1-29 Aa2/AA+ 1,450,519
Phoenix Civic Improvement Corp. Water System
Revenue Bonds,
1,090,000 6.000%, 7-1-03 Aa3/AA- 1,139,050
1,500,000 5.000%, 7-1-13 Aa3/A 1,408,125
1,500,000 5.400%, 7-1-14 Aa3/AA- 1,462,500
1,250,000 5.000%, 7-1-18 Aa3/A 1,110,937
Phoenix Street & Highway User Revenue Bonds,
2,190,000 6.250%, 7-1-06 A1/AA 2,291,287
5,000,000 6.250%, 7-1-11 A2/A+ 5,175,000
3,265,000 6.250%, 7-1-11, MBIA Insured Aaa/AAA 3,428,250
Pima County Sewer Revenue Bonds,
2,000,000 6.750%, 7-1-15, FGIC Insured Aaa/AAA 2,070,000
Prescott Valley Water District Revenue Bonds,
1,000,000 4.875%, 1-1-19, MBIA Insured NR/AAA 860,000
</PAGE>
<PAGE>
Scottsdale Preserve Authority Excise Tax Revenue
Bonds,
1,890,000 5.625%, 7-1-18, FGIC Insured Aaa/AAA 1,840,387
Sedona Sewer Revenue Bonds,
700,000 7.400%, 7-1-11, (pre-refunded) NR/AAA 725,200
1,055,000 7.000%, 7-1-12 NR/BBB+ 1,106,431
Tucson Water System Revenue Bonds,
500,000 7.000%, 7-1-10, (pre-refunded) Aaa/AAA 500,000
1,500,000 6.700%, 7-1-12, (pre-refunded) A1/A+ 1,575,000
2,490,000 5.750%, 7-1-18 A1/A+ 2,480,663
Yuma Co. Jail District Revenue Bonds,
500,000 5.250%, 7-1-12, Ambac Insured Aaa/AAA 492,500
Total Basic Service Revenue Bonds 46,866,192
HOSPITAL REVENUE BONDS (7.0%)
Arizona Health Facilities (Northern Arizona
Healthcare System),
1,000,000 5.250%, 10-1-16, AMBAC Insured Aaa/AAA 940,000
Arizona Health Facilities (Samaritan Health),
2,500,000 5.625%, 12-1-15, MBIA Insured Aaa/AAA 2,487,500
Chandler Industrial Development Authority
(Ahwatukee Medical Facility),
900,000 7.000%, 7-1-22 (pre-refunded) NR/NR* 1,019,250
Maricopa Co. Industrial Development Authority
(Mercy Health Care System-St. Joseph's Hospital),
880,000 7.750%, 11-1-10 NR/AAA 984,500
Maricopa Co. Industrial Development Authority
(Mayo Clinic),
2,250,000 5.250%, 11-15-37 NR/AA+ 1,926,562
Mesa Industrial Development Authority
(Lutheran Health),
2,000,000 5.000%, 1-1-19, MBIA Insured Aaa/AAA 1,757,500
</PAGE>
<PAGE>
Mesa Industrial Development Authority
(Discovery Health),
4,000,000 5.625%, 1-1-29, MBIA Insured Aaa/AAA 3,705,000
Mohave Co. Industrial Development Authority
(Baptist Hospital),
1,150,000 5.700%, 9-1-15, MBIA Insured Aaa/AAA 1,137,062
Phoenix Industrial Development Authority (John C.
Lincoln Hospital),
1,070,000 5.500%, 12-1-13, FSA Insured Aaa/AAA 1,055,287
Pima Co. Industrial Development Authority
(Tucson Medical Center),
1,000,000 6.375%, 4-1-12, MBIA Insured Aaa/AAA 1,048,750
1,000,000 5.000%, 4-1-15, MBIA Insured Aaa/AAA 908,750
Pima Co. Industrial Development Authority
(Healthpartners),
1,000,000 5.625%, 4-1-14, MBIA Insured Aaa/AAA 990,000
Scottsdale Industrial Development Authority
(Scottsdale Memorial Hospital),
2,000,000 6.500%, 9-1-03, AMBAC Insured Aaa/AAA 2,125,000
530,000 6.500%, 9-1-06, AMBAC Insured Aaa/AAA 576,375
2,000,000 5.500%, 9-1-12, AMBAC Insured Aaa/AAA 2,005,000
1,770,000 6.125%, 9-1-17, AMBAC Insured Aaa/AAA 1,796,550
Yavapai Co. Industrial Development Authority
(Yavapai Regional Medical Center),
1,130,000 5.125%, 12-1-13, FSA Insured Aaa/AAA 1,072,087
Yuma Co. Industrial Development Authority (Yuma
Regional Medical Center),
500,000 5.850%, 8-1-08, MBIA Insured Aaa/AAA 521,250
Total Hospital Revenue Bonds 26,056,423
LEASE REVENUE BONDS (8.1%)
Arizona Certificates of Participation Lease Revenue
Bonds,
840,000 6.625%, 9-1-08, FSA Insured Aaa/AAA 882,000
2,000,000 6.500%, 3-1-08, FSA Insured Aaa/AAA 2,107,500
</PAGE>
<PAGE>
Arizona Municipal Finance Program No. 20,
1,300,000 7.700%, 8-1-10, MBIA Insured Aaa/AAA 1,509,625
Arizona Municipal Finance Program No. 34,
1,000,000 7.250%, 8-1-09, MBIA Insured Aaa/AAA 1,151,250
Avondale Municipal Facilities Lease Revenue
Bonds,
1,185,000 5.200%, 7-1-13, MBIA Insured Aaa/AAA 1,146,487
1,000,000 5.000%, 7-1-19, FGIC Insured Aaa/AAA 877,500
Bullhead City Municipal Property Corp.
Lease Revenue Bonds,
1,670,000 5.200%, 7-1-09, MBIA Insured Aaa/NR 1,674,175
Cave Creek Certificates of Participation Lease
Revenue Bonds,
365,000 5.750%, 7-1-19 NR/BBB- 320,744
Glendale Municipal Property Corp. Lease Revenue
Bonds, MBIA Insured,
1,000,000 7.000%, 7-1-09, MBIA Insured Aaa/AAA 1,010,000
Lake Havasu City Certificates of Participation Lease
Revenue Bonds,
500,000 7.000%, 6-1-05, FGIC Insured Aaa/AAA 522,500
Maricopa Co. Certificates of Participation Lease
Revenue Bonds,
1,000,000 6.000%, 6-1-04 A2/BBB+ 1,023,750
Oro Valley Municipal Property Corp. Lease
Revenue Bonds,
2,000,000 5.200%, 7-1-10, MBIA Insured Aaa/AAA 2,000,000
2,085,000 5.375%, 7-1-26, MBIA Insured Aaa/AAA 1,899,956
Phoenix Civic Plaza Building Revenue Bonds,
1,500,000 6.000%, 7-1-14 Aa2/AA+ 1,539,375
Pinal Co. Certificates of Participation Lease
Revenue Bonds,
1,160,000 6.250%, 6-1-04 (pre-refunded) NR/AA 1,200,600
</PAGE>
<PAGE>
Scottsdale Municipal Property Corp. Lease
Revenue Bonds,
2,200,000 6.250%, 11-1-10, FGIC Insured Aaa/AAA 2,288,000
2,620,000 6.250%, 11-1-14, FGIC Insured Aaa/AAA 2,685,500
Sierra Vista Municipal Property Corp Lease
Revenue Bonds,
1,265,000 5.000%, 1-1-18, AMBAC Insured Aaa/AAA 1,119,525
Tucson Certificate of Participation Lease Revenue
Bonds,
1,000,000 6.375%, 7-1-09 Baa1/AA 1,036,250
Tucson Business Development Finance Corp.
1,585,000 6.250%, 7-1-12, FGIC Insured Aaa/AAA 1,664,250
University of Arizona Certificates of Participation
Lease Revenue Bonds,
1,000,000 5.650%, 9-1-09, FSA Insured Aaa/AAA 1,023,750
Yuma Municipal Property Corp. Lease Revenue
Bonds,
1,385,000 5.250%, 7-1-12, AMBAC Insured Aaa/AAA 1,364,225
Total Lease Revenue Bonds 30,046,962
MORTGAGE REVENUE BONDS (5.3%)
Maricopa Co. Industrial Development Authority
Multi Family Mortgage Revenue Bonds
(Advantage Point Project),
1,000,000 6.500%, 7-1-16 NR/AAA 1,062,500
Maricopa Co. Industrial Development Authority
Multi Family Mortgage Revenue Bonds
(Pines at Camelback Project),
450,000 5.400%, 5-1-18 NR/AA 417,937
Mohave Co. Industrial Development Authority
(Chris Ridge Village),
1,040,000 6.250%, 11-1-16 NR/AAA 1,054,300
Peoria Industrial Development Authority (Casa Del
Rio),
2,500,000 7.300%, 2-20-28 NR/AAA 2,650,000
</PAGE>
<PAGE>
Phoenix Industrial Development Authority Single
Family Mortgage Revenue,
1,160,000 6.300%, 12-1-12, AMT NR/AAA 1,186,100
2,000,000 5.300%, 4-1-20, AMT NR/AAA 1,797,500
985,000 5.350%, 6-1-20, AMT NR/AAA 891,425
Pima Co. Industrial Development Authority Single
Family Mortgage Revenue,
160,000 7.625%, 2-1-12 A2/NR 164,600
755,000 6.500%, 2-1-17 A/NR 766,325
1,180,000 6.750%, 11-1-27, AMT NR/AAA 1,206,550
1,625,000 6.250%, 11-1-29, AMT NR/AAA 1,651,406
1,500,000 5.200%, 5-1-31, AMT NR/AAA 1,284,375
Scottsdale Industrial Development Authority
(Westminster Village),
1,185,000 7.700%, 6-1-06 NR/NR* 1,241,288
Tempe Industrial Development Authority
(Friendship Village),
1,500,000 6.500%, 12-1-08 NR/NR* 1,464,375
Yuma Industrial Development Authority
Multi Family Mortgage Revenue Bonds
(Alexandrite Sands),
3,000,000 6.100%, 9-20-34 NR/AAA 2,932,500
Total Mortgage Revenue Bonds 19,771,181
POLLUTION CONTROL REVENUE BONDS (6.6%)
Casa Grande Industrial Development Authority
(Frito Lay) Revenue Bonds,
250,000 6.650%, 12-1-14 A1/lNR 265,312
Coconino Co. Pollution Control (Nevada Power)
Revenue Bonds,
5,500,000 5.350%, 10-1-22 NR/BBB 4,633,750
Gilbert Industrial Development Authority
Wastewater Reclamation Facility Revenue Bonds,
600,000 10.000%, 10-1-10, (pre-refunded) NR/NR* 631,344
285,000 6.875%, 4-1-14, (pre-refunded) NR/NR* 290,820
715,000 6.875%, 4-1-14 NR/NR* 719,726
</PAGE>
<PAGE>
Greenlee Co. Pollution Control (Phelps Dodge)
Revenue Bonds,
9,450,000 5.450%, 6-1-09 A2/A- 9,213,750
Mohave Co. Industrial Development Authority
(North Star Steel) Revenue Bonds,
4,150,000 5.500%, 12-1-20, AMT NR/A+ 3,802,437
Navajo Co. Pollution Control Revenue Bonds
(Arizona Public Service),
4,000,000 5.875%, 8-15-28, MBIA Insured Aaa/AAA 3,900,000
1,100,000 5.875%, 8-15-28 Baa1/A- 1,036,750
Total Pollution Control Revenue Bonds 24,493,889
UNIVERSITY REVENUE BONDS (10.6%)
Arizona Board of Regents-Arizona State
University System Revenue Bonds,
6,750,000 5.750%, 7-1-12 A1/AA 6,825,937
7,000,000 6.125%, 7-1-15 A1/AA 7,218,750
1,400,000 5.500%, 7-1-19 A1/AA 1,354,500
2,000,000 5.500%, 7-1-19, MBIA Insured Aaa/AAA 1,905,000
Arizona Board of Regents-Northern Arizona
University System Revenue Bonds,
3,000,000 5.800%, 6-1-08 AMBAC Insured Aaa/AAA 3,090,000
3,000,000 5.200%, 6-1-13, FGIC Insured Aaa/AAA 2,902,500
Arizona Board of Regents-University of Arizona
System Revenue Bonds,
2,750,000 6.250%, 6-1-11 A1/AA 2,870,312
Arizona Educational Loan Mktg Corp.,
1,000,000 6.000%, 9-1-01, AMT Aa/NR 1,021,250
450,000 7.000%, 3-1-05, AMT Aa2/NR 470,812
500,000 6.625%, 9-1-05, AMT Aa2/NR 521,875
1,720,000 5.700%, 12-1-08, AMT Aa2/NR 1,724,300
Arizona Student Loan Revenue
500,000 6.600%, 5-1-10, AMT Aa/NR 517,500
1,000,000 5.875%, 5-1-18, AMT Aaa/NR 980,000
1,000,000 5.900%, 5-1-19, AMT Aaa/NR 980,000
</PAGE>
<PAGE>
Glendale Industrial Development Authority
(American Graduate School),
300,000 7.125%, 7-1-20, (pre-refunded) NR/AAA 335,250
2,100,000 5.625%, 7-1-20, AMBAC Insured NR/AAA 2,023,875
Glendale Industrial Development Authority
(Midwestern University)
2,250,000 5.375%, 5-15-28 NR/BBB+ 1,940,625
Pinal Co. Community College District
Revenue Bonds,
1,055,000 5.100%, 7-1-14, AMBAC Insured Aaa/NR 985,106
Yavapai Co. Community College District
Revenue Bonds,
1,070,000 5.400%, 7-1-10, FGIC Insured Aaa/AAA 1,074,012
500,000 6.000%, 7-1-12 NR/BBB+ 503,750
Total University Revenue Bonds 39,245,354
UTILITY REVENUE BONDS (16.0%)
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 8,361,875
2,425,000 5.250%, 10-1-17, MBIA Insured Aaa/AAA 2,264,344
Arizona Wastewater Management Authority
Revenue Bonds,
1,700,000 6.800%, 7-1-11, (pre-refunded) Aa1/AA+ 1,819,000
1,240,000 5.625%, 7-1-15, AMBAC Insured Aaa/AAA 1,308,200
Arizona Water Infrastructure Finance Authority
Revenue Bonds,
500,000 5.000%, 7-1-17, MBIA Insured Aaa/AAA 447,500
2,000,000 5.500%, 7-1-17 Aa2/NR 1,930,000
Central Arizona Water Conservation District
Revenue Bonds,
2,000,000 5.500%, 11-1-09 A1/AA- 2,045,000
1,000,000 5.500%, 11-1-10 A1/AA- 1,016,250
1,000,000 7.125%, 11-1-11, (pre-refunded) NR/AA- 1,044,480
</PAGE>
<PAGE>
Mohave Co. Industrial Development Authority
(Citizens Utility),
1,600,000 4.750%, 8-1-20 NR/A+ 1,600,000
3,000,000 7.050%, 8-1-20 NR/A+ 3,065,220
Pima Co. Industrial Development Authority (Tucson
Electric), Revenue Bonds,
2,320,000 7.250%, 7-15-10, FSA Insured Aaa/AAA 2,488,200
Salt River Project Agricultural Improvement and
Power Revenue Bonds
2,000,000 5.500%, 1-1-10 Aa2/AA 2,037,500
4,485,000 6.200%, 1-1-12 Aa2/AA 4,686,825
650,000 6.000%, 1-1-13 Aa2/AA 662,187
2,100,000 5.000%, 1-1-13, MBIA Insured Aaa/Aaa 1,976,625
1,000,000 6.000%, 1-1-16 Aa2/AA 1,012,500
1,000,000 5.125%, 1-1-18 Aa2/AA 900,000
8,500,000 6.250%, 1-1-19 Aa2/AA 8,701,875
1,250,000 5.000%, 1-1-20 Aa2/AA 1,093,750
5,730,000 6.250%, 1-1-27 Aa2/AA 5,830,275
1,065,000 5.500%, 1-1-28 Aa2/AA 990,450
Santa Cruz Industrial Development Authority
(Citizens Utility),
1,220,000 7.150%, 2-1-23, AMT NR/A+ 1,234,164
Total Utility Revenue Bonds 59,290,620
Total Arizona Revenue Bonds 252,210,528
ZERO COUPON BONDS (1.2%)
Maricopa Co. Industrial Development Authority
Single Family Mortgage Revenue Bonds,
1,775,000 0.000%, 12-31-14 Aaa/AAA 736,625
2,745,000 0.000%, 12-31-16 Aaa/AAA 1,008,787
Phoenix Industrial Development Authority Single
Family Mortgage Revenue,
1,500,000 0.000%, 12-1-14 Aaa/AAA 624,375
</PAGE>
<PAGE>
Sedona Wastewater Municipal Property Corp.
Revenue Bonds,
2,210,000 0.000%, 7-1-24, MBIA Insured NR/AAA 483,438
Tucson & Pima Co. Single Family Mortgage
Revenue Bonds
4,030,000 0.000%, 12-1-14 Aaa/AAA 1,687,563
Total Zero Coupon Bonds 4,540,788
U.S. TERRITORIAL BONDS (1.3%)
Guam Housing Development Corp.
Single Family Mortgage Revenue Bonds,
1,000,000 5.350%, 9-1-18, AMT NR/AAA 922,500
Puerto Rico General Obligation Bonds,
1,000,000 6.250%, 7-1-10 Baa1/A 1,042,500
2,035,000 6.450%, 7-1-17 (pre-refunded) Aaa/AAA 2,213,063
Puerto Rico General Obligation Bonds,
2,000,000 0.000%, 7-1-16, MBIA Insured (zero coupon) Aaa/AAA 767,500
Total U.S. Territorial Bonds 4,945,563
Total Investments (cost $368,542,443)** 99.7% 369,124,411
Other assets in excess of liabilities .3 1,114,493
Net Assets 100.0% $ 370,238,904
</TABLE>
* Any security not rated has been determined by the
Investment Sub-Advisor to have sufficient quality to be
ranked in the top four credit ratings if a credit rating
were to be assigned by a rating service.
** Cost for Federal tax purposes is identical.
PORTFOLIO ABBREVIATIONS:
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
DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $368,542,443) $ 369,124,411
Interest receivable 8,414,228
Receivable for Trust shares sold 315,309
Receivable for investment securities sold 185,000
Other assets 3,060
Total assets 378,042,008
LIABILITIES
Payable for investment securities purchased 5,845,734
Payable for Trust shares redeemed 671,588
Cash overdraft 603,964
Dividends payable 413,501
Distribution fees payable 145,585
Accrued expenses 102,494
Management fee payable 20,238
Total liabilities 7,803,104
NET ASSETS $ 370,238,904
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $.01 per share $ 367,029
Additional paid-in capital 372,570,217
Net unrealized appreciation on investments 581,968
Accumulated net realized loss on investments (2,805,274)
Distributions in excess of net investment income (475,036)
$ 370,238,904
CLASS A
Net Assets $ 366,390,915
Capital shares outstanding 36,322,185
Net asset value and redemption price per share $ 10.09
Offering price per share (100/96 of $10.09 adjusted to nearest cent) $ 10.51
CLASS C
Net Assets $ 1,803,414
Capital shares outstanding 178,552
Net asset value and offering price per share $ 10.10
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) $ 10.10*
CLASS Y
Net Assets $ 2,044,575
Capital shares outstanding 202,168
Net asset value, offering and redemption price per share $ 10.11
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 10,762,295
Expenses:
Management fee (note 3) $ 773,994
Distribution and service fees (note 3) 295,960
Transfer and shareholder servicing agent fees 125,000
Shareholders'meeting, reports and proxy statements 34,000
Trustees' fees and expenses 34,000
Legal fees 26,000
Custodian fees 18,660
Registration fees and dues 16,000
Audit and accounting fees 13,000
Insurance 10,000
Miscellaneous 26,386
1,373,000
Expenses paid indirectly (note 7) (18,660)
Net expenses 1,354,340
Net investment income 9,407,955
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from securities transactions (2,806,061)
Change in unrealized appreciation on investments (11,156,383)
Net realized and unrealized loss on investments (13,962,444)
Net decrease in net assets resulting from operations $ (4,554,489)
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1999 JUNE 30, 1999
</CAPTION>
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 9,407,955 $ 18,742,956
Net realized loss from securities transactions (2,806,061) 1,824,861
Change in unrealized appreciation on investments (11,156,383) (11,997,799)
Change in net assets resulting from operations (4,554,489) 8,570,018
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income (9,477,427) (18,969,170)
Net realized gain on investments (1,506,711) (2,903,122)
Class C Shares:
Net investment income (35,258) (45,516)
Net realized gain on investments (7,399) (8,159)
Class Y Shares:
Net investment income (55,583) (50,079)
Net realized gain on investments (8,384) (1,607)
Change in net assets from distributions (11,090,762) (21,977,653)
CAPITAL SHARE TRANSACTIONS (NOTE 8):
Proceeds from shares sold 19,026,950 49,036,624
Reinvested dividends and distributions 6,304,260 12,496,044
Cost of shares redeemed (34,825,359) (47,486,728)
Change in net assets from capital share transactions (9,494,149) 14,045,940
Change in net assets (25,139,400) 638,305
NET ASSETS:
Beginning of period 395,378,304 394,739,999
End of period $ 370,238,904 $ 395,378,304
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 December 31, 1999, 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 l iabilities 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 six months ended December 31, 1999, the Trust incurred fees
for advisory and administrative services of $773,994.
Specific details as to the nature and extent of the services provided
by the Manager and the Sub-Adviser are more fully defined in the Trust's
Prospectus and Statement of Additional Information.
b) DISTRIBUTION AND SERVICE FEES:
The 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 six months ended December 31, 1999, service fees on
Class A Shares amounted to $287,312, of which the Distributor received $11,958.
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 six months ended December 31, 1999, amounted to $6,486. 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. Th ese payments
are made at the annual rate of 0.25% of the Trust's net assets represented by
Class C Shares and for the six months ended December 31, 1999, amounted to
$2,162. The total of these payments with respect to Class C Shares amounted to
$8,648, of which the Distributor received $5,515.
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 six
months ended December 31, 1999, the Distributor received commissions of $69,841
on sales of Class A shares.
</PAGE>
<PAGE>
4. PURCHASES AND SALES OF SECURITIES
During the six months ended December 31, 1999, purchases of securities
and proceeds from the sales of securities aggregated $37,878,679 and
$46,664,170, respectively.
At December 31, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted to
$8,152,451 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value amounted to $7,570,483
for a net unrealized appreciation of $581,968.
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 December 31, 1999, the Trust had
1.3% of its net assets invested in four 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. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Trust were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1999 JUNE 30, 1999
SHARES AMOUNT SHARES AMOUNT
</CAPTION>
<S> <C> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 1,773,407 $ 18,336,384 4,164,887 $ 45,185,020
Reinvested distributions 606,671 6,221,961 1,146,007 12,417,382
Cost of shares redeemed (3,328,489) (34,266,120) (4,303,789) (46,633,346)
Net change (948,411) (9,707,775) 1,007,105 10,969,056
CLASS C SHARES:
Proceeds from shares sold 53,377 557,131 107,822 1,169,532
Reinvested distributions 2,808 28,821 2,590 28,041
Cost of shares redeemed (5,282) (54,260) (55,973) (597,882)
Net change 50,903 531,692 54,439 599,691
CLASS Y SHARES:
Proceeds from shares sold 12,772 133,435 246,354 2,682,072
Reinvested distributions 5,181 53,478 4,703 50,621
Cost of shares redeemed (48,326) (504,979) (23,725) (255,500)
Net change (30,373) (318,066) 227,332 2,477,193
Total transactions in Trust
shares (927,881) $ (9,494,149) 1,288,876 $ 14,045,940
</TABLE>
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Tax-Free Trust of Arizona (the "Trust")
was held on November 19, 1999. The holders of shares representing 65% of the
total net asset value of the shares entitled to vote were present in person or
by proxy. At the meeting, the following matters were voted upon and approved by
the shareholders (the resulting votes for each matter are presented below).
1. To elect Trustees.
<TABLE>
<CAPTION>
NUMBER OF VOTES NUMBER OF VOTES
TRUSTEE FOR WITHHELD TRUSTEE FOR WITHHELD
</CAPTION>
<S> <C> <C> <C> <C> <C>
Lacy B. Herrmann 249,117,072 3,398,318 Diana P. Herrmann 248,933,720 3,581,670
Arthur K. Carlson 249,565,031 2,950,359 John C. Lucking 249,992,718 2,522,672
Thomas W. Courtney 249,871,013 2,644,377 Anne J. Mills 249,291,601 3,223,789
William L. Ensign 249,742,685 2,772,705
</TABLE>
2. To ratify the selection of KPMG LLP as the Trust's independent auditors.
Number of Votes: FOR AGAINST ABSTAIN
246,440,496 565,689 5,509,216
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
FINANCIAL HIGHLIGHTS
(UNAUDITED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A(1)
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
12/31/99 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.51 $10.86 $10.58 $10.38 $10.37 $10.16
Income from Investment Operations:
Net investment income 0.25 0.51 0.52 0.53 0.55 0.56
Net gain (loss) on securities (both realized and
unrealized) (0.37) (0.26) 0.29 0.22 0.01 0.21
Total from Investment Operations (0.12) 0.25 0.81 0.75 0.56 0.77
Less Distributions (note 6):
Dividends from net investment income (0.26) (0.52) (0.53) (0.55) (0.55) (0.56)
Distributions from capital gains (0.04) (0.08) - - - -
Total Distributions (0.30) (0.60) (0.53) (0.55) (0.55) (0.56)
Net Asset Value, End of Period $10.09 $10.51 $10.86 $10.58 $10.38 $10.37
Total Return (not reflecting sales charge)(%) (1.17)+ 2.23 7.83 7.36 5.49 7.89
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 366,391 391,586 393,887 391,737 389,083 380,745
Ratio of Expenses to Average Net Assets (%) 0.71* 0.71 0.73 0.73 0.73 0.74
Ratio of Net Investment Income to Average Net
Assets (%) 4.86* 4.66 4.81 5.02 5.30 5.55
Portfolio Turnover Rate (%) 9.93+ 16.66 19.68 19.98 27.37 34.44
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of Expenses to Average Net Assets (%) 0.70* 0.70 0.72 0.72 0.72 0.74
</TABLE>
(1) Designated as Class A Shares on April 1, 1996.
+ Not Annualized.
* Annualized.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE TRUST OF ARIZONA
FINANCIAL HIGHLIGHTS (CONTINUED)
(UNAUDITED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C(1) CLASS Y(1)
SIX MONTHS PERIOD(2) SIX MONTHS PERIOD(2)
ENDED YEAR ENDED JUNE 30, ENDED ENDED YEAR ENDED JUNE 30, ENDED
12/31/99 1999 1998 1997 6/30/96 12/31/99 1999 1998 1997 6/30/96
</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 0.21 0.42 0.43 0.44 0.13 0.26 0.51 0.58 0.70 0.15
Net gain (loss) on securities (both realized
and unrealized) (0.38) (0.28) 0.29 0.23 (0.07) (0.37) (0.26) 0.31 0.21 (0.07)
Total from Investment Operations (0.17) 0.14 0.72 0.67 0.06 (0.11) 0.25 0.89 0.91 0.08
Less Distributions (note 6):
Dividends from net investment income (0.21) (0.42) (0.44) (0.45) (0.13) (0.27) (0.53) (0.59) (0.70) (0.15)
Distributions from capital gains (0.04) (0.08) - - - (0.04) (0.08) - - -
Total Distributions (0.25) (0.50) (0.44) (0.45) (0.13) (0.31) (0.61) (0.59) (0.70) (0.15)
Net Asset Value, End of Period $10.10 $10.52 $10.88 $10.60 $10.38 $10.11 $10.53 $10.89 $10.59 $10.38
Total Return (not reflecting sales charge) (%) (1.59)+ 1.26 6.90 6.64 0.57+ (1.09)+ 2.28 8.63 9.10 0.76+
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 1,803 1,343 797 200 6 2,045 2,450 57 0.1 0.1
Ratio of Expenses to Average Net Assets (%) 1.55* 1.56 1.57 1.58 0.40+ 0.56* 0.56 0.58 0.58 0.15+
Ratio of Net Investment Income to Average
Net Assets (%) 3.99* 3.79 3.89 4.17 1.17+ 5.00* 4.87 4.96 5.17 1.42+
Portfolio Turnover Rate (%) 9.93+ 16.66 19.68 19.98 27.37 9.93+ 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 (%) 1.54* 1.55 1.56 1.57 0.40+ 0.55* 0.55 0.57 0.57 0.15+
</TABLE>
(1) New Class of Shares established on April 1, 1996.
(2) From April 1, 1996 to June 30, 1996.
+ Not annualized.
* Annualized.
See accompanying notes to financial statements.
</PAGE>
