SEMI-ANNUAL
REPORT
JUNE 30, 1996
AQUILA
TAX-FREE FUND
OF
COLORADO
A TAX-FREE INCOME INVESTMENT
[Logo of Tax-Free Fund of Colorado: sun and mountains within a square shape]
ONE OF THE
AQUILASM GROUP OF FUNDS
[Logo of Tax-Free Fund of Colorado: sun and mountains within a square shape]
TAX-FREE FUND OF COLORADO
SEMI-ANNUAL REPORT
"FLUCTUATIONS, YET HIGH STABILITY"
August 20, 1996
<TABLE>
<S> <C> <C> <C>
6/30/96 12/31/95 6/30/95
SHARE NET ASSET VALUE $10.29 $10.56 $10.28
DISTRIBUTION YIELD 4.93%* 5.01%* 5.15%*
</TABLE>
Dear Investor:
We live in a world that is ever changing.
As the above table illustrates, the price of the Fund's shares
can and does move up and down over time. Also, the rate of DOUBLE TAX-FREE
income return distributed to shareholders can and will change. Movements in
these two key areas reflect the changes in market conditions that occurred
over the time period of this past year.
Yet, while changes have occurred, looking at these numbers in a
broader perspective, there has tended to be a relatively high level of
stability to the performance results. Indeed, these results compare
favorably to what occurred in the municipal securities market itself during
this period.
MARKET FORCES
As indicated, the changes in share price and income return are
influenced considerably by market forces. Market forces are governed by
several main factors in the area of fixed-income securities. This area
encompasses the tax-free municipal securities in which the Fund invests.
Key among these factors is action taken by the Federal Reserve
Board. This Federal government organization has the power to raise and lower
interest rates in key areas which, in turn, can have an effect on all types
of fixed-income securities. The Fed can also control the supply of money in
our financial system - increasing or decreasing the amount of dollars in
circulation. This, in turn, can affect the market.
*Indicates trailing 12-month yield distributed to shareholders as
measured against share maximum public offering price.
<PAGE>
The other key factor influencing market action is the
psychology of investors. By psychology of investors, we mean the level of
confidence that investors as a whole have toward what is happening in our
country's overall financial affairs. We now live in a world that is not only
ever changing, but also one that is very global in nature. Consequently, the
psychology factor within market activity is influenced not only by the
confidence level, or lack thereof, which investors in the United States have,
but also by the confidence level that investors all around the world have
toward the handling of major financial affairs in our country.
Altogether, then, what happens to the share price and
distribution return of the Fund is very much driven by market forces. This
is an important factor which shareholders in the Fund must appreciate and
come to understand. And, this is the case whether investors own municipal
securities individually, or whether they do so through the portfolio of such
municipal securities as the Fund provides to shareholders.
THE VALUE THE FUND PROVIDES
While accepting the fact that market forces can and do have an
effect upon the Fund's performance, it must also be recognized that Tax-Free
Fund of Colorado brings to bear very specific factors to dampen the extremes
of such market forces.
Most significant of these factors is the professional
investment management team of the Fund's Investment Adviser, KPM Investment
Management, Inc. Under the guidance of the Fund's management and the
Trustees, the Investment Adviser oversees, on a continuing basis, the
investments of the Fund. And, in doing so, they moderate forces that can or
might cause anxieties with investors. A very special element that the
professional investment management team brings to bear is the implementation
of the Fund's investment approach.
QUALITY FACTOR
A key moderation factor in containing damage from market forces
is quality - quality of the municipal issues within the Fund's investment
portfolio. Quality of issues is a very protective factor when it comes to
capital preservation.
That is why the Fund has chosen to invest in only those
municipal securities within the TOP FOUR CREDIT RATINGS, or equivalent.
It is noteworthy that at the end of the June 30, 1996 report
period, 99.3% of the Fund's holdings carried a credit rating of A OR BETTER -
the top three ratings.
Moreover, at this report date, 87.3% of the Fund's investments
were rated AA OR AAA.
DIVERSIFICATION FACTOR
Another very important factor in moderating market forces is
diversification among portfolio holdings.
At June 30, 1996, the Fund had 149 SEPARATE ISSUES within the
investment portfolio, representing many different municipal projects within
numerous communities throughout Colorado.
MATURITY FACTOR
Through having a variety of different maturities among the
securities in the Fund's portfolio, it is possible to avoid extremes in
volatility that can come about with market fluctuations. As you are aware,
short maturity securities possess little fluctuation in price, but pay low
yields. On the other hand, long maturity securities give higher yields, but
possess considerable price volatility due to the uncertainties involved over
the time between the present and the specified maturity date. The Fund seeks
an average intermediate maturity within the investment portfolio. Currently,
at June 30, 1996, the average maturity was 9.33 YEARS, so as to provide an
adequate income return, yet only moderate volatility in share price.
INCOME RETURN
As the table above illustrates, the trailing 12-month yield
distributed to shareholders, as measured against average maximum public
offering price, was running at the rate of 4.93% at June 30, 1996.
This is somewhat lower than it was six months and a year
earlier. However, it reflects the declining level of general market return
of municipal securities over this period.
Despite the modest decline in yield to shareholders, it must be
remembered that this income amount is the DOUBLE TAX-FREE return that
shareholders received from the Fund.
It is worth noting from the below graph that one would have had
to earn a substantially higher income return from a TAXABLE investment in
order to match the DOUBLE TAX-FREE amount distributed by the Fund.
And you will note, if one were in the 28% Federal income tax
bracket, a TAXABLE return of 7.21% would have to be achieved to match the
4.93% DOUBLE TAX-FREE return of the Fund. In the highest Federal income tax
bracket of 39.6%, the equivalent return would have had to have been 8.59%.
In general, it would not have been possible for an investor to obtain such
levels of taxable return unless additional risk was taken in the form of
lesser quality or longer maturity securities, or both such elements.
[Graphic of Bar Chart with the following information:]
<TABLE>
<CAPTION>
TAX-FREE FUND OF COLORADO'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 Taxable Equivalent Rate Double Tax-Free Distribution Rate
<C> <C> <C>
28% 7.21% 4.93%
31% 7.52% 4.93%
36% 8.11% 4.93%
39.6% 8.59% 4.93%
</TABLE>
<PAGE>
COMMITMENT TO CONSISTENCY
Management is committed to providing shareholders with as
consistent results from Tax-Free Fund of Colorado as are possible to achieve,
considering prevailing market forces.
You should be aware that we are not able to eliminate
completely the market forces that swirl around us on a continuing basis.
However, as indicated, a number of investment management
techniques are used by the Fund to moderate market forces.
YOUR CONFIDENCE APPRECIATED
We again wish to emphasize that your confidence in Tax-Free
Fund of Colorado is greatly appreciated. You can be assured that management
will do everything in its power to merit your continued trust.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION S&P VALUE
BONDS (36.1%)
<C> <S> <C> <C>
School Districts (17.4%)
$1,000,000 Adams County School District #1 Aaa/AAA $ 1,095,000
6.50%, 12/01/07, FGIC Insured
2,500,000 Adams County School District #12 Aaa/AAA 2,615,625
6.20%, 12/15/09, FGIC Insured
2,000,000 Adams County School District #12 Aaa/AAA 2,207,500
7.30%, 12/15/07, FGIC Insured
1,500,000 Arapahoe County, Cherry Creek
School
District #5 Aa/AA 1,640,625
7.00%, 12/15/03
2,000,000 Boulder, Larimer & Weld County,
St. Vrain Valley
School District #RE-1 Aaa/AAA 2,085,000
5.70%, 12/15/06, MBIA Insured
775,000 Boulder, Larimer & Weld County,
St. Vrain Valley
School District #RE-1 Aaa/AAA 842,813
7.00%, 12/15/99, MBIA Insured
225,000 Boulder, Larimer & Weld County,
St. Vrain Valley
School District #RE-1 Aaa/AAA 242,156
7.00%, 12/15/05, MBIA Insured
2,000,000 Boulder, Larimer & Weld County,
St. Vrain Valley
School District #R-2J Aaa/AAA 2,075,000
5.90%, 12/15/05, MBIA Insured
1,500,000 Denver City & County School
District #1 Aaa/AAA 1,608,750
6.10%, 12/15/06, MBIA Insured
1,000,000 Douglas & Elbert Counties School
District #RE-1
Refunding Series 1991B Aaa/AAA 1,075,000
6.70%, 12/15/06, FGIC Insured
1,000,000 Douglas & Elbert Counties School
District # Re-1,
Series 1992 Aaa/AAA 1,040,000
5.75%, 12/15/05, FGIC Insured
2,500,000 Douglas & Elbert Counties School
District # Re-1,
Series 1992 Aaa/AAA 2,653,125
6.15%, 12/15/08, MBIA Insured
1,500,000 Eagle County School District #RE50J Aaa/AAA 1,593,750
6.95%, 12/01/03, FGIC Insured
2,320,000 Eagle County School District #RE50J, Aaa/AAA 2,496,900
Series 1999
6.15%, 12/01/04, FGIC Insured
400,000 El Paso County School District #20 Aaa/AAA 417,500
8.00%, 12/01/06, MBIA Insured
1,600,000 Jefferson County School
District # R-1 Aaa/AAA 1,680,000
6.00%, 12/15/06, AMBAC Insured
4,000,000 Jefferson County School
District, #R-001 Aaa/AAA 4,175,000
6.00%, 12/15/07, AMBAC Insured
1,000,000 Poudre Valley School District # R-1,
General Obligation Refunding Aaa/AAA 1,038,750
6.15%, 12/15/08, AMBAC Insured
1,500,000 Poudre Valley School District # R-1,
General Obligation Refunding Aaa/AAA 1,496,250
5.40%, 12/15/04, AMBAC Insured
1,045,000 Pitkin County Colorado School
District #1 (ASPEN) Aaa/AAA 1,114,231
5.85%, 11/15/03, AMBAC Insured
1,790,000 Pitkin County, Aspen School
District #1
Series 1989 Aaa/AAA 1,899,638
5.95%, 11/15/05, AMBAC Insured
1,030,000 Pueblo County School District # 070,
Pueblo Rural
Series B Aaa/AAA 1,018,412
5.375%, 12/01/08, MBIA Insured
1,050,000 Summit County School District,
Series A Aaa/AAA 1,069,688
5.40%, 12/01/06, FGIC Insured
37,180,713
City & County (9.2%)
500,000 Boulder County Open Space
Acquisition Aaa/AA 533,750
6.90%, 08/15/04
1,000,000 Denver City & County
Refunding-Water Aa/AA 1,023,750
5.85%, 09/01/07
3,000,000 Denver Colorado City & County
Series C Aa/AA 3,056,250
5.75%, 08/01/07
500,000 Denver Colorado City &
County Unlimited Tax, Aa/AA 543,750
6.90%, 08/01/02
1,000,000 Denver Colorado City &
County Unlimited Tax, Aa/AA 1,086,250
7.00%, 08/01/03
1,785,000 Fort Collins, Refunding Aa/AA 1,851,938
6.05%, 12/01/07
750,000 Greeley Water & Improvement Refunding A1/AA- 800,625
7.50%, 08/01/98
1,530,000 Left Hand Water District, Series 1996 Aaa/AAA 1,572,075
5.75%, 11/15/08
500,000 Louisville, CO Water Refunding Aaa/AAA 526,250
7.10%, 12/01/02, FGIC Insured
1,085,000 Snowmass Refunding Aaa/AAA 1,173,156
6.95%,11/15/05, FSA Insured
4,000,000 Thornton, CO Refunding Aaa/AAA 4,230,000
6.00%, 12/01/05, FGIC Insured
2,000,000 Thornton, CO, Refunding-Spur A Aaa/AAA 2,110,000
6.05%, 12/01/06, FGIC Insured
1,000,000 Westminster Colorado Water
Series 1992 A A1/AA- 1,036,250
6.25%, 12/01/07
19,544,044
Metropolitan District (4.8%)
2,500,000 Boulder Colorado Central Area
Improvement Aaa/AAA 2,606,250
6.30%, 08/15/07, FGIC Insured
1,000,000 Castle Rock Ranch Public Improvements Aaa/AAA 1,026,250
5.90%, 12/01/03, MBIA Insured
1,000,000 Highlands Ranch Metropolitan
District #4 Aa1/AAA 1,012,500
5.80%, 12/01/07, MBIA Insured
1,530,000 Highlands Ranch Metropolitan District
#1, Refunding Aaa/AAA 1,614,150
6.25%, 09/01/06, MBIA Insured
1,500,000 Meridian Metropolitan District A3/NR 1,576,875
7.00%, 12/01/99
1,000,000 Westglenn Metropolitan District
Colorado, NR/A+ 1,036,250
6.25%, 12/01/08
1,260,000 Westglenn Metropolitan District
Colorado Jefferson County
Refunding, NR/A+ 1,283,625
5.65%, 12/01/04
10,155,900
Water & Sewer (2.4%)
1,750,000 Centennial Water & Sewer District Aa1/AAA 1,800,312
5.80%, 12/01/07
1,220,000 Inverness Water & Sanitation
District Colorado Arapahoe &
Douglas Counties Refunding,
6.30%, 12/01/05, MBIA Insured Aaa/AAA 1,294,725
1,000,000 Southgate Colorado Water District
Arapahoe & Douglas Counties Aaa/AAA 1,048,750
7.05%, 12/01/01, FGIC Insured
1,000,000 Southgate Colorado Water District
Arapahoe & Douglas Counties Aaa/AAA 1,052,500
7.20%, 12/01/05, FGIC Insured
5,196,287
Hospital (2.3%)
750,000 Poudre Valley Colorado Hospital
District Aa/AA- 799,688
6.75%, 11/15/98
2,000,000 Poudre Valley Hospital District,
Refunding Aa/AA- 1,987,500
5.375%, 11/15/07
1,000,000 Poudre Valley Hospital District,
Refunding Aa/AA- 1,087,500
6.50%, 12/01/04
1,000,000 Pueblo County Colorado Hospital
Facilities, Series A Aaa/AAA 1,072,500
6.80%, 09/01/05, MBIA Insured
4,947,188
Total General Obligation Bonds 77,024,132
REVENUE BONDS (63.5%)
Higher Education (12.1%)
1,000,000 Aurora Educational Development
Community College Series 1990 Aaa/AAA 1,081,250
7.10%, 04/01/02, MBIA Insured
1,000,000 Aurora Educational Development
Revenue Bonds Aaa/AAA 1,086,250
7.25%, 04/01/05 MBIA Insured
1,580,000 City of Aurora Colorado Educational
Development
Refunding Bonds Series NR/BBB 1,597,775
6.00%, 10/15/07
1,000,000 Colorado Post Secondary
Educational Facility,
Regis University Project NR/AAA 1,048,750
6.35%, 06/01/05, Connie Lee
Insured
1,235,000 Colorado Post Secondary
Educational Facility,
Regis University Project NR/AAA 1,289,031
6.30%, 03/01/07, Connie Lee
Insured
1,000,000 Colorado Post Secondary
Educational Facilities
Authority Refunding Revenue
Bonds Series 93, NR/AAA 1,015,000
5.95%, 03/01/09
1,000,000 Colorado State Board of Agriculture
Revenue, Fort Lewis College Aaa/AAA 1,063,750
6.50%, 10/01/06, FGIC Insured
1,000,000 Colorado State Board of Agriculture
Revenue,
University of Southern Colorado
Auxiliary Facility Aaa/AAA 1,043,750
6.25%, 08/01/07, AMBAC Insured
1,000,000 Colorado State Board of Agriculture
Revenue
Refunding & Improvement Aaa/AAA 1,048,750
6.35%, 03/01/08, MBIA Insured
1,000,000 Colorado State Board of Agriculture
Revenue Refunding, Colorado
State University Student Sports, Aaa/AAA 1,003,750
5.40%, 04/01/06, MBIA Insured
1,000,000 Colorado State Board of Agriculture
Revenue Refunding, Colorado
State University Student Sports, Aaa/AAA 983,750
5.45%, 04/01/08, MBIA Insured
2,655,000 Board of Trustees State Colleges
Colorado Auxiliary Facilities
System Revenue Bonds
(Western State Colleges Project) NR/AAA 2,920,500
6.60%, 05/01/08
1,375,000 Board of Trustees State Colleges
Colorado Auxiliary Facilities
System Aaa/AAA 1,381,875
5.35%, 05/15/06, MBIA Insured
1,500,000 Colorado Student Obligation Board
Authority Student Loan Revenue A/NR 1,539,375
6.00%, 09/01/01, MBIA Insured
1,860,000 Colorado State Colleges Western State, Aaa/AAA 1,839,075
5.50%, 05/15/09, MBIA Insured
1,000,000 Larimer County, Colorado State
University Research Fund Aaa/AAA 1,025,520
7.00%, 04/01/03, BIGI Insured
420,000 University of Colorado, Student
Recreation Center Aaa/AAA 447,825
7.00%, 06/01/99, MBIA Insured
500,000 University of Colorado Regents
Research Building Revolving Fund
Revenue NR/A+ 529,375
6.85%, 06/01/03
320,000 University of Colorado Revenue Aaa/AAA 347,600
7.10%, 06/01/02, MBIA Insured
1,000,000 University of Colorado Research
Building Revenue Aaa/AAA 1,037,500
6.00%, 06/06/06, MBIA Insured
1,000,000 University of Colorado Revenue Aaa/AAA 1,043,750
6.20%, 06/01/07, MBIA Insured
1,500,000 State of Colorado University of
Northern Colorado Auxiliary
Facilities Aaa/AAA 1,535,625
5.75%, 06/01/07, MBIA Insured
25,909,826
Electric (9.5%)
8,000,000 Adams County Colorado Pollution
Control Revenue Public Service Aaa/AAA 8,090,000
5.625%, 04/01/08, MBIA Insured
2,000,000 Colorado Springs Utility Revenue
Series 1991 A Aa/AA 2,187,500
6.75%, 11/15/05
2,125,000 Moffat County Colorado Pollution
Control Revenue Aaa/AAA 2,178,125
5.625%, 11/01/06, AMBAC
Insured
1,210,000 Moffat County Colorado Pollution
Control Revenue Aaa/AAA 1,246,300
5.50%, 11/01/03, AMBAC
Insured
3,000,000 Platte River Power Authority Aa/A+ 3,117,300
6.75%, 06/01/07
2,000,000 Platte River Power Authority Aa/A+ 2,097,500
6.00%, 06/01/06
1,315,000 Platte River Power Authority Power
Revenue Series BB Aa/A+ 1,359,381
6.125%, 06/01/09
20,276,106
Sales Tax (6.1%)
1,000,000 Arvada Colorado Sales & Use Tax
Revenue Aaa/AAA 1,032,500
6.10%, 12/01/07, FGIC Insured
905,000 Castle Rock Sales & Use Tax Revenue Aaa/AAA 921,534
6.85%, 06/01/00, MBIA Insured
500,000 Denver City & County Excise Tax Aaa/AAA 533,750
6.90%, 09/01/00, MBIA Insured
1,000,000 Denver Metro Major League Baseball
Stadium Excise Tax Revenue Aaa/AAA 1,078,750
6.35%, 10/01/03, FGIC Insured
2,000,000 Denver Metro Major League Baseball
Stadium Excise Tax Revenue Aaa/AAA 2,167,500
6.45%, 10/01/04, FGIC Insured
1,000,000 Fort Collins Downtown Development
Authority Tax Increment Revenue Aaa/AAA 1,055,000
6.50%, 06/01/07, MBIA Insured
2,045,000 Fort Collins Sales & Use Tax Revenue Aaa/AAA 2,055,225
5.375%, 12/01/06, FGIC
Insured
1,000,000 Jefferson County Districtwide Sales
Tax Aaa/AAA 1,045,000
6.10%, 12/01/04, MBIA Insured
500,000 Mesa County Sales Tax Revenue Aaa/AAA 529,375
7.40%, 06/01/00, MBIA Insured
500,000 Thornton Sales & Use Tax Revenue Aaa/AAA 531,875
6.70%, 09/01/99, FGIC Insured
1,000,000 Thornton Sales & Use Tax Revenue Aaa/AAA 1,058,750
6.80%, 09/01/01, FGIC Insured
1,000,000 Westminster Sales & Use Tax 1991 Aaa/AAA 1,080,000
6.70%, 12/01/01, FGIC Insured
13,089,259
Water & Sewer (8.7%)
1,000,000 Colorado Water Resource & Power
Development Authority, Series A Aa/A+ 1,107,500
6.90%, 09/01/04
1,000,000 Colorado Water Resource & Power
Development Authority, Series A Aa/A+ 1,112,500
7.00%, 09/01/05
1,000,000 Colorado Water Resource & Power
Development Authority,
Clean Water Revenue, Aa/A+ 1,020,000
5.35%, 09/01/06
1,000,000 Colorado Water Resource & Power
Development Authority, Series A Aa/A+ 1,112,500
7.00%, 09/01/06
500,000 Colorado Water Resource & Power
Development Authority, Series B Aa/AA+ 555,000
6.875%, 09/01/05
500,000 Colorado Water Resource & Power
Development Authority, Aaa/AAA 545,000
7.00%, 11/01/00
1,000,000 Colorado Water Resource & Power
Development Authority Aaa/AAA 1,080,000
6.80%, 11/01/05, FGIC Insured
1,000,000 Colorado Water Resource & Power
Development Authority Aaa/AAA 1,077,500
6.50%, 11/01/05, FGIC Insured
1,000,000 Colorado Water Resource & Power
Development Authority Aa/A+ 1,060,000
6.00%, 09/01/06
1,100,000 Colorado Water Resource & Power
Development Authority Aaa/AAA 1,113,750
5.45%, 11/01/07, FGIC Insured
900,000 Fort Collins Sewer Revenue Aaa/AAA 928,656
7.45%, 12/01/99, FGIC Insured
1,965,000 Fort Collins Colorado Wastewater
Sewer Revenue Aaa/AAA 1,940,438
5.375%, 12/01/08, FGIC
Insured
1,000,000 Loveland Sewer Revenue Series 1989 Aaa/AAA 1,057,500
6.80%, 11/01/01, MBIA Insured
1,000,000 Metro Wastewater Reclaimation
District, Gross Revenue Series A1/AA 1,042,500
5.70%, 04/01/05
1,055,000 Metro Wastewater Reclaimation
District, Gross Revenue Series A1/AA 1,097,200
5.80%, 04/01/06
1,500,000 Parker Water and Sanitation District
Revenue Refunding Aaa/AAA 1,558,125
6.10%, 10/01/07, FGIC Insured
1,000,000 Westminster Colorado Water &
Wastewater Utility Enterprise-
Water And Wastewater Revenue
Series 1994 Aaa/AAA 1,032,500
5.70%, 12/01/04, AMBAC
Insured
18,440,669
Hospital (4.7%)
2,255,000 Colorado Health Facility Community
Provider Pooled Loan Revenue Aaa/AAA 2,486,138
7.20%, 07/15/05, CGIC Insured
1,000,000 Colorado Health Facility Community
Provider Pooled Loan Program Aaa/AAA 1,010,990
7.40%, 07/15/99, MBIA Insured
1,000,000 Colorado Health Facility Authority
Sisters of Charity Health Care Aaa/AAA 1,066,250
6.25%, 05/15/09, AMBAC
Insured
2,030,000 Colorado Health Facility Authority
Hospital Revenue North Colorado
Medical Center Aaa/AAA 2,101,050
5.60%, 05/15/05, MBIA Insured
1,410,000 Colorado Health Facility Authority
Hospital Revenue Boulder
Community Hospital Aaa/AAA 1,447,012
5.65%, 10/01/06, MBIA Insured
1,460,000 City of Colorado Springs Hospital
Revenue Bonds Memorial Hospital Aaa/AAA 1,481,900
5.50%, 12/15/06, MBIA Insured
300,000 Denver City & County Revenue
Refunding for St. Anthony's
Hospital Series 1988 Aaa/AAA 324,000
7.10%, 05/01/00, MBIA Insured
9,917,340
Housing (12.5%)
1,600,000 Adams County Colorado Multi-Family
Housing Revenue, Brittany
Station Series A, NR/AAA 1,614,000
5.400%, 09/01/25
1,950,000 Boulder County Multi-Family Housing,
Bridgewalk Project L.O.C.,
First Banks N.A. NR/A 1,951,677
7.125%, 08/01/99, First Bank
of Minnesota Insured
1,015,000 City of Arvada Colorado Multi-family
Housing Revenue, Springwood
GNMA NR/AAA 1,015,000
5.60%, 08/20/08
715,000 Colorado Housing Finance Authority
1991, Series A NR/A 749,856
6.90%, 05/01/01
305,000 Colorado Housing Finance Authority
1991, Series A-3 NR/AA 314,531
6.10%, 11/01/00
300,000 Colorado Housing Finance Authority
1991, Series A-1 NR/AA 311,250
6.20%, 11/01/01
1,530,000 Colorado Housing Finance Authority,
SFM Series A-2 NR/AA 1,602,675
6.65%, 11/01/06
1,200,000 Colorado Housing Finance Authority,
SFM Series 1994C Aa/NR 1,233,000
6.00%, 12/01/04
1,255,000 Colorado Housing Finance Authority,
SFM Series A-2 Aa/NR 1,256,569
5.75%, 11/01/10
3,400,000 Colorado Housing Finance Authority,
SFM Series D-2 Aa/NR 3,366,000
5.625%, 06/01/10
2,815,000 Colorado Housing Finance Authority,
SFM Series 1994C Aa/NR 2,878,338
6.25%, 12/01/12
480,000 Commerce City Single Family Revenue
Series A A/NR 498,600
6.875%, 03/01/12
1,000,000 Littleton Assisted Living Building
Authority, Amity Plaza Project
Multifamily Housing Revenue
Bond Series 1994 NR/A+ 1,031,250
6.10%, 03/01/06
1,500,000 Snowmass Village Multi-family
Revenue Refunding Aaa/AAA 1,550,625
6.30%, 12/15/08
485,000 Southwestern Colorado Single Family
Revenue Partnership, Refunding A/NR 506,825
7.10%, 09/01/04
250,000 Summit County SFM Revenue Refunding
Series A A/NR 258,750
7.25%, 12/01/04
4,145,000 Westminster Colorado Multi-Family
Revenue Refunding NR/AAA 4,181,269
5.35%, 12/01/25
2,200,000 Westminster Colorado Multi-Family
Revenue Refunding NR/AAA 2,252,250
5.95%, 09/01/15
26,572,465
Industrial Development Revenue (3.6%)
4,750,000 Boulder County Industrial Development
Revenue Refunding May Department
Stores Company Project NR/A 4,963,750
6.25%, 09/01/07
755,000 Denver City & County Industrial
Development Revenue NR/A 775,762
6.40%, 12/01/10
1,860,000 Denver City & County, Industrial
Development Revenue, Rollie R.
Kelley NR/A 1,934,400
7.00%, 06/01/06
7,673,912
Transportation (1.8%)
1,000,000 Arapahoe County Colorado E-470
Vehicle Registration Revenue
Bonds Aaa/AAA 1,008,750
5.45%, 08/31/07
1,550,000 Regional Transportation District
Sales Tax Revenue A1/AA- 1,660,438
6.05%, 11/01/04
1,000,000 Regional Transportation District
Sales Tax Revenue Aaa/AAA 1,055,000
6.15%,11/01/05, FGIC Insured
3,724,188
Lease (2.5%)
600,000 Arapahoe Library District, Adams &
Arapahoe Counties COP Aaa/AAA 648,750
7.00%, 12/15/02, FGIC
Insured
1,535,000 City Of Aspen Colorado Lease
Purchase Reven COP Aaa/AAA 1,525,406
5.25%, 09/01/06, MBIA Insured
405,000 Boulder Municipal Property Authority
Lease Purchase Revenue, Series B Aaa/AAA 421,706
7.20%, 12/01/00 BIGI Insured
400,000 Denver City & County School
District #1, COP Aaa/AAA 418,000
6.80%, 12/15/98, FGIC Insured
1,200,000 Denver City & County School District
Lease Purchase Agreement Aaa/AAA 1,252,500
6.85%, 12/15/99, FGIC Insured
1,000,000 Denver City & County School
District #1, COP Aaa/AAA 1,087,500
6.95%, 12/15/00, FGIC Insured
5,353,862
Miscellaneous Revenue (2.0%)
1,000,000 Boulder County, CO, N.C.A.R. NR/A 1,077,500
6.50%, 12/01/02
1,000,000 Boulder County, CO, N.C.A.R. NR/A 1,077,500
6.60%, 12/01/03
2,000,000 Boulder County Colorado Open Space
& Use Tax Revenue Bonds
Series 1994 FGIC Insured, Aaa/AAA 2,062,500
5.75%, 12/15/04
4,217,500
Total Revenue Bonds 135,175,127
Total Investments - 99.6%
(Cost $206,549,860*) 212,199,259
Other assets in excess of
liabilities - 0.4% 856,090
Net Assets - 100% $213,055,349
<FN>
* Cost for Federal tax purposes is $ 205,900,645.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments at value (identified cost $206,549,860) $ 212,199,259
Interest receivable 2,123,551
Receivable for Fund shares sold 60,348
Other assets 1,976
Total assets 214,385,134
LIABILITIES
Cash overdraft 944,240
Dividends payable 121,457
Accrued expenses 85,693
Adviser and Administrator fees payable 79,190
Payable for Fund shares redeemed 72,171
Distribution fees payable 27,034
Total liabilities 1,329,785
NET ASSETS $ 213,055,349
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares,
par value $.01 per share $ 206,951
Additional paid-in capital 207,714,241
Accumulated net loss on investments (515,242)
Net unrealized appreciation on investments 5,649,399
$ 213,055,349
CLASS A
Net Assets $ 212,840,261
Capital shares outstanding 20,674,179
Net asset value and redemption price per share $ 10.29
Offering price per share (100/96 of $10.29 adjusted to nearest cent) $ 10.72
CLASS C
Net Assets $ 214,988
Capital shares outstanding 20,883
Net asset value and offering price per share $ 10.29
Redemption price per share $ *
(*}}varies by length of time shares are held)
CLASS Y
Net Assets $ 100
Capital shares outstanding 10
Net asset value, offering and redemption price per share $ 10.29
See accompanying notes to financial statements.
</TABLE>
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 6,235,914
Expenses:
Investment Adviser fees (note B) $ 215,212
Administrator fees (note B) 322,818
Transfer and shareholder servicing
agent fees 76,000
Distribution fees (note B) 54,392
Legal fees 36,000
Trustees' fees and expenses 34,500
Shareholders' reports and proxy statements 24,000
Custodian fees (note F) 14,296
Audit and accounting fees 14,000
Registration fees and dues 9,000
Insurance 2,200
Miscellaneous 21,339
823,757
Investment Advisory fees waived (note B) (7,388)
Administration fees waived (note B) (72,688)
Expenses paid indirectly (note F) (14,296)
Net expenses 729,385
Net investment income 5,506,529
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain from securities
transactions 151,177
Change in unrealized appreciation on
investments (5,813,156)
Net realized and unrealized gain (loss)
on investments (5,661,979)
Net decrease in net assets resulting from
operations $ (155,450)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,506,529 $ 11,118,030
Net realized gain (loss)
from securities transactions 151,177 (610,206)
Change in unrealized appreciation
(depreciation) on investments (5,813,156) 15,943,831
Change in net assets from
operations (155,450) 26,451,655
DISTRIBUTIONS TO SHAREHOLDERS (NOTE E):
Class A Shares:
Net investment income (5,505,179) (11,118,030)
Net realized gain on investments _ _
Class C Shares:
Net investment income (1,349) _
Net realized gain on investments _ _
Class Y Shares:
Net investment income _ _
Net realized gain on investments _ _
Change in net assets from
distributions (5,506,528) (11,118,030)
CAPITAL SHARE TRANSACTIONS (NOTE G):
Proceeds from shares sold 14,152,064 20,448,079
Reinvested dividends and
distributions 3,348,311 6,682,125
Cost of shares redeemed (18,088,855) (22,233,430)
Change in net assets from
capital share transactions (588,480) 4,896,774
Change in net assets (6,250,458) 20,230,399
NET ASSETS:
Beginning of period 219,305,807 199,075,408
End of period $ 213,055,349 $ 219,305,807
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Tax-Free Fund of Colorado (the "Fund"), a non-diversified, open-end
investment company, was organized in February, 1987 as a Massachusetts
business trust and commenced operations on May 21, 1987. The Fund is
authorized to issue an unlimited number of shares and, since its inception to
April 30, 1996, offered only one class of shares. On that date, the Fund
began offering two additional classes of shares, Class C and Class Y shares.
All shares outstanding prior to that date were designated as Class A shares
and, as was the case since inception, are sold with a front-payment sales
charge and bear a service fee. Class C shares are sold with no front-payment
sales charge but are assessed a contingent deferred sales charge if redeemed
within one year from the date of purchase and a level-payment charge for
service and distribution fees from date of purchase through six years
thereafter. Class Y shares are offered only to institutions acting for
investors in a fiduciary, advisory, agency, custodial or similar capacity,
are not offered directly to retail customers, and are sold at net asset value
with no sales charge, no redemption fee, no contingent deferred sales charge
and no service or distribution fees. 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.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
(1) PORTFOLIO VALUATION: Municipal securities which have remaining
maturities of more than 60 days are valued each business day based
upon information provided by a nationally prominent independent
pricing service and periodically verified through other pricing
services; in the case of securities for which market quotations are
readily available, securities are valued at the mean of bid and
asked quotations and, in the case of other securities, at fair
value determined under procedures established by and under the
general supervision of the Board of Trustees. Securities which
mature in 60 days or less are valued at amortized cost if their
term to maturity at purchase was 60 days or less, or by amortizing
their unrealized appreciation or depreciation on the 61st day prior
to maturity, if their term to maturity at purchase exceeded 60
days.
(2) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and
losses from securities transactions are reported on the identified
cost basis. Interest income is recorded daily on the accrual basis
and is adjusted for amortization of premiums and accretion of
discounts of securities purchased at other than par with less than
60 days to maturity.
(3) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a
regulated investment company by complying with the provisions of
the Internal Revenue Code applicable to certain investment
companies. The Fund intends to make distributions of income and
securities profits sufficient to relieve it from all, or
substantially all, Federal income and excise taxes.
<PAGE>
(4) 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.
(5) 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 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.
NOTE B - MANAGEMENT ARRANGEMENTS AND FEES AND OTHER TRANSACTIONS WITH
AFFILIATES:
Management affairs of the Fund are conducted through two separate
management arrangements.
KPM Investment Management, Inc. (the "Adviser") became Investment Adviser
to the Fund effective July 1, 1994. (Kirkpatrick, Pettis, Smith, Polian Inc.,
of which the Adviser is a wholly-owned subsidiary, was the predecessor
Investment Adviser beginning October 1, 1992.) In this role, under an
Investment Advisory Agreement, the Adviser supervises the Fund's investments
and provides various services to the Fund for which it is entitled to receive
a fee which is payable monthly and computed as of the close of business each
day at the annual rate of 0.20 of 1% of the entire net assets of the Fund.
This fee will be reduced to 0.16% if certain payments are made under the
Fund's Distribution Plan relative to Class A Shares.
The Fund also has an Administration Agreement with Aquila Management
Corporation (the "Administrator"), the Fund's founder and sponsor. Under this
Agreement, the Administrator provides all administrative services, other than
those relating to the management of the Fund's investments. These include
providing the office of the Fund and all related services as well as
overseeing the activities of all the various support organizations to the
Fund such as the shareholder servicing agent, custodian, legal counsel,
auditors and distributor and additionally maintaining the Fund's accounting
books and records. For its services, the Administrator is entitled to receive
a fee which is payable monthly and computed as of the close of business each
day at the annual rate of 0.30 of 1% of the entire net assets of the Fund.
This fee will be reduced to 0.24% if certain payments are made under the
Fund's Distribution plan relative to Class A Shares.
Specific details as to the effect of the Fund's payments under its
Distribution Plan, as described below, on the above management fees and as
to the nature and extent of the services provided by the Adviser and the
Administrator are more fully defined in the Fund's Prospectus and Statement
of Additional Information.
The Adviser and the Administrator each agrees that the above fees shall
be reduced, but not below zero, by an amount equal to its pro-rata portion
(determined on the basis of the respective fees computed as described above)
of the amount, if any, by which the total expenses of the Fund in any fiscal
year, exclusive of taxes, interest and brokerage fees, shall exceed the
lesser of (i) 2.5% of the first $30 million of average annual net assets of
the Fund plus 2% of the next $70 million of such assets and 1.5% of its
average annual net assets in excess of $100 million, or (ii) 25% of the
Fund's total annual investment income. No such reduction in fees was required
during the six months ended June 30, 1996.
For the six months ended June 30, 1996, the Fund incurred fees under the
Advisory Agreement and Administration Agreement of $215,212 and $322,818,
respectively, of which amounts the Adviser and Administrator voluntarily
waived $7,388 and $72,688, respectively.
Under a Distribution Agreement, Aquila Distributors, Inc. (the
"Distributor") serves as the exclusive distributor of the Fund's shares.
Through agreements between the Distributor and various broker-dealer firms
("dealers"), the Fund's shares are sold primarily through the facilities of
these dealers having offices within Colorado, with the bulk of sales
commissions inuring to such dealers. For the six months ended June 30, 1996,
the Distributor received sales commissions in the amount of $49,615.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part
of the Plan, with respect to Class A Shares, the Fund is authorized to make
service fee payments to broker-dealers or others selected by the Distributor,
including, but not limited to, any principal underwriter of the Fund, with
which the Distributor has entered into written agreements contemplated by the
Rule and which have rendered assistance in the distribution and/or retention
of the Fund's shares or servicing of shareholder accounts ("Qualified
Recipients"). The Fund makes payment of this service fee at the annual rate
of 0.05% of the Fund's average net assets represented by Class A Shares. The
Board of Trustees and shareholders approved an amendment to the Fund's
Distribution Plan applicable to Class A Shares which will permit the Fund to
make service fee payments at the rate of 0.15 of 1% on the entire net assets
represented by Class A Shares. However, there will be a simultaneous
reduction in the fee payable to the Adviser from an annual rate of 0.20 of 1%
to 0.16% and in the fee payable to the Administrator from an annual rate of
0.30 of 1% to 0.24% on all net assets. The combined payments of these fees
will accordingly remain at the current level of 0.55 of 1% of the average
annual net assets represented by the Class A Shares. Implementation of this
change was to have taken place on the earlier of the first day of the
calendar quarter after the quarter in which the Fund's net assets exceed $250
million (which has not yet occurred) or October 1, 1996. However, management
of the Fund has determined that implementation of the changes should be
indefinitely postponed. For the six months ended June 30, 1996, service fees
on Class A Shares amounted to $54,051, of which the Distributor received
$1,315.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Fund's Class C shares
or servicing of shareholder accounts. These payments are made at the annual
rate of 0.75% of the Fund's net assets represented by Class C Shares and for
the period April 30, 1996 through June 30, 1996, amounted to $256, of which
the Distributor received $256.
In addition, under a Shareholder Services Plan, the Fund is authorized to
make service fee payments with respect to Class C Shares to Qualified
Recipients for providing personal services and/or maintenance of shareholder
accounts. These payments are made at the annual rate of 0.25% of the Fund's
net assets represented by Class C Shares and for the period April 30, 1996
through June 30, 1996, amounted to $85, of which the Distributor received
$85.
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
<PAGE>
NOTE C - PURCHASES AND SALES OF SECURITIES:
During the six months ended June 30, 1996, purchases of securities and
proceeds from the sales of securities aggregated $9,783,037 and $8,861,647,
respectively.
At June 30, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $6,978,192 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to
$679,578 for a net unrealized appreciation of $6,298,614. At June 30, 1996,
the Fund has a capital loss carryover of approximately $495,739 which expires
at December 31, 2003 and 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.
NOTE D - PORTFOLIO ORIENTATION:
Since the Fund invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Colorado, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Colorado and whatever
effects these may have upon Colorado issuers' ability to meet their
obligations.
NOTE E - DISTRIBUTIONS:
The Fund declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share or in
cash, at the shareholder's option. Net realized capital gains, if any, are
distributed annually.
The Fund intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net
investment income to be exempt from regular Federal and State of Colorado
income taxes. However, due to differences between financial reporting and
Federal income tax reporting requirements, distributions made by the Fund may
not be the same as the Fund's net investment income, and/or net realized
securities gains. Further, a small portion of the dividends may, under some
circumstances, be subject to ordinary income taxes. Also, annual capital
gains distributions, if any, are taxable.
NOTE F - CUSTODIAN FEES:
The Fund has negotiated an expense offset arrangement with its custodian
wherein it receives credit toward the reduction of custodian fees whenever
there are uninvested cash balances. During the six months ended June 30,
1996, the Fund's custodian fees amounted to $14,296, all of which was offset
by such credits. The Fund could have invested its cash balances in an
income-producing asset if it had not agreed to a reduction in fees under the
expense offset arrangement with the custodian.
<PAGE>
NOTE G - CAPITAL SHARE TRANSACTIONS:
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from
shares sold 1,339,776 $ 13,937,922 1,989,814 $ 20,448,079
Reinvested
dividends and
distributions 322,028 3,348,108 647,189 6,682,125
Cost of shares
redeemed (1,745,542) (18,088,855) (2,154,129) (22,233,430)
Net change (83,738) $ (802,825) 482,874 $ 4,896,774
<CAPTION>
Period Ended
June 30, 1996*
Shares Amount
<S> <C> <C>
CLASS C SHARES:
Proceeds from
shares sold 20,863 $ 214,042
Reinvested
dividends and
distributions 20 203
Cost of shares
redeemed _ $ _
Net change 20,883 $ 214,245
<CAPTION>
Period Ended
June 30, 1996*
Shares Amount
<S> <C> <C>
CLASS Y SHARES:
Proceeds from
shares sold 10 $ 100
Reinvested
dividends and
distributions _ _
Cost of shares
redeemed _ _
Net change 10 $ 100
<CAPTION>
Total transactions
in Fund shares
<C> <C> <C> <C>
(62,845) $ (588,480) 482,874 $ 4,896,774
<FN>
*From April 30, 1996 (date of inception) through June 30, 1996.
</FN>
</TABLE>
<PAGE>
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
(unaudited)
<TABLE>
<CAPTION>
For a share outstanding throughout each period
Class A(1)
Class C(2) Class Y(2) Six Months
Period ended ended Year ended December 31
June 30, 1996 June 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset
Value,
Beginning
of Period $10.31 $10.31 $10.56 $9.82 $10.77 $10.38 $10.18 $9.77
Income from
Investment
Operations:
Net invest-
ment income 0.07 0.12 0.27 0.54 0.55 0.57 0.61 0.62
Net gain
(loss)on
securities
(both realized
and
unrealized) (0.02) (0.02) (0.27) 0.74 (0.95) 0.55 0.28 0.41
Total from
Investment
Operations 0.05 0.10 - 1.28 (0.40) 1.12 0.89 1.03
Less
Distributions:
Dividends
from net
investment
income (0.07) (0.12) (0.27) (0.54) (0.55) (0.57) (0.61) (0.62)
Distributions
from capital
gains - - - - - (0.16) (0.08) -
Total
Distributions (0.07) (0.12) (0.27) (0.54) (0.55) (0.73) (0.69) (0.62)
Net Asset
Value,
End of
Period $10.29 $10.29 $10.29 $10.56 $9.82 $10.77 $10.38 $10.18
Total Return
(not
reflecting
sales
charge) (%) 0.49# 0.97# (0.02) #13.28 (3.80 ) 11.10 9.00 10.96
Ratios/
Supplemental
Data Net Assets,
End of Period
($ thousands) 215 0.1 212,840 219,306 199,075 222,277 174,031 129,760
Ratio of
Expenses to
Average
Net Assets (%) 1.62* - 0.68* 0.63 0.57 0.53 0.45 0.43
Ratio of Net
Investment
Income to
Average Net
Assets (%) 3.95* 5.90* 5.13* 5.21 5.36 5.32 5.90 6.25
Portfolio
Turnover
Rate (%) 4.15# 4.15# 4.15# 14.20 15.53 20.89 25.88 25.47
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary waiver
of fees, the Administrator's voluntary expense reimbursement and the expense
offset in custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Investment
Income ($) 0.07 0.11 0.26 0.52 0.53 0.55 0.59 0.58
Ratio of
Expenses to
Average
Net Assets (%) 1.70* 0.72* 0.77* 0.77 0.76 0.73 0.70 0.80
Ratio of Net
Investment
Income to
Average Net
Assets (%) 3.87* 5.18* 5.04* 5.07 5.17 5.12 5.65 5.88
<FN>
(1) Designated as Class A Shares on April 30, 1996.
</FN>
<FN>
(2) New Class of Shares established on April 30, 1996.
</FN>
<FN>
# Not annualized
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
Note: On April 19, 1991, Norwest Bank Denver, NA (formerly United Bank of
Denver NA), originally the Fund's Investment Adviser, became Sub-Adviser and
Norwest Bank Minnesota, NA became Investment Adviser upon completion of a
merger with Norwest Corporation. On October 1, 1992, Kirkpatrick, Pettis,
Smith, Polian Inc. became the Fund's Investment Adviser. On July 1, 1994, KPM
Investment Management, Inc. the wholly-owned subsidiary of Kirkpatrick,
Pettis, Smith, Polian Inc., became the Fund's Investment Adviser.
See accompanying notes to financial statements.
<PAGE>
REPORT ON THE ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS (UNAUDITED)
Special Meetings of Shareholders of Tax-Free Fund of Colorado (the
"Fund") were held on April 19, 1996 for the Fund's Class C and Class Y
Shareholders.*
At the Special Meeting of Class C Shareholders of the Fund, the Class C
Shareholders voted on and unanimously approved amendments to the Fund's
Distribution Plan affecting the interests of the Class C Shareholders of the
Fund. At the Special Meeting of Class Y Shareholders of the Fund, the Class
Y Shareholders voted on and unanimously approved amendments to the Fund's
Distribution Plan affecting the interests of the Class Y Shareholders of the
Fund.
The Annual Meeting of Shareholders of the Fund was held on June 19,
1996.** At the meeting, the following matters were submitted to a
shareholder vote and approved:
(i) the election of Lacy B. Herrmann, Tucker Hart Adams, Arthur K.
Carlson, William M. Cole, Anne J. Mills, J. William Weeks, and John
G. Welles as Trustees to hold office until the next annual meeting
of the Fund's shareholders or until his or her successor is duly
elected (each Trustee received at least 15,813,939 affirmative
votes (98.34%); no more than 266,361 votes were withheld for any
Trustee (1.66%), and
(ii) the ratification of the selection of KPMG Peat Marwick LLP as
the Fund's independent auditors for the fiscal year ending December
31, 1996 (votes for: 15,568,098 (96.81%); votes against: 50,020
(0.31%); abstentions: 438,348 (2.73%); broker non-votes: 23,834
(0.15%),
___________
* On the record dates for the Special Meetings, the total net asset values of
the Class C and Class Y Shares of the Fund outstanding and entitled to vote
were $100 and $100, respectively. The holders of all Class C and Class Y
Shares entitled to vote were present in person at the meetings.
** On the record date for the Annual Meeting, 20,719,636 shares of the Fund
were outstanding and entitled to vote. The holders of 16,080,300 shares
(77.61%) entitled to vote were present in person or by proxy at meeting.
<PAGE>
INVESTMENT ADVISER
KPM INVESTMENT MANAGEMENT, INC.
1700 Lincoln Street, Suite 1300
Denver, Colorado 80203
ADMINISTRATOR AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Tucker Hart Adams
Arthur K. Carlson
William M. Cole
Anne J. Mills
J. William Weeks
John G. Welles
OFFICERS
Lacy B. Herrmann, President
W. Dennis Cheroutes, Senior Vice President
Marie Aro, Vice President
Jean M. Smith, 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
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
ADMINISTRATIVE DATA
MANAGEMENT CORP.
581 Main Street
Woodbridge, New Jersey 07095-1198
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
