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
Jerry G. McGrew, Senior 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.
SEMI-ANNUAL
REPORT
JUNE 30, 1997
AQUILA
[Logo of Aquila Group of Funds: an eagle's head]
TAX-FREE FUND
OF
COLORADO
A TAX-FREE INCOME INVESTMENT
[Logo of Tax-Free Fund of Colorado: a square which contains 3 mountains
and a round sun above the first 2 mountains]
ONE OF THE
AQUILASM GROUP OF FUNDS
<PAGE>
[Logo of Tax-Free Fund of Colorado: a square which contains 3 mountains
and a round sun above the first 2 mountains]
TAX-FREE FUND OF COLORADO
SEMI-ANNUAL REPORT
"INCREASED SAFETY IN NUMBERS"
August 15, 1997
Dear Investor:
A childhood lesson that is often imparted generation after
generation is "don't wander off by yourself - stick with the crowd." The
underlying premise is that there is "safety in numbers."
The idea of increased safety in numbers is also very appropriate
when discussing municipal bond funds. In fact, one of the most significant
benefits gained by owning shares of a municipal bond mutual fund is that of
"numbers."
Participating in the ownership of many different issues through
such a fund is generally less risky than purchasing individual issues.
Instead of having your money ride on a handful of securities, you can spread
the risk over a larger number of issues. And, you have the advantage of a
skilled and knowledgeable portfolio manager selecting and continuously
monitoring each security in the portfolio.
But, how does the manager decide which security to purchase?
After all, you need to know the crowd with whom you're about to associate.
Being with a large unruly group could be far worse than being alone.
KNOWING THE TERRITORY
Shareholders of Tax-Free Fund of Colorado have the added
advantage of having a locally-based portfolio manager. KPM Investment
Management, Inc., located in Denver, is well aware of the issues facing the
state as a whole, as well as the nuances of many of the cities and counties.
FINDING THE RIGHT MIX
Unfortunately, there is no foolproof test to follow when
considering an issue for purchase. Security selection is really more art than
science. A portfolio manager needs to look for a security which meets certain
specific criteria and which fits in with the overall mix of the portfolio and
the Fund's investment objective.
Among other things, KPM Investment Management, Inc. carefully
examines a security's yield, quality, maturity, and whether or not its
inclusion in the portfolio enhances overall diversification.
Keeping in mind the Fund's objective of providing as high a level
of current income as is consistent with preservation of capital, let's take a
look at each of these areas.
QUALITY
As you know, the Fund limits its investments to only those
securities in the top four credit ratings or equivalent. We have adopted
this policy since we have found from experience that high quality is best
in the long run. Of course, it is true that securities which possess a lower
credit rating generally produce a higher yield, since investors require
compensation for the additional potential risk. However, purchasing solely
for yield can cause feelings of unease for a risk adverse investor.
<PAGE>
Consequently, Tax-Free Fund of Colorado looks for high quality securities
which should produce relatively good yields. Currently, 98.8% of the
investment portfolio is in the top three credit ratings - AAA, AA, AND A.
Such high quality helps preserve shareholders' capital and promote stability.
MATURITY
The key here is to assemble a blend of maturities which offers a
reasonable level of DOUBLE TAX-FREE* return yet still avoids the problem of
excessive market price volatility. As you probably are aware, short-term
maturities tend to have very little price fluctuation, but generally produce
a substantially lesser rate of return than longer maturity securities.
Conversely, long-term maturities usually produce a higher return level, but
have a much higher price volatility factor than shorter-term issues since
they reflect the risks associated with potential interest rate changes over
the extended life of the municipal bond.
By creating a blend of maturities, the Fund attempts to provide
you with a satisfactory level of return without subjecting the share price to
excessive swings as interest rates move up and down.
The Fund utilizes a spread of maturities for the portfolio which
centers upon the relatively intermediate term average maturity of 8.6 years.
In constructing the portfolio, maturities of securities in the Fund range
from one year and under to over 20 years in length. However, in order to
achieve a reasonably high level of stability for the Fund's share value, in
good markets and bad and in up and down interest rate environments, the focus
has been to keep the average of maturities relatively limited in term.
DIVERSIFICATION
Having a breadth of participation in the portfolio helps to
spread risk and protect against any significant loss of principal in the
event of unforseen problems with any particular security.
Although Tax-Free Fund of Colorado is classified a
"non-diversified" fund under the Investment Company Act of 1940, the Fund
does attempt to vary its portfolio in several ways. First, there is the use
of a number of issues. At June 30, 1997, over 160 issues made up the Fund's
portfolio, with no one issue representing more than 4% of the Fund's net
assets. Next, there is investment among different types of municipal projects
- - universities, basic services, utilities, health care, pollution control,
etc. - so that there is no undue concentration in any one type of municipal
project. And, finally, there is variety achieved through geographic
representation throughout various cities, counties, and communities within
Colorado.
Such portfolio mixture by number of issues, by geographic
distribution, and by variety of projects lends itself to a further high level
of preservation and stability for your investment in the Fund.
HOW IS OUR "GROUP" DOING?
As you have seen, selecting investments for the Fund's portfolio
is really a balancing act. On one side, you have yield and, on the other, you
have risk. The Fund strives to construct a portfolio which keeps these two
opposing forces on an even keel - accepting a reasonable level of risk to
achieve a satisfactory return.
As mentioned, the Fund strives to provide shareholders with as
high a level of DOUBLE TAX-FREE income as practicable, commensurate with the
degree of capital preservation we strive to achieve.
Is our security selection process working well for us? We believe
it is.
<PAGE>
RATE OF RETURN
From July 1, 1996 through June 30, 1997, the Fund distributed to
shareholders a DOUBLE TAX-FREE income return, as measured against the maximum
public offering price, at the annualized rate of approximately 4.91%**.
One would have to earn an annualized taxable return of 7.14% at
the 28% tax bracket and the even higher return of 8.48% at the 39.6% tax
bracket in order to match the Fund's DOUBLE TAX-FREE rate. 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 and/or
longer maturity securities.
COMMITMENT TO CONSISTENCY
Management is committed to providing shareholders with as
consistent investment and overall performance results from Tax-Free Fund of
Colorado as are possible to achieve, considering prevailing market forces.
You should be aware, however, that although there is indeed
increased safety in numbers, we are not able to eliminate the fluctuations
from 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 create a mix of securities which will help
moderate these forces.
OUR PLEDGE TO YOU
All associated with Tax-Free Fund of Colorado pledge to you our
continued diligence in the operation of the Fund for your benefit.
Your confidence in the Tax-Free Fund of Colorado is most valued
and appreciated.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
* A portion of dividend income may be subject to Federal and state
taxes.
** The performance shown represents that of Class A shares. Such
performance data quoted represents past performance and is not
indicative of future results. The investment return and principal
value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their
original cost. The Fund's average annual total return as of
6/30/97 for the past one-year period was 2.10%; for the past
five-year period was 5.33%; and for the past 10-year period was
6.70%. Returns would be less if full management fees were applied.
As of 6/30/97, the Fund's 30-day SEC yield was 3.99%.
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF INVESTMENTS
JUNE 30, 1997 (unaudited)
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (37.6%) S&P VALUE
<C> <S> <C> <C>
School Districts (20.8%)
$1,000,000 Adams County School District #1 Aaa/AAA $ 1,100,000
6.50%, 12/01/07, FGIC Insured
2,000,000 Adams County School District #12 Aaa/AAA 2,182,500
7.30%, 12/15/07, FGIC Insured
1,255,000 Adams County School District #12 Aaa/AAA 1,325,594
5.625%, 12/15/08, FGIC Insured
1,275,000 Adams County School District #12 Aaa/AAA 1,359,469
5.750%, 12/01/08, FGIC Insured
2,500,000 Adams County School District #12 Aaa/AAA 2,675,000
6.20%, 12/15/09, FGIC Insured
1,500,000 Arapahoe County, Cherry Creek School District #5 Aa/AA 1,633,125
7.00%, 12/15/03
1,475,000 Arapahoe County School District Aa/AA 1,598,531
6.00%, 12/15/05
2,000,000 Arapahoe County School District Aa/AA 2,095,000
5.00%, 12/15/07
1,000,000 Arapahoe County School District Aaa/AAA 1,046,250
5.50%, 12/15/08, FGIC Insured
1,000,000 Arapahoe County, Cherry Creek School District #5 Aa/AA 1,038,750
5.50%, 12/15/09
2,000,000 Boulder, Larimer & Weld County Aaa/AAA 2,107,500
5.90%, 12/15/05, MBIA Insured
2,000,000 Boulder, Larimer & Weld County, St. Vrain Valley
School District #RE-1J Series 1990 Aaa/AAA 2,110,000
5.70%, 12/15/06, MBIA Insured
1,245,000 Boulder, Larimer & Weld County Aaa/AAA 1,338,375
5.875%, 12/15/06, MBIA Insured
1,500,000 Denver City & County School District #1 Aaa/AAA 1,621,875
6.10%, 12/15/06, MBIA Insured
1,000,000 Douglas & Elbert Counties School District # Re-1,
Series 1992 Aaa/AAA 1,050,000
5.75%, 12/15/05, FGIC Insured
<PAGE>
1,000,000 Douglas & Elbert Counties School District #RE-1
Refunding Series 1991B Aaa/AAA 1,081,250
6.70%, 12/15/06, FGIC Insured
2,500,000 Douglas & Elbert Counties School District # Re-1,
Series 1992 Aaa/AAA 2,725,000
6.15%, 12/15/08, MBIA Insured
1,500,000 Eagle County School District #RE50J Aaa/AAA 1,558,125
6.95%, 12/01/03, FGIC Insured
2,320,000 Eagle County School District #RE50J, Series 1999 Aaa/AAA 2,525,900
6.15%, 12/01/04, FGIC Insured
1,040,000 El Paso County School District #20 Aaa/AAA 1,114,100
6.00%, 12/15/04, MBIA Insured
400,000 El Paso County School District #20 Aaa/AAA 405,992
8.00%, 12/01/06, MBIA Insured
1,145,000 El Paso County School District #20 Aaa/AAA 1,202,250
5.50%, 12/01/07, MBIA Insured
1,330,000 El Paso County School District #20 Aaa/AAA 1,481,288
6.25%, 12/01/08, MBIA Insured
1,000,000 El Paso County School District #20 Aaa/AAA 1,106,250
6.15%, 12/01/08, MBIA Insured
1,600,000 Jefferson County School District # R-1 Aaa/AAA 1,706,000
6.00%, 12/15/06, AMBAC Insured
2,165,000 Interstate South Metropolitan District NR/A+ 2,238,069
5.75%, 12/01/09, LOC FBS
1,045,000 Pitkin County Colorado School District #1 (ASPEN) Aaa/AAA 1,122,069
5.85%, 11/15/03, AMBAC Insured
1,790,000 Pitkin County, Aspen School District #1
Series 1989 Aaa/AAA 1,913,062
5.95%, 11/15/05, AMBAC Insured
1,050,000 Summit County School District, Series A Aaa/AAA 1,093,312
5.40%, 12/01/06, FGIC Insured
45,554,636
<PAGE>
City & County (6.1%)
500,000 Boulder County Open Space Acquisition Aa1/AA 528,750
6.90%, 08/15/04
500,000 Denver Colorado City & County Unlimited Tax, Aa/AA 541,875
6.90%, 08/01/02
1,000,000 Denver Colorado City & County Unlimited Tax, Aa/AA 1,080,000
7.00%, 08/01/03
1,785,000 Fort Collins, Refunding Aa/AA 1,887,638
6.05%, 12/01/07
750,000 Greeley Water & Improvement Refunding A1/AA- 779,722
7.50%, 08/01/98
1,530,000 Left Hand Water District, Series 1996 Aaa/AAA 1,616,062
5.75%, 11/15/08
500,000 Louisville, CO Water Refunding Aaa/AAA 517,205
7.10%, 12/01/02, FGIC Insured
1,085,000 Snowmass Refunding Aaa/AAA 1,179,938
6.95%,11/15/05, FSA Insured
2,000,000 Thornton, CO, Refunding-Spur A Aaa/AAA 2,110,000
5.60%, 12/01/06, FGIC Insured
2,000,000 Thornton, CO, Refunding-Spur A Aaa/AAA 2,132,500
6.05%, 12/01/06, FGIC Insured
1,000,000 Westminster Colorado Water Series 1992 A A1/AA- 1,053,750
6.25%, 12/01/07
13,427,440
Metropolitan District (6.0%)
2,500,000 Boulder Colorado Central Area Improvement Aaa/AAA 2,606,250
6.30%, 08/15/07, FGIC Insured
1,080,000 Greenwood South Metropolitan District Aaa/AAA 1,139,400
5.60%, 12/01/05
1,530,000 Highlands Ranch Metropolitan District #1,
Refunding Aaa/AAA 1,635,188
6.25%, 09/01/06, MBIA Insured
1,000,000 Highlands Ranch Metropolitan District #4 Aa1/AAA 1,031,250
5.80%, 12/01/07, LOC Swiss Bank
<PAGE>
1,000,000 Highlands Ranch Metropolitan District #4 Aaa/AAA 1,066,250
5.75%, 09/01/08
1,730,000 Highlands Ranch Metropolitan District #4 Aaa/AAA 1,844,612
5.75%, 09/01/09
1,500,000 Meridian Metropolitan District A3/NR 1,561,875
7.00%, 12/01/99
1,260,000 Westglenn Metropolitan District Colorado
Jefferson County Refunding, NR/A+ 1,308,825
5.65%, 12/01/04, LOC FBC
1,000,000 Westglenn Metropolitan District Colorado, NR/A+ 1,063,750
6.25%, 12/01/08, LOC FBS
13,257,400
Water & Sewer (2.4%)
1,750,000 Centennial Water & Sewer District Aa1/AAA 1,835,312
5.80%, 12/01/07, LOC Swiss Bank
1,220,000 Inverness Water & Sanitation District
Colorado Arapahoe & Douglas Counties
Refunding, Aaa/AAA 1,308,450
6.30%, 12/01/05, MBIA Insured
1,000,000 Southgate Colorado Water District Arapahoe &
Douglas Counties Aaa/AAA 1,035,000
7.05%, 12/01/01, FGIC Insured
1,000,000 Southgate Colorado Water District Arapahoe &
Douglas Counties Aaa/AAA 1,037,500
7.20%, 12/01/05, FGIC Insured
5,216,262
Hospital (2.3%)
750,000 Poudre Valley Colorado Hospital District Aa/AA- 782,812
6.75%, 11/15/98
1,000,000 Poudre Valley Hospital District, Refunding Aa/AA- 1,088,750
6.50%, 12/01/04
2,000,000 Poudre Valley Hospital District, Refunding Aa/AA- 2,027,500
5.375%, 11/15/07
<PAGE>
1,000,000 Pueblo County Colorado Hospital Facilities,
Series A Aaa/AAA 1,085,000
6.80%, 09/01/05, MBIA Insured
4,984,062
Total General Obligation Bonds 82,439,800
REVENUE BONDS (62.1%)
Higher Education (12.9%)
1,000,000 Aurora Educational Development Community College
Series 1990 Aaa/AAA 1,070,000
7.10%, 04/01/02, MBIA Insured
1,000,000 Aurora Educational Development Revenue Bonds Aaa/AAA 1,073,750
7.25%, 04/01/05, MBIA Insured
1,580,000 City of Aurora Colorado Educational Development
Refunding Bonds Series 1994 NR/BBB 1,637,275
6.00%, 10/15/07
1,000,000 Colorado Post Secondary Educational Facilities
Authority Refunding Revenue Bonds, NR/AAA 1,056,250
6.35%, 06/01/05, Connie Lee Insured
1,235,000 Colorado Post Secondary Educational Facility,
Regis University Project NR/AAA 1,313,731
6.30%, 03/01/07, Connie Lee Insured
1,000,000 Colorado Post Secondary Educational Facilities
Authority Refunding Revenue Bonds Series 93, NR/AAA 1,037,500
5.95%, 03/01/09
1,000,000 Colorado State Board of Agriculture Revenue
Refunding, Colorado State University Student
Sports, Aaa/AAA 1,035,000
5.40%, 04/01/06, MBIA Insured
1,000,000 Colorado State Board of Agriculture Revenue,
Fort Lewis College Aaa/AAA 1,080,000
6.50%, 10/01/06, FGIC Insured
1,000,000 Colorado State Board of Agriculture Revenue,
University of Southern Colorado Auxiliary
Facility Aaa/AAA 1,065,000
6.25%, 08/01/07, AMBAC Insured
<PAGE>
1,000,000 Colorado State Board of Agriculture Revenue
Refunding & Improvement Aaa/AAA 1,067,500
6.35%, 03/01/08, MBIA Insured
1,000,000 Colorado State Board of Agriculture Revenue
Refunding, Colorado State University Student
Sports, Aaa/AAA 1,028,750
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 2,930,456
6.60%, 05/01/08, Connie Lee Insured
1,500,000 Colorado Student Obligation Board Authority
Student Loan Revenue A/NR 1,554,375
6.00%, 09/01/01, MBIA Insured
1,860,000 Colorado State Colleges Western State, Aaa/AAA 1,913,475
5.50%, 05/15/09, MBIA Insured
1,000,000 Larimer County, Colorado School No.R1 Aaa/AAA 1,060,000
6.15%, 12/15/08, MBIA Insured
1,500,000 Larimer County, Colorado School No.R1 Refunding A/NR 1,520,625
5.40%, 12/15/04
420,000 University of Colorado, Student Recreation
Center Aaa/AAA 440,475
7.00%, 06/01/99, MBIA Insured
320,000 University of Colorado Revenue Aaa/AAA 344,000
7.10%, 06/01/02, MBIA Insured
500,000 University of Colorado Regents Research Building
Revolving Fund Revenue NR/A+ 525,000
6.85%, 06/01/03
1,000,000 University of Colorado Research Building Revenue Aaa/AAA 1,053,750
6.00%, 06/06/06, MBIA Insured
1,000,000 University of Colorado Revenue Aaa/AAA 1,061,250
6.20%, 06/01/07, MBIA Insured
1,500,000 State of Colorado University of Northern Colorado
Auxiliary Facilities Aaa/AAA 1,576,875
5.75%, 06/01/07, MBIA Insured
<PAGE>
1,745,000 State of Colorado University of Northern Colorado
Auxiliary Facilities Aaa/AAA 1,847,520
5.75%, 06/01/08, MBIA Insured
28,292,557
Electric (10.3%)
8,000,000 Adams County Colorado Pollution Control Revenue
Public Service Aaa/AAA 8,290,000
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
1,460,000 Colorado Springs Utility Revenue Aa/AA 1,512,925
5.50%, 12/15/05
1,210,000 Moffat County Colorado Pollution Control Revenue Aaa/AAA 1,265,962
5.50%, 11/01/03, AMBAC Insured
2,125,000 Moffat County Colorado Pollution Control Revenue Aaa/AAA 2,239,219
5.625%, 11/01/06, AMBAC Insured
1,375,000 Platte River Power Authority Aa/A+ 1,460,938
5.75%, 06/01/04
2,000,000 Platte River Power Authority Aa/A+ 2,125,000
6.00%, 06/01/06
2,000,000 Platte River Power Authority Aa/A+ 2,180,000
6.00%, 06/01/07
1,315,000 Platte River Power Authority Power Revenue
Series BB Aa/A+ 1,385,681
6.125%, 06/01/09
22,647,225
Sales Tax (6.6%)
1,000,000 Arvada Colorado Sales & Use Tax Revenue Aaa/AAA 1,052,500
6.10%, 12/01/07, FGIC Insured
500,000 Denver City & County Excise Tax Aaa/AAA 529,375
6.90%, 09/01/00, MBIA Insured
1,000,000 Denver Metro Major League Baseball Stadium
Excise Tax Revenue Aaa/AAA 1,080,000
6.35%, 10/01/03, FGIC Insured
<PAGE>
2,000,000 Denver Metro Major League Baseball Stadium
Excise Tax Revenue Aaa/AAA 2,170,000
6.45%, 10/01/04, FGIC Insured
2,045,000 Fort Collins Sales & Use Tax Revenue Aaa/AAA 2,108,906
5.375%, 12/01/06, FGIC Insured
1,000,000 Fort Collins Downtown Development Authority
Tax Increment Revenue Aaa/AAA 1,065,000
6.50%, 06/01/07, MBIA Insured
1,000,000 Jefferson County Districtwide Sales Tax Aaa/AAA 1,063,750
6.10%, 12/01/04, MBIA Insured
500,000 Mesa County Sales Tax Revenue Aaa/AAA 522,500
7.40%, 06/01/00, MBIA Insured
2,065,000 Mesa County Sales Tax Revenue Aaa/AAA 2,243,107
6.00%, 12/01/06, MBIA Insured
500,000 Thornton Sales & Use Tax Revenue Aaa/AAA 525,625
6.70%, 09/01/99, FGIC Insured
1,000,000 Thornton Sales & Use Tax Revenue Aaa/AAA 1,047,500
6.80%, 09/01/01, FGIC Insured
1,000,000 Westminster Sales & Use Tax 1991 Aaa/AAA 1,078,750
6.70%, 12/01/01, FGIC Insured
14,487,013
Water & Sewer (9.1%)
500,000 Colorado Water Resource & Power Development
Authority, Aaa/AAA 540,000
7.00%, 11/01/00
675,000 Colorado Water Resource & Power Development
Authority, Series A Aa/AA 740,812
6.90%, 09/01/04
325,000 Colorado Water Resource & Power Development
Authority Aaa/AAA 356,688
6.90%, 09/01/04
<PAGE>
290,000 Colorado Water Resource & Power Development
Authority Aa/AA 319,362
7.00%, 09/01/05
140,000 Colorado Water Resource & Power Development
Authority Aaa/AAA 153,475
6.875%, 09/01/05
710,000 Colorado Water Resource & Power Development
Authority, Series A Aa/AA 781,888
7.00%, 09/01/05
360,000 Colorado Water Resource & Power Development
Authority, Series B Aa/AA 395,100
6.875%, 09/01/05
1,000,000 Colorado Water Resource & Power Development
Authority Aaa/AAA 1,082,500
6.80%, 11/01/05, FGIC Insured
1,000,000 Colorado Water Resource & Power Development
Authority Aaa/AAA 1,086,250
6.50%, 11/01/05, FGIC Insured
745,000 Colorado Water Resource & Power Development
Authority, Series A Aa/AA 820,431
7.00%, 09/01/06
255,000 Colorado Water Resource & Power Development
Authority Aaa/AAA 280,819
7.00%, 09/01/06
1,000,000 Colorado Water Resource & Power Development
Authority Aa/AA 1,070,000
6.00%, 09/01/06
1,000,000 Colorado Water Resource & Power Development
Authority, Clean Water Revenue, Aa/AA 1,040,000
5.35%, 09/01/06
1,100,000 Colorado Water Resource & Power Development
Authority Aaa/AAA 1,138,500
5.45%, 11/01/07, FGIC Insured
<PAGE>
1,965,000 Fort Collins Colorado Wastewater Sewer Revenue Aaa/AAA 2,009,212
5.375%, 12/01/08, FGIC Insured
1,000,000 Loveland Sewer Revenue Series 1989 Aaa/AAA 1,052,500
6.80%, 11/01/01, MBIA Insured
1,000,000 Metro Wastewater Reclaimation District, Gross
Revenue Series A1/AA 1,046,250
5.70%, 04/01/05
1,055,000 Metro Wastewater Reclaimation District, Gross
Revenue Series A1/AA 1,105,112
5.80%, 04/01/06
1,010,000 Northglenn Colorado Water & Sewer Aaa/AAA 1,080,700
5.75%, 12/01/06, FSA Insured
1,500,000 Parker Water and Sanitation District Revenue
Refunding Aaa/AAA 1,582,500
6.10%, 10/01/07, FGIC Insured
1,230,000 Thornton, Colorado Development Authority Aaa/AAA 1,303,800
5.75%, 12/01/06, FGIC Insured
1,000,000 Westminster Colorado Water & Wastewater Utility
Enterprise-Water And Wastewater Revenue
Series 1994 Aaa/AAA 1,062,500
5.70%, 12/01/04, AMBAC Insured
20,048,399
Hospital (5.7%)
935,000 Colorado Health Facility Community Provider
Pooled Loan Program Aaa/AAA 956,458
7.40%, 07/15/99, MBIA Insured
2,030,000 Colorado Health Facility Authority Hospital
Revenue North Colorado Medical Center Aaa/AAA 2,134,038
5.60%, 05/15/05, MBIA Insured
2,255,000 Colorado Health Facility Community Provider
Pooled Loan Revenue Aaa/AAA 2,486,138
7.20%, 07/15/05, FSA Insured
1,410,000 Colorado Health Facility Authority Hospital
Revenue Boulder Community Hospital Aaa/AAA 1,489,312
5.65%, 10/01/06, MBIA Insured
<PAGE>
1,000,000 Colorado Health Facility Authority Sisters of
Charity Health Care Aaa/AAA 1,107,500
6.25%, 05/15/09, AMBAC Insured
4,300,000 Colorado Health Facility Authority Hospital
Revenue Boulder Community Hospital Aaa/AAA 4,300,000
4.15%, 05/15/20, MBIA Insured
12,473,446
Housing (8.2%)
1,600,000 Adams County Colorado Multi-Family Housing
Revenue, Brittany Station Series A, FNMA NR/AAA 1,646,000
5.40%, 09/01/25
965,000 City of Arvada Colorado Multi-family Housing
Revenue, Springwood GNMA NR/AAA 984,300
5.60%, 08/20/08
255,000 Colorado Housing Finance Authority 1991,
Series A-3 NR/AA 263,606
6.10%, 11/01/00
260,000 Colorado Housing Finance Authority 1991,
Series A-1 NR/AA 271,375
6.20%, 11/01/01
590,000 Colorado Housing Finance Authority 1991,
Series A NR/A 619,500
6.90%, 05/01/01
1,445,000 Colorado Housing Finance Authority,
SFM Series A-2 NR/AA 1,531,700
6.65%, 11/01/06
1,015,000 Colorado Housing Finance Authority,
SFM Series 1994C Aa/NR 1,059,406
6.00%, 12/01/04
3,015,000 Colorado Housing Finance Authority,
SFM Series D-2 Aa/NR 3,086,606
5.625%, 06/01/10
1,250,000 Colorado Housing Finance Authority,
SFM Series A-2 Aa/NR 1,292,188
5.75%, 11/01/10
2,350,000 Colorado Housing Finance Authority,
SFM Series 1994C Aa/NR 2,458,688
6.25%, 12/01/12
340,000 Commerce City Single Family Revenue Series A A/NR 356,575
6.875%, 03/01/12
1,000,000 Littleton Assisted Living Building Authority,
Amity Plaza Project Multi-family Housing
Revenue Bond Series 1994 NR/A+ 1,047,500
6.10%, 03/01/06
<PAGE>
1,500,000 Snowmass Village Multi-family Revenue Refunding Aaa/AAA 1,575,000
6.30%, 12/15/08
405,000 Southwestern Colorado Single Family Revenue
Partnership, Refunding A/NR 425,250
7.10%, 09/01/04
185,000 Summit County Single Family Revenue Refunding
Series A A/NR 192,631
7.25%, 12/01/04
1,175,000 Westminster Colorado City Aaa/AAA 1,232,281
5.50%, 12/01/07 18,042,606
Industrial Development Revenue (3.5%)
4,750,000 Boulder County Industrial Development Revenue
Refunding May Department Stores Company Project NR/A 5,023,126
6.25%, 09/01/07
1,860,000 Denver City & County, Industrial Development
Revenue, Rollie R. Kelley Project NR/A 1,925,100
7.00%, 06/01/06
675,000 Denver City & County Industrial Development
Revenue NR/A 691,875
6.40%, 12/01/10
7,640,101
Transportation (1.7%)
1,000,000 Arapahoe County Colorado E-470 Vehicle
Registration Revenue Bonds Aaa/AAA 1,043,750
5.45%, 08/31/07, MBIA Insured
1,550,000 Regional Transportation District Sales Tax
Revenue A1/AA- 1,668,188
6.05%, 11/01/04
1,000,000 Regional Transportation District Sales Tax
Revenue Aaa/AAA 1,067,500
6.15%,11/01/05, FGIC Insured
3,779,438
<PAGE>
Lease (1.7%)
405,000 Boulder Municipal Property Authority Lease
Purchase Revenue, Series B Aaa/AAA 414,586
7.20%, 12/01/00 BIGI Insured
215,000 Denver City & County School District #1, COP Aaa/AAA 219,633
6.80%, 12/15/98, FGIC Insured
185,000 Denver City & County School District #1, COP Aaa/AAA 189,296
6.80%, 12/15/98, FGIC Insured
560,000 Denver City & County School District Lease
Purchase Agreement Aaa/AAA 573,132
6.85%, 12/15/99, FGIC Insured
640,000 Denver City & County School District Aaa/AAA 653,638
6.85%, 12/15/99, FGIC Insured
525,000 Denver City & County School District Aaa/AAA 562,406
6.95%, 12/15/00, FGIC Insured
1,000,000 Denver City & County School District #1, COP Aaa/AAA 1,041,250
5.60%, 06/01/08, FGIC Insured
3,653,941
Miscellaneous Revenue (2.4%)
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 1,080,000
6.60%, 12/01/03
2,000,000 Boulder County, CO, Open Space & Use Tax
Revenue Bonds Series 1994 FGIC Insured, Aaa/AAA 2,107,500
5.75%, 12/15/04
1,000,000 South Suburban Park & Recreational District Baa/NR 1,036,250
6.00%, 11/01/07
5,301,250
Total Revenue Bonds 136,365,976
Total Investments (cost $210,189,953*) 99.7% 218,805,776
Other assets in excess of liabilities 0.3 683,248
Net Assets 100.0% $219,489,024
<FN> * Cost for Federal tax purposes is identical. </FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments at value (identified cost $210,189,953) $ 218,805,776
Interest receivable 1,916,744
Receivable for Fund shares sold 135,862
Other assets 1,494
Total assets 220,859,876
LIABILITIES
Cash overdraft 1,088,835
Dividends payable 96,402
Adviser and Administrator fees payable 89,931
Payable for Fund shares redeemed 34,701
Accrued expenses 31,916
Distribution fees payable 29,067
Total liabilities 1,370,852
NET ASSETS $ 219,489,024
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares,
par value $.01 per share
$ 210,946
Additional paid-in capital 210,925,578
Accumulated net loss on investments (263,323)
Net unrealized appreciation on investments 8,615,823
$ 219,489,024
CLASS A
Net Assets $ 215,637,568
Capital shares outstanding 20,724,701
Net asset value and redemption price per share $ 10.40
Offering price per share (100/96 of $10.40 adjusted to
nearest cent) $ 10.83
CLASS C
Net Assets $ 967,481
Capital shares outstanding 93,125
Net asset value and offering price per share $ 10.39
Redemption price per share (*varies by length of time
shares are held) $ *
CLASS Y
Net Assets $ 2,883,975
Capital shares outstanding 276,764
Net asset value, offering and redemption price per share $ 10.42
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 6,034,698
Expenses:
Investment Adviser fees (note 3) $ 214,517
Administrator fees (note 3) 321,776
Transfer and shareholder servicing agent fees 63,000
Distribution and service fees (note 3) 57,914
Custodian fees (note 7) 32,600
Trustees' fees and expenses 31,500
Legal fees 27,000
Shareholders' reports and proxy statements 20,500
Audit and accounting fees 13,500
Registration fees and dues 9,000
Insurance 1,950
Miscellaneous 15,722
808,979
Administration fees waived (note 3) (5,270)
Expenses paid indirectly (note 7) (32,600)
Net expenses 771,109
Net investment income 5,263,589
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from securities transactions 292,598
Change in unrealized appreciation on investments (252,585)
Net realized and unrealized gain (loss) on
investments 40,013
Net increase in net assets resulting from
operations $ 5,303,602
</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, December 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,263,589 $ 10,788,159
Net realized gain from securities transactions 292,598 110,498
Change in unrealized appreciation on investments (252,585) (3,150,185)
Change in net assets from operations 5,303,602 7,748,472
DISTRIBUTIONS TO SHAREHOLDERS (note 6):
Class A Shares:
Net investment income (5,371,525) (10,779,866)
Distributions in excess of net investment income - (236,198)
Net realized gain on investments - -
Class C Shares:
Net investment income (19,119) (8,288)
Distributions in excess of net investment income - (229)
Net realized gain on investments - -
Class Y Shares:
Net investment income (15,434) (5)
Distributions in excess of net investment income - -
Net realized gain on investments - -
Change in net assets from distributions (5,406,078) (11,024,586)
CAPITAL SHARE TRANSACTIONS (note 8):
Proceeds from shares sold 14,091,694 22,599,522
Reinvested dividends and distributions 3,303,070 6,733,129
Cost of shares redeemed (13,111,088) (30,054,520)
Change in net assets from capital share
transactions 4,283,676 (721,869)
Change in net assets 4,181,200 (3,997,983)
NET ASSETS:
Beginning of period 215,307,824 219,305,807
End of period $219,489,024 $215,307,824
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION
Tax-Free Fund of Colorado (the "Fund"), a non-diversified, open-end
investment company, was organized in February, 1987 as a Massachusetts
business trust and commenced operations on May 21, 1987. The Fund is
authorized to issue an unlimited number of shares and, since its inception to
April 30, 1996, offered only one class of shares. On that date, the Fund
began offering two additional classes of shares, Class C and Class Y shares.
All shares outstanding prior to that date were designated as Class A shares
and, as was the case since inception, 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. They are not available to individual 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. All classes
of shares represent interests in the same portfolio of investments in the
Fund and are identical as to rights and privileges. They differ only with
respect to the effect of sales charges, the distribution and/or service fees
borne by the respective class, expenses specific to each class, voting rights
on matters affecting a single class and the exchange privileges of each
class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
a) 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.
In Fiscal 1996, the Fund began amortizing bond premium using the
constant yield method. Accordingly, net unrealized appreciation and
additional paid-in capital have been adjusted by equal amounts at the
beginning of the year. This change had no effect on the Fund's net asset
value or distribution policy and conforms to the amortization policy
followed by the Fund for Federal tax purposes.
<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 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.
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 at the date of the
financial statements and the reported amounts of increases and
decreases in net asets from operations during the reporting period.
Actual results could differ from those estimates.
3. FEES AND RELATED PARTY TRANSACTIONS
A) MANAGEMENT ARRANGEMENTS:
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
<PAGE>
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, 1997.
For the six months ended June 30, 1997, the Fund incurred fees under the
Advisory Agreement and Administration Agreement of $214,517 and $321,776,
respectively. The Administrator voluntarily waived $5,270 of its fee.
B) DISTRIBUTION AND SERVICE FEES:
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part
of the Plan, with respect to Class A Shares, the Fund is authorized to make
service fee payments to broker-dealers or others ("Qualified Recipients")
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. 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.
However, management of the Fund has determined that implementation of the
changes should be indefinitely postponed. For
<PAGE>
the six months ended June 30, 1997, service fees on Class A Shares amounted
to $53,241, of which the Distributor received $2,219.
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 six months ended June 30, 1997, amounted to $3,504, of which the
Distributor received $3,504.
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 six months ended June
30, 1997, amounted to $1,168, of which the Distributor received $1,168.
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
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, 1997,
the Distributor received sales commissions in the amount of $42,636.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended June 30, 1997, purchases of securities and
proceeds from the sales of securities aggregated $22,576,699 and $19,722,230,
respectively.
At June 30, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to approximately $8,645,857 and aggregate gross unrealized depreciation for
all securities in which there is an excess of tax cost over market value
amounted to approximately $30,034 for an approximate net unrealized
appreciation of $8,615,823. At June 30, 1997, the Fund has a capital loss
carryover of approximately $263,000 which expires on December 31, 2003. This
carryover is available to offset future net realized gains on securities
transactions to the extent provided for in the Internal Revenue Code. To the
extent that this loss is used to offset future realized capital gains, it is
probable the gains so offset will not be distributed.
5. PORTFOLIO ORIENTATION
Since the 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
<PAGE>
legal developments or industrial or regional matters specifically affecting
Colorado and whatever effects these may have upon Colorado issuers' ability
to meet their obligations.
6. 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.
7. EXPENSES
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,
1997, the Fund's custodian fees amounted to $32,600, all of which was offset
by such credits. It is the general intention of the Fund to invest, to the
extent practicable, some or all cash balances in income-producing assets
rather than leave cash on deposit with the custodian.
<PAGE>
8. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 1,064,017 $ 11,026,275 2,086,373 $ 21,654,023
Reinvested distributions 317,265 3,283,926 648,241 6,730,082
Cost of shares redeemed (1,251,084) (12,973,626) (2,898,027) (30,020,808)
Net change 130,198 1,336,575 (163,413) (1,636,703)
<CAPTION>
Period Ended
December 31, 1996*
Shares Amount
<S> <C> <C> <C> <C>
CLASS C SHARES:
Proceeds from shares sold 6,548 68,080 90,792 945,399
Reinvested distributions 1,498 15,501 316 3,043
Cost of shares redeemed (2,882) (30,362) (3,148) (33,712)
Net change 5,164 53,219 87,960 914,730
<CAPTION>
Period Ended
December 31, 1996*
Shares Amount
<S> <C> <C> <C> <C>
CLASS Y SHARES:
Proceeds from shares sold 286,666 2,997,339 10 100
Reinvested distributions 352 3,643 - 4
Cost of shares redeemed (10,264) (107,100) - -
Net change 276,754 2,893,882 10 104
Total transactions in
Fund shares 412,116 $ 4,283,676 (75,443) $ (721,869)
<FN> * From April 30, 1996 (date of inception) through December 31, 1996. </FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
(unaudited)
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class A(1)
Six Months
Ended Year ended December 31,
June 30, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.41 $10.56 $9.82 $10.77 $10.38 $10.18
Income from Investment
Operations:
Net investment income 0.25 0.52 0.54 0.55 0.57 0.61
Net gain (loss) on
securities (both
realized and unrealized) 0.00 (0.13) 0.74 (0.95) 0.55 0.28
Total from Investment
Operations 0.25 0.39 1.28 (0.40) 1.12 0.89
Less Distributions (note 6):
Dividends from net
investment income (0.26) (0.54) (0.54) (0.55) (0.57) (0.61)
Distributions from
capital gains - - - - (0.16) (0.08)
Total Distributions (0.26) (0.54) (0.54) (0.55) (0.73) (0.69)
Net Asset Value, End
of Period $10.40 $10.41 $10.56 $9.82 $10.77 $10.38
Total Return (not
reflecting sales
charge) (%) 2.43# 3.78 13.28 (3.80) 11.10 9.00
Ratios/Supplemental Data
Net Assets, End of
Period ($ thousands) 215,638 214,392 219,306 199,075 222,277 174,031
Ratio of Expenses to
Average Net Assets (%) 0.71* 0.69 0.63 0.57 0.53 0.45
Ratio of Net Investment
Income to Average Net
Assets (%) 4.91* 5.03 5.21 5.36 5.32 5.90
Portfolio Turnover
Rate (%) 9.34# 10.96 14.20 15.53 20.89 25.88
<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>
Net Investment
Income ($) 0.25 0.51 0.52 0.53 0.55 0.59
Ratio of Expenses to
Average Net Assets
(%) 0.75* 0.75 0.77 0.76 0.73 0.70
Ratio of Net Investment
Income to Average
Net Assets (%) 4.87* 4.97 5.07 5.17 5.12 5.65
<FN> (1) Designated as Class A Shares on April 30, 1996. </FN>
<FN> # Not annualized</FN>
<FN> * Annualized. </FN>
</TABLE>
Note: On October 1, 1992, Kirkpatrick, Pettis, Smith, Polian Inc. became the
Fund's Investment Adviser replacing Norwest Bank Minnesota, NA. On July 1,
1994, KPM Investment Management, Inc., a wholly-owned subsidiary of
Kirkpatrick, Pettis, Smith, Polian Inc., became the Fund's Investment
Adviser.
See accompanying notes to financial statements.
<PAGE>
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class C(1) Class Y(1)
Six Months Period(2) Six Months Period(2)
Ended Ended Ended Ended
June 30, Dec. 31, June 30, Dec. 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $10.41 $10.31 $10.41 $10.31
Income from Investment Operations:
Net investment income 0.20 0.28 0.27 0.38
Net gain (loss) on securities
(both realized and unrealized) (0.01) 0.12 0.02 0.12
Total from Investment Operations 0.19 0.40 0.29 0.50
Less Distributions (note 6):
Dividends from net investment
income (0.21) (0.30) (0.28) (0.40)
Distributions from capital gains - - - -
Total Distributions (0.21) (0.30) (0.28) (0.40)
Net Asset Value, End of Period $10.39 $10.41 $10.42 $10.41
Total Return (not reflecting
sales charge) (%) 1.85# 3.78# 2.74# 4.87#
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 967 915 2,884 0.1
Ratio of Expenses to Average
Net Assets (%) 1.65* 1.64* 0.68* 0.64*
Ratio of Net Investment Income
to Average Net Assets (%) 3.91* 4.08* 5.03* 5.08*
Portfolio Turnover Rate (%) 9.34# 10.96 9.34# 10.96
<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>
Net Investment Income ($) 0.20 0.27 0.27 0.37
Ratio of Expenses to Average
Net Assets (%) 1.68* 1.70* 0.71* 0.70*
Ratio of Net Investment Income
to Average Net Assets (%) 3.88* 4.02* 5.00* 5.02*
<FN> (1) New Class of Shares established on April 30, 1996.</FN>
<FN> (2) From April 30, 1996 to December 31, 1996.</FN>
<FN> # Not annualized.</FN>
<FN> * Annualized.</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REPORT ON THE ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
The Annual Meeting of Shareholders of Tax-Free Fund of Colorado (the "Fund")
was held on June 12, 1997.* 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 158,061,430.15 affirmative votes (98.56%); no
more than 2,313,453.86 votes were withheld for any Trustee (1.44%)), 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, 1997
(votes for: 156,220,712.80 (97.41%); votes against: 575,625.93 (0.36%);
abstentions: 3,578,545.28 (2.23%); broker non-votes: 0.00 (0.00%)).
_____________________
* On the record date for this meeting, the holders of 20,670,693.83 Class A
shares, 90,891.97 Class C shares, and 52,464.00 Class Y shares of the Fund
were outstanding and entitled to vote representing a total net asset value of
$215,425,031.14. The holders of shares entitled to vote representing a total
net asset value of $160,374,884.01 (74.45%) were present in person or by
proxy at the meeting.
