MANAGER AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
KPM INVESTMENT MANAGEMENT, INC.
1700 LINCOLN STREET, SUITE 1300
DENVER, COLORADO 80203
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
Diana P. Herrmann, Vice President
Jean M. Smith, Vice President
Jessica L. Wiltshire, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
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
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must preceed or accompany this report.
SEMI-ANNUAL REPORT
JUNE 30, 1998
AQUILA
(AQUILA EAGLE LOGO)
TAX-FREE FUND OF COLORADO
A TAX-FREE INCOME INVESTMENT
(TAX-FREE FUND OF COLORODO LOGO A SQUARE WHICH CONTAINS 5 MOUNTAINS AND A SUN)
ONE OF THE AQUILAsm GROUP OF FUNDS
<PAGE>
(TAX-FREE FUND OF COLORODO LOGO A SQUARE WHICH CONTAINS 5 MOUNTAINS AND A SUN)
SERVING COLORADO INVESTORS FOR OVER A DECADE
TAX-FREE FUND OF COLORADO
SEMI-ANNUAL REPORT
"ATTRACTIVE TAX-FREE RETURNS PLUS HIGH STABILITY"
August 17,1998
Dear Investor:
In our last report letter to you, we discussed the initial impact
of the serious economic and currency problems of various countries in the Far
East. We observed that these problems have resulted in a "FLIGHT TO QUALITY."
Specifically, we pointed out that, on a comparative basis, the
economy of the United States has continued to be very strong. As a result,
the U.S. dollar as a currency, as well as U.S. securities markets, have stood
out in the world as a "BEACON OF QUALITY." Tax-Free Fund of Colorado shares
in this high quality ranking.
Therefore, in this letter to you, we wish to focus upon the level
of tax-free* return provided to you by Tax-Free Fund of Colorado in the
current marketplace.
ATTRACTIVE TAX-FREE RETURNS
The rate of inflation in the United States has continued to be
relatively low throughout the recent expansion of the economy. This has
caused the level of interest rates to decline over recent years.
This decline in interest rates has provided the opportunity for
various municipalities to finance new projects and also to refinance existing
projects at lower interest costs to them. Municipalities act much like you
and I would when refinancing home mortgages to take advantage of attractive
rates. Basically, they are acting to save money.
While interest rates generated by TAX-FREE municipal bonds have
declined over the years, they have not declined as much as rates on a taxable
investment. As a result, TAX-FREE municipal securities have become
exceptionally attractive - on a comparative basis - with other types of
fixed-income securities.
Indeed, while the benchmark 30-year maturity U.S. Treasury bond
is currently yielding approximately 5.65%, its interest income is still
subject to taxes. On the other hand, similar maturity municipal securities,
of comparable quality, are yielding roughly 5.15% and are TAX-FREE. Thus,
comparable TAX-FREE municipal bonds are yielding more than 90% of what
high-quality TAXABLE bonds are paying. Consequently, with TAX-FREE municipal
securities, you are getting to keep more of the actual return paid. Most
significantly, this level of return represents for investors one of the best
for TAX-FREE securities in recent years.
The advantage to you of owning a TAX-FREE investment such as
Tax-Free Fund of Colorado is vividly illustrated in the following chart. This
chart compares the 4.65%** average level of distribution return for Class A
Shares (as measured against the maximum public offering price) for the past
twelve months with what you would have had to earn with a taxable investment.
<PAGE>
(Graphic of bar chart with the following information:)
TAX-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
<TABLE>
<CAPTION>
TAX BRACKET
28% 31% 36% 39.6%
<S> <C> <C> <C> <C>
TAXABLE EQUIVALENT RATE 6.80% 7.19% 7.78% 8.27%
DOUBLE TAX-FREE DISTRIBUTION RATE 4.65% 4.65% 4.65% 4.65%
</TABLE>
As you will note, you would have to find taxable fixed-income
securities that would yield you a level of return quite a bit higher than
that achieved by your investment in Tax-Free Fund of Colorado. Given the
current economic environment, such higher levels of yield would not be
possible to obtain, unless significant additional risk was taken in the form
of lesser quality securities.
You should be aware of just how attractive the TAX-FREE return
from the Fund is in today's marketplace.
STABILITY OF YOUR INVESTMENT
Additionally, what we have always tried to achieve for your
investment in Tax-Free Fund of Colorado is a high level of stability of share
value. This is one of the prime objectives that shareholders in the Fund have
indicated to us that they would like to have in addition to a good level of
tax-free return.
(Graphic of bar chart with the following information:)
<TABLE>
<CAPTION>
SHARE NET ASSET VALUE
(In Dollars)
<S> <C>
12/31/87 9.51
12/31/88 9.66
12/31/89 9.80
12/31/90 9.77
12/31/91 10.18
12/31/92 10.38
12/31/93 10.77
12/31/94 9.82
12/31/95 10.56
12/31/96 10.41
12/31/97 10.62
6/30/98 10.56
</TABLE>
As you will note from the above chart, the Class A share value of
the Fund has achieved a high level of stability since the Fund began.
<PAGE>
(Graphic of pie chart with the following information:)
PORTFOLIO DIVERSIFICATI0N BY QUALITY
(BY CREDIT RATING)
<TABLE>
<C> <C>
AAA 69.62%
AA 22.07%
A 7.02%
BELOW A 1.29%
</TABLE>
(Graphic of pie chart with the following information:)
<TABLE>
<CAPTION>
PORTFOLIO DIVERSIFICATION BY PROJECT
<S> <C>
TRANSPORTATION 2.01%
OTHER 12.97%
SCHOOL DISTRICTS 26.95%
METROPOLITAN DISTRICTS 8.58%
CITY AND COUNTY 3.37%
HOSPITALS 8.87%
WATER & SEWER 11.66%
HIGHER EDUCATION 10.50%
HOUSING 7.74%
ELECTRIC 7.35%
</TABLE>
(Graphic of pie chart with the following information:)
<TABLE>
<CAPTION>
PORTFOLIO DIVERSIFICATION BY MATURITY
(IN YEARS)
<S> <C>
0-5 Years 12.69
5-10 Years 54.27
Over 10 Years 33.04
</TABLE>
SLEEPING WELL AT NIGHT
We have always been conscious of the fact that since many of our
shareholders are retirees or pre-retirees, they want comfort with regard to
obtaining a high degree of safety for their invested capital in the Fund.
Indeed, in our management of Tax-Free Fund of Colorado, we have always tried
to ensure that you are able to "SLEEP WELL AT NIGHT" knowing that your
investment dollars are being well looked after.
Achieving an attractive level of tax-free return PLUS high
stability for your investment in Tax-Free Fund of Colorado requires use of
various investment strategies.
We again want to highlight these various investment strategies
which the Fund uses to ensure that YOUR MONEY IS WELL PROTECTED.
These strategies include emphasis on municipal securities having
high quality credit ratings, broad diversification with respect to both
number and nature of securities, and an intermediate maturity level with the
various holdings in the Fund's portfolio.
The accompanying three pie charts illustrate these points.
At June 30, 1998, 91.7% of the Fund's overall portfolio was rated
AAA or AA - the two HIGHEST quality credit ratings available for securities.
There are presently 151 individual issues in the Fund's
portfolio, representing a broad diversification in number and variety of
project categories throughout the State.
<PAGE>
The average overall maturity of the portfolio is in the
intermediate range of 8.19 years. And, the duration is 5.18 years.
Basically, all these factors are designed to give you "PEACE OF
MIND" with your investment in Tax-Free Fund of Colorado - providing
attractive tax-free return PLUS high stability .
KEEPING YOU IN MIND
We want you to know, that since the inception of Tax-Free Fund of
Colorado, we have always kept in mind the level of tax-free return you
receive from your investment in the Fund.
We also keep in mind the degree of stability that we want your
investment to possess.
We achieve this through paying attention to the various areas we
have highlighted above.
These are the prime focuses that we continue to have for you with
the Fund.
YOUR CONFIDENCE VALUED
We value the opportunity to be of service to you. It is our
intent to consistently work in your interest with your investment in Tax-Free
Fund of Colorado.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
*In certain circumstances, a small portion of the dividends paid by
the Fund will be subject to income taxes, including the alternative
minimum tax.
** The distribution rate shown represents that of Class A shares. Such 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. Different classes of shares are offered
by the Fund and their distribution rate and performance will vary because
of differences in sales charges and fees paid by shareholders investing in
different classes.
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<C> <S> <C> <C>
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (42.2%) S&P VALUE
School Districts (26.8%)
$ 1,255,000 Adams County School District #12 Aaa/AAA $ 1,377,362
5.625%, 12/15/08, FGIC Insured
1,275,000 Adams County School District #14 Aaa/AAA 1,410,469
5.750%, 12/01/08, FSA Insured
2,500,000 Adams County School District #12 Aaa/AAA 2,715,625
6.20%, 12/15/09, FGIC Insured
1,500,000 Arapahoe County, Cherry Creek School
District #5A Aa2/AA 1,618,125
7.00%, 12/15/00, Pre-Refunded
1,415,000 Arapahoe County School District #5 Aa2/AA 1,522,894
5.75%, 12/15/03
1,650,000 Arapahoe County School District #6 Aa2/AA 1,755,188
5.50%, 12/01/03
1,750,000 Arapahoe County School District #6 Aa2/AA 1,879,062
5.50%, 12/01/05
1,475,000 Arapahoe County, Cherry Creek
School District #5 Aa2/AA 1,629,875
6.00%, 12/15/05
2,000,000 Arapahoe County School District #5 Aa2/AA 2,162,500
5.50%, 12/15/07
1,000,000 Arapahoe County School District #5 Aa2/AA 1,087,500
5.50%, 12/15/08, FGIC Insured
1,215,000 Boulder Valley Colorado Aaa/AAA 1,321,313
5.50%, 12/01/08, FGIC Insured
1,875,000 Boulder, Larimer & Weld County # RE-1J Aaa/AAA 2,039,062
5.50%, 12/15/08, FGIC Insured
1,000,000 Denver City & County School District #1 A1/AA- 1,085,000
5.60%, 06/01/08
1,000,000 Douglas & Elbert Counties School District # Re-1,
Series 1992 Aaa/AAA 1,055,000
5.75%, 12/15/05, FGIC Insured
2,920,000 Douglas & Elbert Counties School District #RE-1
Refunding Aaa/AAA 3,168,200
5.50%, 12/15/07, FGIC Insured
2,500,000 Douglas & Elbert Counties School District # Re-1,
Series 1992 Aaa/AAA 2,762,500
6.15%, 12/15/08, MBIA Insured
<PAGE>
2,320,000 Eagle County School District #RE50J, Series 1999 Aaa/AAA 2,566,500
6.15%, 12/01/04, FGIC Insured
1,040,000 El Paso County School District #20 Aaa/AAA 1,134,900
6.00%, 12/15/04, AMBAC Insured
400,000 El Paso County School District #20 Aaa/AAA 406,744
8.00%, 12/01/06, MBIA Insured
1,145,000 El Paso County School District #11 Aa3/AA- 1,232,306
5.50%, 12/01/07
1,330,000 El Paso County School District #11 Aa3/AA- 1,524,513
6.25%, 12/01/08
1,000,000 El Paso County School District #20 Aaa/AAA 1,141,250
6.15%, 12/15/08, MBIA Insured
3,000,000 Jefferson County School District # R-1 Aaa/AAA 3,243,750
5.50%, 12/15/06, MBIA Insured
1,835,000 Jefferson County School District # R-1 Aaa/AAA 1,945,100
5.25%, 12/15/05, MBIA Insured
1,000,000 Jefferson County School District # R-1 Aaa/AAA 1,085,000
5.50%, 12/15/09, FGIC Insured
1,500,000 Larimer County, Colorado School
# R-1 Refunding A2/NR 1,556,250
5.40%, 12/15/04
2,000,000 Larimer County, Colorado School
# R-1 Refunding A1/AA 2,167,500
5.90%, 12/15/05
1,245,000 Larimer County, Colorado School
# R-1 Refunding Aaa/AAA 1,378,837
5.875%, 12/15/06, FGIC Insured
2,065,000 Mesa County School District #51 Aaa/AAA 2,305,056
6.00%, 12/01/06, MBIA Insured
1,045,000 Pitkin County Colorado School
District #1 (ASPEN) Aaa/AAA 1,123,375
5.85%, 11/15/03, AMBAC Insured
1,790,000 Pitkin County, Aspen School
District #1 Series 1989 Aaa/AAA 1,922,013
5.95%, 11/15/05, AMBAC Insured
1,040,000 Pueblo County Colorado School
District # 70 Aaa/AAA 1,115,400
5.50%, 12/01/09, AMBAC Insured
1,000,000 Routt County School District # RE- 2 Aaa/AAA 1,085,000
5.50%, 12/01/07, MBIA Insured
<PAGE>
1,050,000 Summit County School District, Series A Aaa/AAA 1,119,562
5.40%, 12/01/06, FGIC Insured
1,000,000 Summit County School District, Series A Aaa/AAA 1,077,500
5.50%, 12/01/07, FGIC Insured
57,720,231
City & County (3.4%)
500,000 Boulder County Open Space Acquisition Aa1/AA 520,625
6.90%, 08/15/04
500,000 Denver Colorado City & County
Unlimited Tax, Aa2/AA 534,375
6.90%, 08/01/00, Pre-Refunded
1,000,000 Denver Colorado City & County
Unlimited Tax, Aa2/AA 1,070,000
7.00%, 08/01/00, Pre- Refunded
2,000,000 Denver Colorado City & County
Unlimited Tax, Aa2/AA 2,117,500
5.25%, 08/01/06
750,000 Greeley Water & Improvement Refunding A1/AA- 751,920
7.50%, 08/01/98
1,085,000 Snowmass Refunding Aaa/AAA 1,166,375
6.95%,11/15/00, FSA Insured,
Pre-Refunded
1,000,000 Westminster Colorado Water Series 1992 A A1/AA- 1,061,250
6.25%, 12/01/07
7,222,045
Metropolitan District (7.9%)
2,500,000 Boulder Colorado Central Area Improvement Aaa/AAA 2,590,625
6.30%, 08/15/07, FGIC Insured
1,060,000 Castle Pines Metropolitan District Aaa/AAA 1,150,100
5.50%, 12/01/07, FSA Insured
1,080,000 Greenwood South Metropolitan District Aaa/AAA 1,169,100
5.60%, 12/01/05, MBIA Insured
1,530,000 Highlands Ranch Metropolitan District #1,
Refunding Aaa/AAA 1,642,838
6.25%, 09/01/06, MBIA Insured
<PAGE>
1,000,000 Highlands Ranch Metropolitan District #4 Aaa/AA+ 1,101,250
5.80%, 12/01/05, LOC Swiss Banc,
Pre-Refunded
1,000,000 Highlands Ranch Metropolitan District #4 Aaa/AAA 1,106,250
5.75%, 09/01/08, AMBAC Insured
1,730,000 Highlands Ranch Metropolitan District #4 Aaa/AAA 1,920,300
5.75%, 09/01/09, AMBAC Insured
2,165,000 Interstate South Metropolitan District NR/A+ 2,300,312
5.75%, 12/01/09, LOC FBS
1,500,000 Meridian Metropolitan District A3/NR 1,543,125
7.00%, 12/01/99
1,260,000 Westglenn Metropolitan District Colorado
Jefferson County Refunding, NR/A+ 1,340,325
5.65%, 12/01/04, LOC FBS
1,000,000 Westglenn Metropolitan District Colorado, NR/A+ 1,081,250
6.25%, 12/01/08, LOC FBS
16,945,475
Water & Sewer (2.8%)
1,550,000 Denver Colorado City & County Water Aa2/AA 1,674,000
5.50%, 10/01/07
1,000,000 Southgate Colorado Water District
Arapahoe & Douglas Counties Aaa/AAA 1,013,190
7.05%, 12/01/01, FGIC Insured
1,000,000 Southgate Colorado Water District
Arapahoe & Douglas Counties Aaa/AAA 1,013,700
7.20%, 12/01/05, FGIC Insured
2,000,000 Thornton, CO, Refunding-Spur A Aaa/AAA 2,175,000
5.60%, 12/01/06, FSA Insured
5,875,890
<PAGE>
Hospital (1.3%)
750,000 Poudre Valley Colorado Hospital District NR/AAA 765,938
6.75%, 11/15/98, Pre-Refunded
2,000,000 Poudre Valley Hospital District, Refunding Aa/AA- 2,080,000
5.375%, 11/15/07
2,845,938
Total General Obligation Bonds 90,609,579
REVENUE BONDS (57.4%)
Higher Education (10.4%)
1,000,000 Aurora Educational Development Community
College Series 1990 Aaa/AAA 1,053,750
7.10%, 04/01/00, MBIA Insured, Pre-Refunded
1,000,000 Aurora Educational Development Revenue Bonds Aaa/AAA 1,056,250
7.25%, 04/01/00 MBIA Insured, Pre-Refunded
1,580,000 City of Aurora Colorado Educational Development
Refunding Bonds Series 1994 NR/BBB 1,688,625
6.00%, 10/15/07
1,000,000 Colorado Post Secondary Educational Facilities
Authority Refunding Revenue Bonds, NR/AAA 1,062,500
6.35%, 06/01/00, AMBAC Insured,
Pre-Refunded
1,235,000 Colorado Post Secondary Educational Facility,
Regis University Project A2/AAA 1,338,431
6.30%, 03/01/02, AMBAC Insured,
Pre-Refunded
1,170,000 Colorado Post Secondary Educational Facility, Aaa/AAA 1,260,675
5.50%, 03/01/08, MBIA Insured
1,000,000 Colorado Post Secondary Educational Facilities
Authority Refunding A2/AAA 1,060,000
Revenue Bonds Series 93, 5.95%, 03/01/09,
AMC Insured
<PAGE>
1,000,000 Colorado State Board of Agriculture Revenue
Refunding, Colorado State University
Student Sports, Aaa/AAA 1,050,000
5.40%, 04/01/06, MBIA Insured
1,000,000 Colorado State Board of Agriculture
Revenue, Fort Lewis College Aaa/AAA 1,083,750
6.50%, 10/01/06, FGIC Insured
1,000,000 Colorado State Board of Agriculture Revenue,
University of Southern Colorado
Auxiliary Facility Aaa/AAA 1,073,750
6.25%, 08/01/07, AMBAC Insured
1,000,000 Colorado State Board of Agriculture
Revenue Refunding, Colorado
State University Student Sports, Aaa/AAA 1,048,750
5.45%, 04/01/08, MBIA Insured
1,500,000 Colorado Student Obligation Board Authority
Student Loan Revenue A/NR 1,563,750
6.00%, 09/01/01
1,860,000 Colorado State Colleges Western State, Aaa/AAA 1,964,625
5.50%, 05/15/09, MBIA Insured
500,000 University of Colorado Regents Research
Building Revolving Fund Revenue A2/A+ 517,310
6.85%, 06/01/03
1,000,000 University of Colorado Research
Building Revenue Aaa/AAA 1,066,250
6.00%, 06/01/06, MBIA Insured
1,000,000 University of Colorado Revenue Aaa/AAA 1,076,250
6.20%, 06/01/07, MBIA Insured
1,500,000 State of Colorado University of
Northern Colorado Auxiliary Facilities Aaa/AAA 1,610,625
5.75%, 06/01/04, MBIA Insured
1,745,000 State of Colorado University of
Northern Colorado Auxiliary Facilities Aaa/AAA 1,917,319
5.75%, 06/01/08, MBIA Insured
22,492,610
<PAGE>
Electric (7.3%)
8,000,000 Adams County Colorado Pollution
Control Revenue Public Service Aaa/AAA 8,440,000
5.625%, 04/01/08, MBIA Insured
1,210,000 Moffat County Colorado Pollution
Control Revenue Aaa/AAA 1,284,112
5.50%, 11/01/03, AMBAC Insured
2,125,000 Moffat County Colorado Pollution
Control Revenue Aaa/AAA 2,302,969
5.625%, 11/01/06, AMBAC Insured
1,375,000 Platte River Power Authority Aaa/AAA 1,481,563
5.75%, 06/01/04, MBIA Insured
2,000,000 Platte River Power Authority Aaa/AAA 2,225,000
6.00%, 06/01/07, MBIA Insured
15,733,644
Sales Tax (8.6%)
1,000,000 Arvada Colorado Sales & Use Tax Revenue Aaa/AAA 1,068,750
6.10%, 12/01/07, FGIC Insured
2,000,000 Boulder County Colorado Open Space & Use Tax
Revenue Bonds Aaa/AAA 2,167,500
Series 1994 FGIC Insured, 5.75%, 12/15/04
2,500,000 Boulder County, Colorado Capital Improvement NR/AA- 2,668,750
5.25%, 12/15/09
1,000,000 Denver Metro Major League Baseball Stadium
Excise Tax Revenue Aaa/AAA 1,080,000
6.35%, 10/01/01, FGIC Insured, Pre-Refunded
2,000,000 Denver Metro Major League Baseball Stadium
Excise Tax Revenue Aaa/AAA 2,165,000
6.45%, 10/01/01, FGIC Insured, Pre-Refunded
2,045,000 Fort Collins Sales & Use Tax Revenue Aaa/AAA 2,147,250
5.375%, 12/01/06, FGIC Insured
1,000,000 Fort Collins Downtown Development
Authority Tax Increment Revenue Aaa/AAA 1,061,250
6.50%, 06/01/07, MBIA Insured
1,000,000 Jefferson County Districtwide Sales Tax Aaa/AAA 1,072,500
6.10%, 12/01/04, MBIA Insured
<PAGE>
1,040,000 Lakewood Colorado Sales & Use Tax Revenue, NR/AA 1,110,200
5.25%, 12/01/09
500,000 Mesa County Sales Tax Revenue Aaa/AAA 507,690
7.40%, 06/01/98, MBIA Insured, Pre-Refunded
290,000 Thornton, Colorado Sales and Use Tax Revenue, Aaa/AAA 300,150
6.80%, 09/01/99, FGIC Insured, Pre-Refunded
710,000 Thornton, Colorado Sales and Use Tax Revenue, Aaa/AAA 729,525
6.80%, 09/01/01, FGIC Insured
1,000,000 Westminster Sales & Use Tax 1991 Aaa/AAA 1,070,000
6.70%, 12/01/01, FGIC Insured
1,175,000 Westminster Colorado Sales Tax Revenue Aaa/AAA 1,267,531
5.50%, 12/01/07, FGIC Insured
18,416,096
Water & Sewer (8.9%)
1,750,000 Centennial Water & Sewer District Aaa/AAA 1,909,687
5.80%, 12/01/07, FSA Insured
500,000 Colorado Water Resource & Power Development
Authority, Aaa/AAA 534,375
7.00%, 11/01/00, FGIC Insured
710,000 Colorado Water Resource & Power Development
Authority, Series A Aa2/AA 778,338
7.00%, 09/01/01, Pre-Refunded
1,000,000 Colorado Water Resource & Power Development
Authority Aaa/AAA 1,077,500
6.80%, 11/01/01, FGIC Insured, Pre-Refunded
1,000,000 Colorado Water Resource & Power Development
Authority Aaa/AAA 1,087,500
6.50%, 11/01/05, FGIC Insured
1,000,000 Colorado Water Resource & Power Development
Authority Aa2/AA 1,083,750
6.00%, 09/01/06
1,000,000 Colorado Water Resource & Power Development
Authority, Clean Water Revenue,
5.35%, 09/01/06 Aa2/AA 1,071,250
<PAGE>
1,000,000 Colorado Water Resource & Power Development
Authority, Clean Water Revenue, Aaa/AAA 1,076,250
5.50%, 09/01/09
1,965,000 Fort Collins Colorado Wastewater Sewer Revenue Aaa/AAA 2,073,075
5.375%, 12/01/08, FGIC Insured
1,530,000 Left Hand Water District, Series 1996 Aaa/AAA 1,661,962
5.75%, 11/15/08, MBIA Insured
1,000,000 Metro Wastewater Reclaimation District, Gross
Revenue Series Aa/AA 1,053,750
5.70%, 04/01/02, Pre-Refunded
1,055,000 Metro Wastewater Reclaimation District, Gross
Revenue Series Aa/AA 1,115,663
5.80%, 04/01/02, Pre-Refunded
1,270,000 Metro Wastewater Reclaimation District, Gross
Revenue Series Aa2/AA 1,339,850
5.25%, 04/01/09
1,010,000 Northglenn Colorado Water & Sewer Aaa/AAA 1,109,737
5.75%, 12/01/06, FSA Insured
1,000,000 Pagosa Water & Sanitation Colorado Water & Sewer Aaa/AAA 1,057,500
5.25%, 12/01/08, FSA Insured
1,000,000 Westminster Colorado Water & Wastewater Utility
Enterprise-Water And Wastewater Revenue
Series 1994 Aaa/AAA 1,080,000
5.70%, 12/01/04, AMBAC Insured
19,110,187
Hospital (7.5%)
935,000 Colorado Health Facility Community Provider
Pooled Loan Program Aaa/AAA 942,200
7.40%, 07/15/99, MBIA Insured
2,030,000 Colorado Health Facility Authority Hospital
Revenue North Colorado Medical Center Aaa/AAA 2,161,950
5.60%, 05/15/05, MBIA Insured
1,000,000 Colorado Health Facility Authority Hospital
Revenue Medical Center Aaa/AAA 1,073,750
5.50%, 12/01/08, MBIA Insured
<PAGE>
1,500,000 Colorado Health Facility Authority Hospital
Revenue Medical Center Aaa/AAA 1,563,750
5.25%, 12/01/10, MBIA Insured
1,000,000 Colorado Health Facility Authority Hospital
Revenue Medical Center Aa2/AA 1,057,500
5.375%, 12/01/09, MBIA Insured
2,255,000 Colorado Health Facility Community Provider
Pooled Loan Revenue Aaa/AAA 2,474,863
7.20%, 07/15/05, FSA Insured
1,410,000 Colorado Health Facility Authority Hospital
Revenue Boulder Community Hospital Aaa/AAA 1,517,512
5.65%, 10/01/06, MBIA Insured
1,000,000 Colorado Health Facility Authority Sisters of
Charity Health Care Aaa/AAA 1,138,750
6.25%, 05/15/09, AMBAC Insured
1,460,000 Colorado Springs Hospital Revenue Aaa/AAA 1,560,375
5.50%, 12/15/06, MBIA Insured
1,000,000 Pueblo County Colorado Hospital Facilities, Series Aaa/AAA 1,080,000
6.80%, 09/01/05, MBIA Insured
1,475,000 University Colorado Hospital Authority Hospital
Revenue Aaa/NR 1,585,625
5.50%, 11/15/07, AMBAC Insured
16,156,275
Housing (7.7%)
1,600,000 Adams County Colorado Multi-Family Housing
Revenue, Brittany Station Series A, FNMA NR/AAA 1,696,000
5.40%, 09/01/05
915,000 City of Arvada Colorado Multi-family Housing
Revenue, Springwood NR/AAA 959,606
5.60%, 08/20/08, GNMA Insured
200,000 Colorado Housing Finance Authority 1991,
Series A-3 NR/AA+ 207,250
6.10%, 11/01/00
<PAGE>
205,000 Colorado Housing Finance Authority 1991,
Series A-1 NR/AA+ 215,506
6.20%, 11/01/01
460,000 Colorado Housing Finance Authority 1991,
Series A A2/A 476,675
6.90%, 05/01/01
1,325,000 Colorado Housing Finance Authority, SFM Series A-2 NR/AA+ 1,421,063
6.65%, 11/01/06
795,000 Colorado Housing Finance Authority, SFM
Series 1994C Aa2/NR 850,650
6.00%, 12/01/04
1,725,000 Colorado Housing Finance Authority, SFM
Series D-2 Aa2/NR 1,841,437
5.625%, 06/01/10
1,120,000 Colorado Housing Finance Authority, SFM Series A-2 Aa2/NR 1,211,000
5.75%, 11/01/10
1,840,000 Colorado Housing Finance Authority, SFM Series
1994C Aa2/NR 1,994,100
6.25%, 12/01/12
2,000,000 Colorado Housing Finance Authority Aa2/NR 2,217,500
6.50%, 05/01/16
270,000 Commerce City Single Family Revenue Series A Aa1/NR 286,200
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+ 1,071,250
6.10%, 03/01/06
1,500,000 Snowmass Village Multi-family Revenue Refunding Aa2/NR 1,606,875
6.30%, 12/15/08, FSA Insured
315,000 Southwestern Colorado Single Family Revenue
Partnership, Refunding Aaa/NR 333,113
7.10%, 09/01/04
180,000 Summit County Single Family Revenue Refunding
Series A A1/NR 188,775
7.25%, 12/01/04
<PAGE> 16,577,000
Industrial Development Revenue (1.2%)
1,860,000 Denver City & County, Industrial Development
Revenue, Rollie R. Kelley Project NR/A+ 1,900,901
7.00%, 06/01/06, LOC FBS
595,000 Denver City & County Industrial Development
Revenue NR/A+ 605,197
6.40%, 06/01/99
2,506,098
Transportation (2.0%)
1,000,000 Arapahoe County Colorado E-470 Vehicle
Registration Revenue Bonds Aaa/AAA 1,073,750
5.45%, 08/31/07, MBIA Insured
2,000,000 Regional Transportation District Sales Tax Revenue Aaa/AAA 2,142,500
5.50%,11/01/05, FGIC Insured
1,000,000 Regional Transportation District Sales Tax Revenue Aaa/AAA 1,080,000
6.15%,11/01/05, FGIC Insured
4,296,250
Lease (0.4%)
215,000 Denver City & County School District #1, COP Aaa/AAA 218,042
6.80%, 12/15/98, FGIC Insured
640,000 Denver City & County School District Aaa/AAA 655,098
6.85%, 12/15/99, FGIC Insured
873,140
Miscellaneous Revenue (3.4%)
1,000,000 Boulder County, CO, N.C.A.R. NR/A 1,083,750
6.50%, 12/01/02
2,275,000 Denver Colorado City & County Helen Bonfils
Project NR/AA- 2,485,438
5.875%, 12/01/09
1,000,000 South Suburban Park & Recreational District Baa/NR 1,081,250
6.00%, 11/01/07
<PAGE>
1,365,000 South Suburban Park & Recreational District Aaa/AAA 1,429,838
5.125%, 12/15/09, FGIC Insured
1,230,000 Thornton, Colorado Development Authority Aaa/AAA 1,345,313
5.75%, 12/01/06, MBIA Insured
7,425,589
Total Revenue Bonds 123,586,889
Total Investments (cost $204,735,464*) 99.6% 214,196,468
Other assets in excess of liabilities .4 938,853
Net Assets 100.0% $215,135,321
<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, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments at value (cost $204,735,464) $214,196,468
Interest receivable 1,792,946
Receivable for Fund shares sold 261,486
Receivable for investment securities sold 25,117
Other assets 1,275
Total assets 216,277,292
LIABILITIES
Cash overdraft 661,960
Dividends payable 191,499
Payable for Fund shares redeemed 130,522
Management fee payable 88,925
Accrued expenses 39,980
Distribution fees payable 29,085
Total liabilities 1,141,971
NET ASSETS $ 215,135,321
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares,
par value $.01 per share $ 203,769
Additional paid-in capital 203,158,693
Net unrealized appreciation on investments 9,461,004
Accumulated net realized gain on investments 2,549,890
Distributions in excess of net investment income (238,035)
$ 215,135,321
CLASS A
Net Assets $ 207,025,192
Capital shares outstanding 19,609,650
Net asset value and redemption price per share $ 10.56
Offering price per share (100/96 of $10.56 adjusted
to nearest cent) $ 11.00
CLASS C
Net Assets $ 1,276,757
Capital shares outstanding 121,158
Net asset value and offering price per share $ 10.54
Redemption price per share (*generally, a charge of 1%
is imposed on the proceeds of shares redeemed during
the first 12 months after purchase) $ 10.54*
CLASS Y
Net Assets $ 6,833,372
Capital shares outstanding 646,046
Net asset value, offering and redemption price per share $ 10.58
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 5,791,214
Expenses
Management fee (note 3) $ 546,342
Transfer and shareholder servicing agent fees 69,000
Distribution and service fees (note 3) 58,397
Trustees' fees and expenses 33,800
Shareholders' reports and proxy statements 26,500
Legal fees 21,500
Custodian fees (note 7) 16,400
Audit and accounting fees 13,500
Registration fees and dues 7,500
Insurance 1,700
Miscellaneous 12,257
806,896
Expenses paid indirectly (note 7) (16,400)
Net expenses 790,496
Net investment income 5,000,718
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from securities transactions 1,411,291
Change in unrealized appreciation on investments (2,514,867)
Net realized and unrealized loss on investments (1,103,576)
Net increase in net assets resulting from operations $3,897,142
</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, 1998 DECEMBER 31, 1997
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,000,718 $ 10,526,816
Net realized gain from securities
transactions 1,411,291 1,694,628
Change in unrealized appreciation
on investments (2,514,867) 3,107,464
Change in net assets from operations 3,897,142 15,328,908
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income (4,849,572) (10,364,025)
Distributions in excess of
net investment income (230,638) (335,411)
Net realized gain on investment - -
Class C Shares:
Net investment income (19,683) (38,032)
Distributions in excess of net
investment income (1,186) (1,231)
Net realized gain on investments - -
Class Y Shares:
Net investment income (131,463) (124,757)
Distributions in excess of net
investment income (6,211) (4,037)
Net realized gain on investments - -
Change in net assets from distributions (5,238,753) (10,867,493)
CAPITAL SHARE TRANSACTIONS (NOTE 8):
Proceeds from shares sold 11,246,459 25,290,827
Reinvested dividends and distributions 3,138,254 6,533,875
Cost of shares redeemed (20,931,872) (28,569,850)
Change in net assets from
capital share transactions (6,547,159) 3,254,852
Change in net assets (7,888,770) 7,716,267
NET ASSETS:
Beginning of period 223,024,091 215,307,824
End of period $215,135,321 $223,024,091
</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. On April
30, 1998 the Fund established Class I shares, which are offered and sold only
through financial intermediaries and are not offered directly to retail
investors. At June 30, 1998 there were no Class I shares outstanding. 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 at fair value each business day
based upon information provided by a nationally prominent independent
pricing service and periodically verified through other pricing services;
in the case of securities for which market quotations are readily
available, securities are valued at the mean of bid and asked quotations
and, in the case of other securities, at fair value determined under
procedures established by and under the general supervision of the Board
of Trustees. Securities which mature in 60 days or less are valued at
amortized cost if their term to maturity at purchase was 60 days or less,
or by amortizing their unrealized appreciation or depreciation on the 61st
day prior to maturity, if their term to maturity at purchase exceeded 60
days.
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.
<PAGE>
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 and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. Actual results could differ from those estimates.
3. FEES AND RELATED PARTY TRANSACTIONS
a) MANAGEMENT ARRANGEMENTS:
Aquila Management Corporation (the "Manager"), the Fund's founder
and sponsor, serves as the Manager for the Fund under an Advisory and
Administration Agreement with the Fund. The portfolio management of the Fund
has been delegated to a Sub-Adviser as described below. Under the Advisory
and Administration Agreement, the Manager provides all administrative
services to the Fund, other than those relating to the day-to-day portfolio
management. The Manager's services include providing the office of the Fund
and all related services as well as overseeing the activities of the
Sub-Adviser and all the various support organizations to theFund 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 Manager is entitled to receive a fee which is
payable monthly and computed as of the close of business each day at the
annual rate of 0.50 of 1% on the Fund's net assets. This fee will be reduced
to 0.40% if certain payments are made under the Fund's Distribution Plan
relative to Class A Shares.
KPM Investment Management, Inc. (the "Sub-Adviser"), a wholly-owned
subsidiary of KFS Corporation, a member of the nationally oriented Mutual of
Omaha Companies, serves as the Investment Sub-Adviser for the Fund under a
Sub-Advisory Agreement between the Manager and the Sub-Adviser. Under this
agreement, the Sub-Adviser continuously provides, subject to oversight
<PAGE>
of the Manager and the Board of Trustees of the Fund, the investment program
of the Fund and the composition of its portfolio, arranges for the purchases
and sales of portfolio securities, and provides for daily pricing of the
Fund's portfolio. For its services, the Sub-Adviser is entitled to receive
a fee from the Manager which is payable monthly and computed as of the
close of business each day at the annual rate of 0.20 of 1% on the Fund's
net assets. This fee will be reduced to 0.16% if certain payments are made
under the Fund's Distribution Plan relative to Class A Shares.
On June 29,1998, the Mangement arrangements described above were
approved by the Fund's shareholders and went into effect. From October 1,
1992 to that date, Aquila Management Corporation and KPM Investment
Management, Inc., through its parent, had served as the Fund's Administrator
and Investment Manager, respectively, pursuant to agreements with the Fund,
for total fees at an annual rate of 0.50 of 1% of the Fund's net assets, the
same fee as under the new arrangements.
For the six months ended June 30, 1998, the Fund incurred fees for
advisory and administrative services of $546,342.
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 Manager and the
Sub-Adviser are more fully defined in the Fund's Prospectus and Statement of
Additional Information.
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 Aquila Distributors, Inc. (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 Manager from an annual rate of 0.50 of 1% to 0.40% on all net assets so
that the combined payments of these fees will 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 the six months ended June
30, 1998, service fees on Class A Shares amounted to $52,926, of which the
Distributor received $2,187.
<PAGE>
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, 1998, amounted to $4,103. 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, 1998, amounted to
$1,368. The total of these payments with respect to Class C Shares
amounted to $5,471, of which the Distributor received $3,654.
Specific details about the Plans are more fully defined in the
Fund's Prospectus and Statement of Additional Information.
Under a Distribution Agreement, 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, 1998, the Distributor received sales
commissions of $35,611.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended June 30, 1998, purchases of securities
and proceeds from the sales of securities aggregated $20,612,884 and
$25,695,339, respectively.
At June 30, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $9,461,616 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to $612
for a net unrealized appreciation of $9,461,004.
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 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 and are taxable.
<PAGE>
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 statement
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.
7. 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, 1998, the Fund's custodian fees amounted to $16,400, 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, 1998 DECEMBER 31, 1997
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 620,253 $6,576,271 1,718,765 $17,904,456
Reinvested distributions 294,692 3,118,328 621,035 6,486,344
Cost of shares redeemed (1,670,837) (17,666,264) (2,568,761) (26,830,982)
Net change (755,892) (7,971,665) (228,961) (2,440,182)
CLASS C SHARES:
Proceeds from shares sold 29,120 307,149 11,536 120,381
Reinvested distributions 1,576 16,642 3,049 31,824
Cost of shares redeemed (7,207) (75,532) (4,876) (51,711)
Net change 23,489 248,259 9,709 100,494
CLASS Y SHARES:
Proceeds from shares sold 412,631 4,363,039 691,207 7,265,990
Reinvested distributions 310 3,284 1,497 15,707
Cost of shares redeemed (299,650) (3,190,076) (159,960) (1,687,157)
Net change 113,291 1,176,247 532,744 5,594,540
Total transactions in Fund
shares (619,112) $(6,547,159) 313,492 $3,254,852
</TABLE>
<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, 1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.62 $10.41 $10.56 $9.82 $10.77 $10.38
Income from Investment Operations:
Net investment income 0.24 0.50 0.52 0.54 0.55 0.57
Net gain (loss) on securities (both
realized and unrealized) (0.05) 0.23 (0.13) 0.74 (0.95) 0.55
Total from Investment Operations 0.19 0.73 0.39 1.28 (0.40) 1.12
Less Distributions (note 6):
Dividends from net investment income (0.25) (0.52) (0.54) (0.54) (0.55) (0.57)
Distributions from capital gains - - - - - (0.16)
Total Distributions (0.25) (0.52) (0.54) (0.54) (0.55) (0.73)
Net Asset Value, End of Period $10.56 $10.62 $10.41 $10.56 $9.82 $10.77
Total Return (not reflecting sales charge)(%) 1.83+ 7.21 3.78 13.28 (3.80) 11.10
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 207,025 216,321 214,392 219,306 199,075 222,277
Ratio of Expenses to Average Net Assets (%) 0.71* 0.72 0.69 0.63 0.57 0.53
Ratio of Net Investment Income to
Average Net Assets (%) 4.53* 4.81 5.03 5.21 5.36 5.32
Portfolio Turnover Rate (%) 9.44+ 22.66 10.96 14.20 15.53 20.89
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the voluntary waiver of a portion of the
management fee and the expense offset in custodian fees for uninvested cash
balances would have been:
<S> <C> <C> <C> <C> <C>
Net Investment Income ($) 0.24 0.50 0.51 0.52 0.53 0.55
Ratio of Expenses to Average Net Assets (%) 0.73* 0.75 0.75 0.77 0.76 0.73
Ratio of Net Investment Income to Average Net
Assets (%) 4.51* 4.78 4.97 5.07 5.17 5.12
<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 and on July 1, 1994, KPM Investment Management,
Inc., a wholly-owned subsidiary of Kirkpatrick, Pettis, Smith, Polian
Inc.,became the Fund's Investment Adviser. Pursuant to new management
arrangements which were effective on June 29, 1998, KPM Investment
Management, Inc. was appointed as the Fund's Investment Sub-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 Year Period(2) Six Months Year Period(2)
Ended June Ended Dec. Ended Dec. Ended June Ended Dec. Ended Dec.
30, 1998 31, 1997 31, 1996 30, 1998 31, 1997 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.60 $10.41 $10.31 $10.64 $10.41 $10.31
Income from Investment Operations:
Net investment income 0.19 0.40 0.28 0.24 0.52 0.38
Net gain (loss) on securities (both
realized and unrealized) (0.05) 0.21 0.12 (0.05) 0.25 0.12
Total from Investment Operations 0.14 0.61 0.40 0.19 0.77 0.50
Less Distributions (note 6):
Dividends from net investment income (0.20) (0.42) (0.30) (0.25) (0.54) (0.40)
Distributions from capital gains - - - - - -
Total Distributions (0.20) (0.42) (0.30) (0.25) (0.54) (0.40)
Net Asset Value, End of Period $10.54 $10.60 $10.41 $10.58 $10.64 $10.41
Total Return (not reflecting
sales charge) (%) 1.34+ 5.99 3.78+ 1.85+ 7.65 4.87+
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 1,277 1,036 915 6,833 5,668 0.1
Ratio of Expenses to Average Net
Assets (%) 1.65* 1.66 1.64* 0.66* 0.67 0.64*
Ratio of Net Investment Income to
Average Net Assets (%) 3.56* 3.84 4.08* 4.56* 4.79 5.08*
Portfolio Turnover Rate (%) 9.44+ 22.66 10.96 9.44+ 22.66 10.96
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the voluntary waiver of a portion of the
management fee and the expense offset in custodian fees for uninvested cash
balances would have been:
<S> <C> <C> <C> <C> <C>
Net Investment Income ($) 0.19 0.40 0.27 0.24 0.52 0.37
Ratio of Expenses to Average Net
Assets (%) 1.66* 1.69 1.70* 0.67* 0.70 0.70*
Ratio of Net Investment Income to
Average Net Assets (%) 3.55* 3.81 4.02* 4.55* 4.76 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>
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Tax-Free Fund of Colorado (the "Fund")
was held on June 29, 1998. The holders of shares representing 66% of the
total net asset value of the shares entitled to vote were present in person
or by proxy. At the meeting, the following matters were voted upon and
approved by the shareholders (the resulting votes for each matter are
presented below).
1. To elect Trustees.
Number of Votes:
TRUSTEE FOR WITHHELD
Lacy B. Herrmann 142,196,676.84 2,551,187.02
Tucker Hart Adams 142,273,028.60 2,474,835.26
Arthur K. Carlson 142,281,291.96 2,466,571.90
William M. Cole 142,479,970.96 2,267,892.90
Anne J. Mills 142,479,970.96 2,267,892.90
J. William Weeks 142,479,970.96 2,267,892.90
John G. Welles 142,479,970.96 2,267,892.90
2. To ratify the selection of KPMG Peat Marwick LLP as the Fund's
independent auditors.
Number of Votes:
FOR AGAINST ABSTAIN
138,822,528.83 898,809.04 5,026,515.46
3. To approve the new Investment Advisory and Administration Agreement
between the Fund and Aquila Management Corporation.
Number of Votes:
FOR AGAINST ABSTAIN BROKER NON-VOTES
100,542,858.58 2,621,942.04 8,696,230.53 32,886,826.92
4. To approve the new Sub-Advisory Agreement between Aquila Management
Corporation as Manager and KPM Investment Management, Inc. as
Sub-Adviser.
Number of Votes:
FOR AGAINST ABSTAIN BROKER NON-VOTES
99,715,432.28 3,402,776.86 8,742,827.81 140,782,614.60
<PAGE>
