<PAGE>
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
Diana P. Herrmann, President
James M. McCullough, Senior 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
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
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT AUDITORS
KPMG LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
ANNUAL
REPORT
DECEMBER 31, 1999
TAX-FREE FUND
OF
COLORADO
[Logo of Tax-Free Fund of Colorado: a square with silhouettes of two mountains
and a rising sun]
A TAX-FREE INCOME INVESTMENT
[Logo of the Aquila Group of Funds: an eagle's head]
ONE OF THE
AQUILAsm GROUP OF FUNDS
</PAGE>
<PAGE>
[Logo of Tax-Free Fund of Colorado: a square with silhouettes of two mountains
and a rising sun]
SERVING COLORADO INVESTORS FOR OVER A DECADE
TAX-FREE FUND OF COLORADO
ANNUAL REPORT
"WE TAKE SPECIAL CARE TO ENSURE YOUR SAFETY"
February 22, 2000
Dear Fellow Shareholders:
Every now and then, we come across something that triggers a special point
worth considering. This happened to us on a recent trip on United Airlines. When
a pre-flight announcement was made that stated, "We take special care to ensure
your safety," that remark brought home to us a point that we practice on a
continuous basis with Tax-Free Fund of Colorado.
We know from our surveys that most of the shareholders of Tax-Free Fund of
Colorado are looking forward to retiring or have already retired. These are a
very special group of people - and we work very hard to make sure that we are
addressing their needs.
Once one is no longer in the work force, it is essential that very careful
attention be paid to whatever financial resources are available to ensure that
these resources are available when needed. It is just as important that these
financial resources produce the kind of return, on a consistent basis, that our
shareholders can count on.
SAFETY
Safety with municipal securities is a very important factor to which
management of your Fund pays considerable attention. Just like the United
Airlines announcement, "we take special care to ensure your safety" with all the
municipal securities in the Fund.
As you probably know, municipal securities have various credit ratings.
These ratings attempt to measure the kind of safety and trustworthiness that the
securities represent. With Tax-Free Fund of Colorado, we specifically limit the
credit ratings to those within the top four grades - AAA, AA, A, and Baa. This
world in which we live is changing extremely rapidly. Therefore, we feel it is
important that we ensure that the majority of securities in the Fund's portfolio
are within the top TWO credit grades - AAA and AA - for your safety. Through our
portfolio management, we very carefully monitor the characteristics of each
investment and every type of investment in the portfolio. Therefore, we do not
expect "surprises" from any of the securities that are in the portfolio of the
Fund.
Recently, the marketplace for municipal securities has made it such that
the difference in yield for a AAA or AA credit rating versus a Baa credit rating
is relatively little. Therefore, our approach is to go with the best. Obviously,
if one can buy securities which provide a top rating without paying any
significant premium for them, we prefer to go in that direction.
We want you to know, that at the report date of December 31, 1999, the
combination of AAA and AA securities amounted to over 90% of the total assets in
the portfolio of your Fund.
In this way, we feel that "we take special care to ensure your safety."
</PAGE>
<PAGE>
MATURITY OF TAX-FREE MUNICIPAL BONDS
Another factor that we feel is important in building quality for your
investment is the maturity structure of the municipal bonds in the portfolio.
As we have explained to you in the past, longer-term maturity bonds will
usually produce a higher return than short-term bonds. However, such longer
maturity bonds also have a higher degree of volatility of price fluctuations.
Therefore, we have structured the average maturity of Tax-Free Fund of
Colorado to be at a somewhat intermediate level - currently 7.8 years. This
level is produced by using a "laddered" approach to the selection of bonds in
terms of their maturity. We have a certain number of short-term bonds and a
certain number of long-term bonds, but the overall average of these maturities
run at an intermediate level. In this way, we can capture a substantial amount
of possible income level available from the bonds, without exposing the
portfolio to an undue level of volatility.
Our goal is to maintain a reasonably high level of stability for the share
net asset value of the Fund, while producing the kind of tax-free return that
people want to see from their investment.
This is another strategy that we use in building quality, safety, and
stability into your investment in Tax-Free Fund of Colorado.
RELIABILITY OF PAYMENTS
We also recognize that most of our shareholders depend upon the monthly
tax-free income produced by Tax-Free Fund of Colorado. Shareholders want to know
that the income from the Fund is there when the time comes to pay various bills.
The quality character of the portfolio ensures that this is the case.
We want to make sure that, to the best of our ability, the monthly payments
add up to a satisfactory level of income that you can be SURE will be there when
you need it.
YOUR CONFIDENCE IS APPRECIATED
As always, we again wish to express our appreciation for the confidence you
have shown by your investment in Tax-Free Fund of Colorado. We can assure you
that we will continually do our best to merit your continued level of trust.
Sincerely,
/s/ Diana P. Herrmann
- -----------------------
Diana P. Herrmann
President
/s/ Lacy B. Herrmann
- ----------------------
Lacy B. Herrmann
Chairman, Board of Trustees
</PAGE>
<PAGE>
PERFORMANCE REPORT
The following graph illustrates the value of $10,000 invested in the Class
A shares of Tax-Free Fund of Colorado for the 10-year period ended December 31,
1999 as compared with the Lehman Brothers Quality Intermediate Municipal Bond
Index and the Consumer Price Index (a cost of living index). The performance of
each of the other classes is not shown in the graph but is included in the table
below. It should be noted that the Lehman Index does not include any operating
expenses nor sales charges and being nationally oriented, does not reflect state
specific bond market performance.
[Graphic of a line chart with the following information:]
<TABLE>
<CAPTION>
Lehman Brothers
Quality Intermediate
Municipal Bond Index With Sales Charge Without Sales Charge Cost of Living Index
</CAPTION>
<S> <C> <C> <C> <C>
12/89 $10,000 $9,600 $10,000 $10,000
12/90 10,751 10,204 10,630 10,625
12/91 11,948 11,290 11,763 10,941
12/92 12,822 12,347 12,864 11,266
12/93 14,091 13,717 14,291 11,582
12/94 13,706 13,209 13,762 11,883
12/95 15,597 14,948 15,573 12,191
12/96 16,262 15,555 16,206 12,587
12/97 17,453 16,658 17,354 12,801
12/98 18,500 17,468 18,199 13,006
12/99 18,554 17,324 18,049 13,354
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 1999
SINCE
1 YEAR 5 YEARS 10 YEARS INCEPTION
Class A (5/21/87)
With Sales Charge (4.78)% 4.70% 5.65% 6.02%
Without Sales Charge (0.84)% 5.56% 6.08% 6.37%
Class C (4/30/96)
With CDSC (2.68)% n/a n/a 3.25%
Without CDSC (1.70)% n/a n/a 3.25%
Class Y (4/30/96)
No Sales Charge (0.79)% n/a n/a 4.80%
Lehman Index 0.29% 6.24% 6.38% 6.51% (Class A)
0.29% n/a n/a 4.97% (Class C&Y)
Total return figures shown for the Fund reflect any change in price and assume
all distributions within the period were invested in additional shares. Returns
for Class A shares are calculated with and without the effect of the initial 4%
maximum sales charge. Returns for Class C shares are calculated with and without
the effect of the 1% contingent deferred sales charge (CDSC), imposed on
redemptions made within the first 12 months after purchase. Class Y shares are
sold without any sales charge. The rates of return will vary and the principal
value of an investment will fluctuate with market conditions. Shares, if
redeemed, may be worth more or less than their original cost. A portion of each
classes' income may be subject to federal and state income taxes. Past
performance is not predictive of future investment results.
</PAGE>
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
1999 REVIEW
1999 was marked by a rising interest rate environment, strong economic
growth, and an environment in which municipal bonds performed better in the
marketplace than U.S. Treasuries.
During the past year we have seen interest rates on Colorado municipal
bonds rise about 100 basis points, or 1% on all maturities. These interest rate
increases were driven by concerns of the Federal Reserve Bank in terms of
potential inflationary pressures caused by strong consumer spending in the U.S.,
as well as a robust worldwide economy. The Fed increased short-term interest
rates during 1999 by a .75 of 1% through three movements of .25 of 1% each.
Despite a small 1.9% increase in the Consumer Price Index, the smallest increase
in 35 years, the price of the bonds in the fixed income markets remained under
pressure as investors worried about an extremely tight labor market, frenetic
consumer spending and the beginning of an increase in import prices.
The pattern of lower volatility of price movements for municipal bonds as
compared to U.S. Treasury securities continued in 1999. Long term rates for
30-year U.S. Treasury bonds increased by more than 1 1/2% during the year, which
resulted in double-digit negative total returns for these type securities.
However, municipals were less volatile because demand from municipal bond funds
and property casualty insurers was lower than it was in previous years. New
issue supply of municipal bonds was also lower due to lesser refunding activity
in the higher interest rate environment.
The defensive characteristics of Tax-Free Fund of Colorado served our
shareholders very well during this difficult environment. The intermediate
maturity (8.0 years), AA+ credit quality, and above average coupon bonds held in
the Fund maintained their values much better than bonds that had a longer
maturity and were of lower credit quality. The Fund's Class A shares experienced
a -0.84% total return in 1999 compared to longer maturity municipal funds which
had -7.0% to -9.0% returns.
From the standpoint of our shareholders, we have always attempted to
provide a highly dependable amount of actual income from the Fund regardless of
what happens to bond prices in the marketplace. This we have done consistently,
as well as for the years 1998 and 1999, in terms of distribution return for the
Fund's investors.
2000 STRATEGY
We still believe that municipal bonds represent excellent value in today's
market. Yields on intermediate-term Colorado bonds are 3 1/2 to 4% above the
current inflation rate. This is very high by historical standards. In addition,
there may well exist a significant amount of demand for municipals when
investors start to rebalance their portfolios to more "normal" stock/bond ratios
from overweighted positions in equities. Additionally, investors may be looking
to protect gains that have been achieved in the past few years and in the
process lower overall portfolio risk levels.
Tax-Free Fund of Colorado plans to take advantage of the recent higher
interest rates by selling 4 to 7 year bonds which were purchased in a lower
interest rate environment and replace them with 10 to 12 year bonds with higher
yields.
We will continue to emphasize the highest credit quality municipal bonds as
the rates for lower grade bonds have not yet risen enough to warrant the
additional risk. This strategy should provide higher income as well as the
stable share price that our investors have enjoyed for the past 13 years.
</PAGE>
<PAGE>
[Logo of KPMG: four rectangles with the letters KPMG in front of them]
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Tax-Free Fund of Colorado:
We have audited the accompanying statement of assets and liabilities of
Tax-Free Fund of Colorado, including the statement of investments, as of
December 31, 1999, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian . An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Tax-Free Fund of Colorado as of December 31, 1999, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
- --------------
New York, New York
February 18, 2000
</PAGE>
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (44.2%) S&P VALUE
</CAPTION>
<S> <C> <C> <C> <C>
SCHOOL DISTRICTS (30.4%)
$ 1,275,000 Adams County School District #14 Aaa/AAA $ 1,319,625
5.750%, 12/01/08, FSA Insured
1,255,000 Adams County School District #12 Aaa/AAA 1,287,944
5.625%, 12/15/08, FGIC Insured
2,500,000 Adams County School District #12 Aaa/AAA 2,584,375
6.20%, 12/15/09, FGIC Insured
1,750,000 Arapahoe County School District #6 Aa2/AA 1,806,875
5.50%, 12/01/05
1,475,000 Arapahoe County, Cherry Creek School Aa2/AA 1,561,656
District #5, 6.00%, 12/15/05
2,000,000 Arapahoe County School District #5 Aa2/AA 2,060,000
5.50%, 12/15/07
1,000,000 Arapahoe County School District #5 Aa2/AA 1,027,500
5.50%, 12/15/08
1,325,000 Arapahoe County School District #5 Aaa/AAA 1,296,844
5.125%, 12/01/10, FSA Insured
1,215,000 Boulder Valley Colorado Aaa/AAA 1,234,744
5.50%, 12/01/08, FGIC Insured
1,875,000 Boulder, Larimer & Weld County # RE-1J Aaa/AAA 1,907,812
5.50%, 12/15/08, FGIC Insured
1,000,000 Denver City & County School District #1 A1/AA- 1,032,500
5.60%, 06/01/08
2,920,000 Douglas & Elbert Counties School District #RE-1 Aaa/AAA 2,996,650
Refunding 5.50%, 12/15/07, FGIC Insured
2,500,000 Douglas & Elbert Counties School District # Re-1, Aaa/AAA 2,609,375
Series 1992, 6.15%, 12/15/08, MBIA Insured
1,000,000 Douglas & Elbert Counties School District # Re-1 Aaa/AAA 968,750
Series 1992, 5.00%, 12/15/10, FGIC Insured
2,000,000 Douglas & Elbert Counties School District # Re-1 Aaa/AAA 1,962,500
Series 1992, 5.25%, 12/15/11, FGIC Insured
2,320,000 Eagle County School District #RE50J, Series 1999 Aaa/AAA 2,456,300
6.15%, 12/01/04, FGIC Insured
1,040,000 El Paso County School District #20 Aaa/AAA 1,095,900
6.00%, 12/15/04, AMBAC Insured
</PAGE>
<PAGE>
1,145,000 El Paso County School District #11 Aa3/AA- 1,179,350
5.50%, 12/01/07
1,330,000 El Paso County School District #11 Aa3/AA- 1,433,075
6.25%, 12/01/08
1,000,000 El Paso County School District #20 Aaa/AAA 1,067,500
6.15%, 12/15/08, MBIA Insured
1,100,000 El Paso County School District #2 Aaa/AAA 1,100,000
5.25%, 12/01/09, MBIA Insured
3,000,000 Jefferson County School District # R-1 Aaa/AAA 3,090,000
5.50%, 12/15/06, FGIC Insured
3,000,000 Jefferson County School District # R-1 Aaa/AAA 3,056,250
5.50%, 12/15/09, FGIC Insured
1,500,000 Larimer County, Colorado School #R-1 Refunding A1/NR 1,535,625
5.40%, 12/15/04
2,000,000 Larimer County, Colorado School #R-1 Refunding A1/AA- 2,092,500
5.90%, 12/15/05
1,245,000 Larimer County, Colorado School #R-1 Refunding Aaa/AAA 1,308,806
5.875%, 12/15/06, FGIC Insured
3,560,000 Larimer County, Colorado School #R-1 Refunding Aa3/AA- 3,524,400
5.25%, 12/15/11
2,065,000 Mesa County School District #51 Aaa/AAA 2,186,319
6.00%, 12/01/06, MBIA Insured
1,000,000 Mesa County School District #51 Aaa/AAA 996,250
5.20%, 12/01/09, MBIA Insured
1,245,000 North Jefferson County, Park & Recreation Aaa/NR 1,249,669
5.25%, 12/01/08, AMBAC Insured
1,045,000 Pitkin County Colorado School District #1 (ASPEN) Aaa/AAA 1,085,494
5.85%, 11/15/03, AMBAC Insured
1,790,000 Pitkin County, Aspen School District #1 Series 1989 Aaa/AAA 1,852,650
5.95%, 11/15/05, AMBAC Insured
1,040,000 Pueblo County Colorado School District # 70 Aaa/AAA 1,051,700
5.50%, 12/01/09, AMBAC Insured
1,050,000 Summit County School District, Series A Aaa/AAA 1,069,688
5.40%, 12/01/06, FGIC Insured
</PAGE>
<PAGE>
1,000,000 Summit County School District, Series A Aaa/AAA 1,020,000
5.50%, 12/01/07, FGIC Insured
1,000,000 Weld & Adams County School District 3J Aaa/AAA 1,013,750
5.50%, 12/15/10, AMBAC Insured 60,122,376
CITY & COUNTY (1.6%)
1,000,000 Denver Colorado City & County Unlimited Tax, Aa2/AA 1,026,250
7.00%, 08/01/03, Pre- Refunded
1,085,000 Snowmass Refunding Aa2/AAA 1,115,055
6.95%,11/15/05, FSA Insured, Pre-Refunded
1,000,000 Westminster Colorado Water Series 1992 A Aa3/AA- 1,037,500
6.25%, 12/01/07 3,178,805
METROPOLITAN DISTRICT (9.9%)
2,500,000 Boulder Colorado Central Area Improvement Aaa/AAA 2,539,125
6.30%, 08/15/07, FGIC Insured
1,060,000 Castle Pines Metropolitan District Aaa/AAA 1,087,825
5.50%, 12/01/07, FSA Insured
2,000,000 Castle Pines Metropolitan District Aaa/AAA 1,920,000
5.00%, 12/01/11, FSA Insured
1,550,000 Central Platte Valley Metropolitan District NR/A 1,526,750
5.25%, 12/01/09, ACA Insured
1,080,000 Greenwood South Metropolitan District Aaa/AAA 1,117,800
5.60%, 12/01/05, MBIA Insured
1,000,000 Highlands Ranch Metropolitan District #4 Aaa/AA+ 1,051,250
5.80%, 12/01/07, LOC Swiss Bank, Pre-Refunded
1,530,000 Highlands Ranch Metropolitan District #1,
Refunding Aaa/AAA 1,577,812
6.25%, 09/01/06, MBIA Insured
1,000,000 Highlands Ranch Metropolitan District #4 Aaa/AAA 1,037,500
5.75%, 09/01/08, AMBAC Insured
1,730,000 Highlands Ranch Metropolitan District #4 Aaa/AAA 1,794,875
5.75%, 09/01/09, AMBAC Insured
2,165,000 Interstate South Metropolitan District NR/A+ 2,213,712
5.75%, 12/01/09, LOC FBS
</PAGE>
<PAGE>
1,365,000 South Suburban Park & Recreational District Baa3/AAA 1,351,350
5.125%, 12/15/09, FGIC Insured
1,260,000 Westglenn Metropolitan District Colorado
Jefferson County Refunding, NR/A+ 1,285,200
5.65%, 12/01/04, LOC FBS
1,000,000 Westglenn Metropolitan District Colorado, NR/A+ 1,055,000
6.25%, 12/01/08, LOC FBS 19,558,199
WATER & SEWER (1.9%)
1,550,000 Denver Colorado City & County Water Aa2/AA+ 1,596,500
5.50%, 10/01/07
2,000,000 Thornton, Colorado, Refunding-Spur A Aaa/AAA 2,070,000
5.60%, 12/01/06, FSA Insured 3,666,500
HOSPITAL (0.5%)
1,000,000 Poudre Valley Hospital District, Refunding Aa/AA- 1,013,750
5.375%, 11/15/07
Total General Obligation Bonds 87,539,630
REVENUE BONDS (56.1%)
HIGHER EDUCATION (10.3%)
1,000,000 Aurora Educational Development Community
College Series 1990, Aaa/AAA 1,007,280
7.10%, 04/01/02, MBIA Insured, Pre-Refunded
1,000,000 Aurora Educational Development Revenue Bonds Aaa/AAA 1,007,630
7.25%, 04/01/05, MBIA Insured, Pre-Refunded
1,580,000 City of Aurora Colorado Educational Development
Refunding Bonds Series 1994, NR/BBB 1,603,700
6.00%, 10/15/07
1,000,000 Colorado Post Secondary Educational Facilities
Authority Refunding Revenue Bonds, NR/AAA 1,028,760
6.35%, 06/01/05, AMBAC Insured, Pre-Refunded
1,170,000 Colorado Post Secondary Educational Facility, Aaa/AAA 1,193,400
5.50%, 03/01/08, MBIA Insured
1,000,000 Colorado Post Secondary Educational Facilities
Authority Refunding Revenue Bonds Series 93, A2/AAA 1,023,750
5.95%, 03/01/09, AMBAC Insured
</PAGE>
<PAGE>
1,000,000 Colorado State Board of Agriculture Revenue
Refunding, Colorado State University Student
Sports, Aaa/AAA 1,018,750
5.40%, 04/01/06, MBIA Insured
1,000,000 Colorado State Board of Agriculture Revenue,
Fort Lewis College, Aaa/AAA 1,047,500
6.50%, 10/01/06, FGIC Insured
1,000,000 Colorado State Board of Agriculture Revenue,
University of Southern Colorado Auxiliary
Facility Aaa/AAA 1,035,000
6.25%, 08/01/07, AMBAC Insured
1,000,000 Colorado State Board of Agriculture Revenue
Refunding, Colorado State University Student
Sports, Aaa/AAA 1,011,250
5.45%, 04/01/08, MBIA Insured
1,500,000 Colorado Student Obligation Board Authority
Student Loan Revenue, A/NR 1,535,625
6.00%, 09/01/01
1,860,000 Colorado State Colleges Western State, Aaa/AAA 1,885,575
5.50%, 05/15/09, MBIA Insured
500,000 University of Colorado Regents Research Building
Revolving Fund Revenue, A2/A+ 505,900
6.85%, 06/01/03
1,000,000 University of Colorado Research Building Revenue Aaa/AAA 1,038,750
6.00%, 06/01/06, MBIA Insured
1,000,000 University of Colorado Revenue Aaa/AAA 1,041,250
6.20%, 06/01/07, MBIA Insured
1,500,000 State of Colorado University of Northern Colorado
Auxiliary Facilities, Aaa/AAA 1,569,375
5.75%, 06/01/07, MBIA Insured
1,745,000 State of Colorado University of Northern Colorado
Auxiliary Facilities, Aaa/AAA 1,810,438
5.75%, 06/01/08, MBIA Insured 20,363,933
</PAGE>
<PAGE>
ELECTRIC (6.1%)
5,000,000 Adams County Colorado Pollution Control Revenue
Public Service, Aaa/AAA 5,118,750
5.625%, 04/01/08, MBIA Insured
1,210,000 Moffat County Colorado Pollution Control Revenue Aaa/AAA 1,246,300
5.50%, 11/01/03, AMBAC Insured
2,125,000 Moffat County Colorado Pollution Control Revenue Aaa/AAA 2,202,031
5.625%, 11/01/06, AMBAC Insured
1,375,000 Platte River Power Authority Aaa/AAA 1,428,281
5.75%, 06/01/04, MBIA Insured
2,000,000 Platte River Power Authority Aaa/AAA 2,107,500
6.00%, 06/01/07, MBIA Insured 12,102,862
SALES TAX (9.3%)
1,000,000 Arvada Colorado Sales & Use Tax Revenue Aaa/AAA 1,038,087
6.10%, 12/01/07, FGIC Insured
2,000,000 Boulder County Colorado Open Space & Use Tax
Revenue Bonds Series 1994, Aaa/AAA 2,087,500
5.75%, 12/15/04, FGIC Insured
2,500,000 Boulder County, Colorado Capital Improvements NR/AA- 2,506,250
5.25%, 12/15/09
1,045,000 City of Boulder Colorado Aaa/AAA 1,042,387
5.25%, 08/15/10, AMBAC Insured
2,000,000 City & County of Denver Colorado Excise
Tax Revenue Aaa/AAA 2,010,000
5.375%, 09/01/10, FSA Insured
1,000,000 Denver Metro Major League Baseball Stadium
Excise Tax Revenue Aaa/AAA 1,040,000
6.35%, 10/01/03, FGIC Insured, Pre-Refunded
2,045,000 Fort Collins Sales & Use Tax Revenue Aaa/AAA 2,080,788
5.375%, 12/01/06, FGIC Insured
1,000,000 Fort Collins Downtown Development Authority
Tax Increment Revenue Aaa/AAA 1,027,000
6.50%, 06/01/07, MBIA Insured
</PAGE>
<PAGE>
1,000,000 Jefferson County Districtwide Sales Tax Aaa/AAA 1,038,750
6.10%, 12/01/04, MBIA Insured
1,245,000 Jefferson County Open Space Sales Tax Aaa/AAA 1,198,313
5.00%, 11/01/11, FGIC Insured
1,040,000 Lakewood Colorado Sales & Use Tax Revenue, NR/AA 1,036,100
5.25%, 12/01/09
1,000,000 Westminster Sales & Use Tax 1991 Aaa/AAA 1,030,570
6.70%, 12/01/01, FGIC Insured
1,175,000 Westminster Colorado Sales Tax Revenue Aaa/AAA 1,204,375
5.50%, 12/01/07, FGIC Insured 18,340,120
WATER & SEWER (10.1%)
1,750,000 Centennial Water & Sewer District Aaa/AAA 1,822,187
5.80%, 12/01/07, FSA Insured
500,000 Colorado Water Resource & Power
Development Authority, Aaa/AAA 511,770
7.00%, 11/01/00, FGIC Insured
710,000 Colorado Water Resource & Power
Development Authority, Aaa/AAA 744,612
Series A 7.00%, 09/01/05, Pre-Refunded
1,000,000 Colorado Water Resource & Power
Development Authority, Aaa/AAA 1,040,000
6.80%, 11/01/05, FGIC Insured, Pre-Refunded
1,000,000 Colorado Water Resource & Power
Development Authority, Aaa/AAA 1,047,500
6.50%, 11/01/05, FGIC Insured
1,000,000 Colorado Water Resource & Power
Development Authority, Aa2/AA 1,042,500
6.00%, 09/01/06
1,000,000 Colorado Water Resource & Power Development
Authority, Clean Water Revenue Aaa/AAA 1,025,000
5.35%, 09/01/06
1,000,000 Colorado Water Resource & Power Development
Authority, Clean Water Revenue, Aaa/AAA 1,022,500
5.50%, 09/01/09
</PAGE>
<PAGE>
1,000,000 Colorado Water Resource & Power Development
Authority, Water/Sewer Revenue, Aaa/AAA 1,010,000
5.375%, 09/01/10
1,965,000 Fort Collins Colorado Wastewater Sewer Revenue Aaa/AAA 1,982,194
5.375%, 12/01/08, FGIC Insured
1,530,000 Left Hand Water District, Series 1996 Aaa/AAA 1,577,813
5.75%, 11/15/08, MBIA Insured
1,055,000 Metro Wastewater Reclamation District, Gross
Revenue Series Aa2/AA 1,080,056
5.80%, 04/01/06, Pre-Refunded
1,270,000 Metro Wastewater Reclamation District,
Gross Revenue Series, Aa2/AA 1,266,825
5.25%, 04/01/09
1,010,000 Northglenn Colorado Water & Sewer Aaa/AAA 1,054,188
5.75%, 12/01/06, FSA Insured
1,000,000 Pagosa Water & Sanitation Colorado Water & Sewer Aaa/AAA 1,003,750
5.25%, 12/01/08, AMBAC Insured
1,715,000 Town of Erie NR/A 1,663,550
5.125%, 12/01/10, ACA Insured
1,000,000 Westminster Colorado Water & Wastewater
Utility Enterprise- Water And Wastewater
Revenue Series 1994 Aaa/AAA 1,041,250
5.70%, 12/01/04, AMBAC Insured 19,935,695
HOSPITAL (7.3%)
2,030,000 Colorado Health Facility Authority Hospital Aaa/AAA 2,085,825
Revenue North Colorado Medical Center
5.60%, 05/15/05, MBIA Insured
1,000,000 Colorado Health Facility Authority Hospital Aaa/AAA 1,013,750
Revenue Medical Center 5.50%, 12/01/08,
MBIA Insured
1,000,000 Colorado Health Facility Authority Hospital Aa3/AA- 977,500
Revenue Medical Center 5.375%, 12/01/09,
MBIA Insured
</PAGE>
<PAGE>
1,500,000 Colorado Health Facility Authority Hospital
Revenue Medical Center Aaa/AAA 1,483,125
5.25%, 12/01/10, MBIA Insured
2,255,000 Colorado Health Facility Community Provider
Pooled Loan Revenue Aaa/AAA 2,381,844
7.20%, 07/15/05, FSA Insured
1,410,000 Colorado Health Facility Authority Hospital
Revenue Boulder Community Hospital Aaa/AAA 1,457,587
5.65%, 10/01/06, MBIA Insured
1,000,000 Colorado Health Facility Authority Sisters of
Charity Health Care Aaa/AAA 1,068,750
6.25%, 05/15/09, AMBAC Insured
1,460,000 Colorado Springs Hospital Revenue Aaa/AAA 1,492,850
5.50%, 12/15/06, MBIA Insured
1,000,000 Pueblo County Colorado Hospital Facilities,
Series A Aaa/AAA 1,042,500
6.80%, 09/01/05, MBIA Insured
1,475,000 University Colorado Hospital Authority Hospital
Revenue Aaa/NR 1,500,813
5.50%, 11/15/07, AMBAC Insured 14,504,544
HOUSING (7.6%)
1,600,000 Adams County Colorado Multi-family Housing
Revenue, Brittany Station Series A, FNMA NR/AAA 1,624,000
5.40%, 09/01/25
825,000 City of Arvada Colorado Multi-family Housing
Revenue, Springwood NR/AAA 832,219
5.60%, 08/20/08, GNMA Insured
1,000,000 City and County of Denver Colorado Single
Family Mortgage Revenue Series 1999 C NR/AAA 912,500
5.000%, 11/01/15, GNMA Insured
85,000 Colorado Housing Finance Authority 1991,
Series A-3 NR/AA+ 85,949
6.10%, 11/01/00
80,000 Colorado Housing Finance Authority 1991, Series A-1 NR/AA+ 81,800
6.20%, 11/01/01
</PAGE>
<PAGE>
245,000 Colorado Housing Finance Authority 1991, Series A A1/A 247,756
6.90%, 05/01/01
875,000 Colorado Housing Finance Authority, SFM Series A-2 NR/AA+ 907,812
6.65%, 11/01/06
395,000 Colorado Housing Finance Authority SFM
Series 1994C, Aa2/NR 402,406
6.00%, 12/01/04
1,225,000 Colorado Housing Finance Authority,
SFM Series D-2, Aa2/NR 1,252,562
5.625%, 06/01/10
655,000 Colorado Housing Finance Authority, SFM
Series A-2 Aa2/NR 669,652
5.75%, 11/01/10
955,000 Colorado Housing Finance Authority, SFM
Series 1994C Aa2/NR 974,883
6.25%, 12/01/12
2,000,000 Colorado Housing Finance Authority Aa2/NR 2,102,500
6.50%, 05/01/16
750,000 Colorado Housing Finance Authority Aa2/NR 767,812
6.05%, 10/01/16
1,000,000 Colorado Housing Finance Authority Aa2/NR 1,031,250
6.125%, 11/01/23
200,000 Commerce City Single Family Revenue Series A Aaa/NR 205,000
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+ 1,027,500
6.10%, 03/01/06
1,500,000 Snowmass Village Multi-family Revenue Refunding Aaa/AAA 1,556,250
6.30%, 12/15/08, FSA Insured
190,000 Southwestern Colorado Single Family Revenue
Partnership, Refunding Aa2/NR 194,988
7.10%, 09/01/04
90,000 Summit County Single Family, Series A Aaa/NR 91,913
7.25%, 12/01/04 14,968,752
</PAGE>
<PAGE>
TRANSPORTATION (1.0%)
1,000,000 Arapahoe County Colorado E-470 Vehicle
Registration Revenue Bonds Aaa/AAA 1,020,000
5.45%, 08/31/07, MBIA Insured
1,000,000 Regional Transportation District Sales Tax Revenue Aaa/AAA 1,045,000
6.15%,11/01/05, FGIC Insured 2,065,000
MISCELLANEOUS REVENUE (3.4%)
1,000,000 Boulder County, CO, N.C.A.R. NR/A 1,040,000
6.50%, 12/01/02
2,275,000 Denver Colorado City & County Helen NR/AA- 2,337,562
Bonfils Project 5.875%, 12/01/09
1,000,000 South Suburban Park & Recreational District Baa/NR 1,028,750
6.00%, 11/01/07
1,230,000 Thornton, Colorado Development Authority Aaa/AAA 1,283,813
5.75%, 12/01/06, MBIA Insured
1,055,000 Westminster, Colorado Certificate of Participation Aaa/AAA 1,049,725
5.35%, 09/01/11, MBIA Insured 6,739,850
TEMPORARY INVESTMENTS IN SHORT-TERM
MUNICIPAL SECURITIES (1.0%)
2,000,000 Colorado Health Facilities Revenue VMIG1/A1 2,000,000
3.60%, 10/01/14 +
Total Revenue Bonds 111,020,756
Total Investments (cost $198,630,962*) 100.3% 198,560,386
Liabilities in excess of other assets (0.3) (514,082)
Net Assets 100.0% $ 198,046,304
</TABLE>
* Cost for Federal tax purposes is identical.
+ The security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a
short-term security. The rate disclosed is that currently in
effect. This rate changes periodically based on market
conditions or a specified market index.
PORTFOLIO ABBREVIATIONS:
ACA - American Capital Access
AMBAC - American Municipal Bond Assurance Corp.
FGIC - Financial Guaranty Insurance Co.
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance
GNMA - Government National Mortgage Association
MBIA - Municipal Bond Investors Assurance Corp.
See accompanying notes to financial statements
</PAGE>
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $198,630,962) $ 198,560,386
Interest receivable 1,758,507
Receivable for Fund shares sold 142,507
Receivable for investment securities sold 15,070
Other assets 924
Total assets 200,477,394
LIABILITIES
Payable for Fund shares redeemed 1,098,160
Cash overdraft 995,762
Dividends payable 223,660
Distribution fees payable 29,528
Management fee payable 13,633
Accrued expenses 70,347
Total liabilities 2,431,090
NET ASSETS $ 198,046,304
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $.01 per share $ 198,341
Additional paid-in capital 197,954,670
Net unrealized depreciation on investments (70,576)
Accumulated net realized loss on investments (36,131)
$ 198,046,304
CLASS A
Net Assets $ 190,697,578
Capital shares outstanding 19,098,800
Net asset value and redemption price per share $ 9.98
Offering price per share (100/96 of $9.98 adjusted to nearest cent) $ 10.40
CLASS C
Net Assets $ 1,932,402
Capital shares outstanding 193,874
Net asset value and offering price per share $ 9.97
Redemption price per share (*a charge of 1% is imposed on the redemption
proceeds of the shares, or on the original price, whichever is lower,
if redeemed during the first 12 months after purchase) $ 9.97*
CLASS Y
Net Assets $ 5,416,324
Capital shares outstanding 541,428
Net asset value, offering and redemption price per share $ 10.00
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 10,882,024
Expenses:
Management fee (note 3) $ 1,053,534
Transfer and shareholder servicing agent fees 154,717
Distribution and service fees (note 3) 118,137
Trustees' fees and expenses (note 8) 69,817
Shareholders' reports and proxy statements 53,472
Legal fees 46,454
Custodian fees 31,030
Audit and accounting fees 26,250
Registration fees and dues 23,116
Insurance 9,175
Miscellaneous 20,807
1,606,509
Expenses paid indirectly (note 7) (14,019)
Net expenses 1,592,490
Net investment income 9,289,534
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss from securities transactions (36,131)
Change in unrealized depreciation on investments (10,905,549)
Net realized and unrealized loss on investments (10,941,680)
Net decrease in net assets resulting from operations $ (1,652,146)
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE FUND OF COLORADO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
</CAPTION>
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 9,289,534 $ 9,744,863
Net realized gain (loss) from securities transactions (36,131) 1,753,003
Change in unrealized depreciation on investments (10,905,549) (1,140,899)
Change in net assets from operations (1,652,146) 10,356,967
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6):
Class A Shares:
Net investment income (9,466,538) (9,122,237)
Net realized gain on investments (1,495,582) (771,886)
Class C Shares:
Net investment income (62,746) (41,352)
Net realized gain on investments (15,059) (3,498)
Class Y Shares:
Net investment income (308,855) (280,993)
Net realized gain on investments (42,367) (23,772)
Change in net assets from distributions (11,391,147) (10,243,738)
CAPITAL SHARE TRANSACTIONS (NOTE 9):
Proceeds from shares sold 16,765,266 21,817,536
Reinvested dividends and distributions 6,993,793 6,045,620
Cost of shares redeemed (29,816,558) (33,853,380)
Change in net assets from capital share transactions (6,057,499) (5,990,224)
Change in net assets (19,100,792) (5,876,995)
NET ASSETS:
Beginning of period 217,147,096 223,024,091
End of period $ 198,046,304 $ 217,147,096
</TABLE>
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE FUND OF COLORADO
NOTES TO FINANCIAL STATEMENTS
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 are sold with a
front-payment sales charge and bear an annual service fee. Class C shares are
sold with a level-payment sales charge with no payment at time of purchase but
level service and distribution fees from date of purchase through a period of
six years thereafter. A contingent deferred sales charge of 1% is assessed to
any Class C shareholder who redeems shares of this Class within one year from
the date of purchase. The Class Y shares are only offered to institutions acting
for an investor in a fiduciary, advisory, agency, custodian or similar capacity
and are not offered directly to retail investors. Class Y shares are sold at net
asset value without any sales charge, redemption fees, contingent deferred sales
charge or distribution or service fees. On 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 December 31, 1999 there
were no Class I shares outstanding. All classes of shares represent interests in
the same portfolio of investments and are identical as to rights and privileges
but differ with respect to the effect of sales charges, the distribution and/or
service fees borne by each class, expenses specific to each class, voting rights
on matters affecting a single class and the exchange privileges of each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the 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. 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.
</PAGE>
<PAGE>
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 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.
</PAGE>
<PAGE>
For the year ended December 31, 1999, the Fund incurred fees for advisory
and administrative services of $1,053,534.
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 year
ended December 31, 1999, service fees on Class A Shares amounted to $101,231 of
which the Distributor received $4,616.
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 year
ended December 31, 1999, amounted to $12,680. 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 year
ended December 31, 1999 amounted to $4,226. The total of these payments with
respect to Class C Shares amounted to $16,906 of which the Distributor received
$7,538.
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 year ended December
31, 1999, the Distributor received sales commissions of $55,275 on sales of
Class A Shares.
</PAGE>
<PAGE>
4. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 1999, purchases of securities and
proceeds from the sales of securities aggregated $27,193,558 and $34,803,986,
respectively.
At December 31, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted to
$2,538,419 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value amounted to $2,608,995
for a net unrealized depreciation of $70,576.
At December 31, 1999, the Fund has a capital loss carryover of $36,131
which expires on December 31, 2007. 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 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, in cash,
or in a combination of both, at the shareholder's option. Net realized capital
gains, if any, are distributed annually and are taxable. An additional
distribution of gain may be made to the extent necessary to avoid payment of
Federal taxes by the Fund.
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 taxes at ordinary income and/or capital gain rates.
7. EXPENSES
The Fund has negotiated an expense offset arrangement with its custodian
wherein it receives credit toward the reduction of custodian fees and other Fund
expenses whenever there are uninvested cash balances. The Statement of
Operations reflects the total expenses before any offset, the amount of offset
and the net expenses. It is the general intention of the Fund to invest, to the
extent practicable, some or all of cash balances in income-producing assets
rather than leave cash on deposit.
</PAGE>
<PAGE>
8. TRUSTEES' FEES AND EXPENSES
During the fiscal year there were seven Trustees, one of whom is affiliated
with the Manager and is not paid any trustee fees. Trustees' fees paid during
the year were at the average annual rate of $6,050 for carrying out their
responsibilities and attendance at regularly scheduled Board Meetings. A meeting
of the independent trustees is often held prior to each quarterly Board Meeting
for which each attendee is paid a fee of $350. If additional or special meetings
are scheduled for the Fund, separate meeting fees are paid for each such meeting
to those Trustees in attendance. The Fund also reimburses the Trustees for
expenses such as travel, accommodations, and meals incurred in connection with
attendance at regularly scheduled or special Board Meetings and at the Annual
Meeting and outreach meetings of Shareholders. For the fiscal year ended
December 31, 1999 such reimbursements averaged approximately $3,900 per Trustee.
9. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
SHARES AMOUNT SHARES AMOUNT
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 1,338,033 13,893,721 1,425,794 $ 15,152,177
Reinvested distributions 672,082 6,907,950 566,091 6,002,679
Cost of shares redeemed (2,550,998) (26,331,915) (2,717,744) (28,777,984)
Net change (540,883) (5,530,244) (725,859) (7,623,128)
CLASS C SHARES:
Proceeds from shares sold 82,358 848,198 37,561 396,665
Reinvested distributions 4,283 43,970 3,233 34,224
Cost of shares redeemed (17,963) (183,817) (13,267) (139,797)
Net change 68,678 708,351 27,527 291,092
CLASS Y SHARES:
Proceeds from shares sold 192,086 2,023,347 591,639 6,268,694
Reinvested distributions 4,109 41,873 822 8,717
Cost of shares redeemed (316,465) (3,300,826) (463,517) (4,935,599)
Net change (120,270) (1,235,606) 128,944 1,341,812
Total transactions in Fund
shares $ (592,475) $ (6,057,499) (569,388) $ (5,990,224)
</TABLE>
</PAGE>
<PAGE>
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A(1)
YEAR ENDED DECEMBER 31,
1999 1998 1997 1996 1995
</CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.63 $10.62 $10.41 $10.56 $9.82
Income from Investment Operations:
Net investment income 0.46 0.47 0.50 0.52 0.54
Net gain (loss) on securities (both realized and
unrealized) (0.55) 0.04 0.23 (0.13) 0.74
Total from Investment Operations (0.09) 0.51 0.73 0.39 1.28
Less Distributions (note 6):
Dividends from net investment income (0.48) (0.46) (0.52) (0.54) (0.54)
Distributions from capital gains (0.08) (0.04) - - -
Total Distributions (0.56) (0.50) (0.52) (0.54) (0.54)
Net Asset Value, End of Period $9.98 10.63 $10.62 $10.41 $10.56
Total Return (not reflecting sales charge)(%) (0.84) 4.92 7.21 3.78 13.28
Ratios/Supplemental Data
Net Assets, End of Period ($ thousands) 190,698 208,771 216,321 214,392 219,306
Ratio of Expenses to Average Net Assets (%) 0.76 0.75 0.75 0.70 0.64
Ratio of Net Investment Income to Average
Net Assets (%) 4.41 4.47 4.78 5.02 5.20
Portfolio Turnover Rate (%) 13.08 15.20 22.66 10.96 14.20
The expense and net investment income ratios without the effect of the
voluntary waiver of a portion of the management fee in years ended December
31, 1996 and 1995 were:
Ratio of Expenses to Average Net Assets (%) - - - 0.74 0.76
Ratio of Net Investment Income to
Average Net Assets (%) - - - 4.98 5.08
The expense ratios after giving effect to the waiver and expense offset for
uninvested cash balances were:
Ratio of Expenses to Average Net Assets (%) 0.75 0.73 0.72 0.69 0.63
</TABLE>
(1) Designated as Class A Shares on April 30, 1996.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
TAX-FREE FUND OF COLORADO
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C(1) CLASS Y(1)
PERIOD(2) PERIOD(2)
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED DECEMBER 31, ENDED
1999 1998 1997 DEC. 31, 1996 1999 1998 1997 DEC. 31, 1996
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.61 $10.60 $10.41 $10.31 $10.65 $10.64 $10.41 $10.31
Income from Investment Operations:
Net investment income 0.36 0.37 0.40 0.28 0.46 0.48 0.52 0.38
Net gain (loss) on securities (both
realized and unrealized) (0.54) 0.04 0.21 0.12 (0.54) 0.04 0.25 0.12
Total from Investment Operations (0.18) 0.41 0.61 0.40 (0.08) 0.52 0.77 0.50
Less Distributions (note 6):
Dividends from net investment income (0.38) (0.36) (0.42) (0.30) (0.49) (0.47) (0.54) (0.40)
Distributions from capital gains (0.08) (0.04) - - (0.08) (0.04) - -
Total Distributions (0.46 (0.40) (0.42) (0.30) (0.57) (0.51) (0.54) (0.40)
Net Asset Value, End of Period $9.97 $10.61 $10.60 $10.41 $10.00 $10.65 $10.64 $10.41
Total Return (not reflecting sales
charge) (%) (1.70) 3.92 5.99 3.78+ (0.79) 4.97 7.65 4.87+
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 1,932 1,328 1,036 915 5,416 7,047 5,668 0.1
Ratio of Expenses to Average Net
Assets (%) 1.70 1.69 1.69 1.65* 0.71 0.69 0.70 0.65*
Ratio of Net Investment Income to
Average Net Assets (%) 3.44 3.50 3.81 4.07* 4.45 4.50 4.76 5.07*
Portfolio Turnover Rate (%) 13.08 15.20 22.66 10.96 13.08 15.20 22.66 10.96
The expense and net investment income ratios without the effect of the
voluntary waiver of a portion of the management fee in the period ended
December 31, 1996 were:
Ratio of Expenses to Average Net
Assets (%) - - - 1.69* - - - 0.69*
Ratio of Net Investment Income
to Average Net Assets (%) - - - 4.03* - - - 5.03*
The expense ratios after giving effect to the waiver and expense offset for
uninvested cash balances were:
Ratio of Expenses to Average Net
Assets (%) 1.69 1.68 1.66 1.64* 0.70 0.68 0.67 0.64*
</TABLE>
(1) New Class of Shares established on April 30, 1996.
(2) From April 30, 1996 to December 31, 1996.
+ Not annualized.
* Annualized.
See accompanying notes to financial statements.
</PAGE>
<PAGE>
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
This information is presented in order to comply with a requirement of the
Internal Revenue Code AND NO ACTION ON THE PART OF SHAREHOLDERS IS REQUIRED.
For the fiscal year ended December 31, 1999, $9,588,521 of dividends paid
by Tax-Free Fund of Colorado, constituting 84.18% of total dividends paid during
fiscal 1999, were exempt-interest dividends; $1,662,106 of dividends paid,
constituting 14.59% of total dividends paid during fiscal 1999, were capital
gain dividends; and the balance was ordinary dividend income.
Prior to January 31, 2000, shareholders were mailed IRS Form 1099-DIV which
contained information on the status of distributions paid for the 1999 CALENDAR
YEAR.
</PAGE>
