INVESTMENT ADVISER, ADMINISTRATOR AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
INVESTMENT SUB-ADVISER
FIRST SECURITY INVESTMENT
MANAGEMENT, INC.
61 South Main Street
Salt Lake City, Utah 84111
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Gary C. Cornia
William L. Ensign
D. George Harris
Diana P. Herrmann
Anne J. Mills
R. Thayne Robson
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Senior Vice President
Kimball L. Young, 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 PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
SEMI-ANNUAL
REPORT
DECEMBER 31, 1997
AQUILA
[Logo of Aquila Group of Funds: an eagle's head]
TAX-FREE FUND FOR
UTAH
A tax-free income investment
[Logo of Tax-Free Fund For Utah: a rectangle containing dessert boulders with
a sun rising behind it]
ONE OF THE
AQUILASM GROUP OF FUNDS
<PAGE>
[Logo of Tax-Free Fund For Utah: a rectangle containing dessert boulders with
a sun rising behind it]
TAX-FREE FUND FOR UTAH
SEMI-ANNUAL REPORT
"QUALITY FOSTERS PEACE OF MIND"
February 20, 1998
Dear Investor:
Recently, there has been a lot of news about the Far East and the
problems that a number of countries in that area are experiencing. These
problems have included some failures of major financial corporations in
Japan, South Korea, Indonesia, Hong Kong, and various other countries. Also,
there have been major deterioration changes in the currencies of these
countries as they relate to U.S. dollars.
It is hard to believe the magnitude of recent currency
depreciation that has taken place in various countries vs. the U.S. dollar.
The currency deteriorations against the U.S. dollar have ranged from 10% to
well over 70% with various countries around the world. While we may have some
problems in our own country, these are very substantially less than those of
other countries.
What has occurred as a result of the problems of these countries
is a flight to quality. In comparison to various economies and currencies of
the Far East, as well as other countries in the world, the U.S. economy,
securities markets and currency stand out as a beacon of quality.
Quality has also been one of the trademarks of Tax-Free Fund For
Utah from the inception of the fund. It has been our strong belief that you
can sleep much better at night by having high quality issues in the fund in
which you invest. Indeed, presently, the portfolio of Tax-Free Fund For Utah
consists of 68.33% of tax-exempt securities having a AAA rating, and 22.16%
of securities having a AA rating. Thus, 90.49% of the Fund's overall
portfolio is rated as AA or AAA. These are the two highest quality securities
you can possibly own.
Just as important for you to know, in the portfolio management of
the fund, separate credit analysis is done by the portfolio adviser to
confirm that such top-quality assessment of the individual securities is
justified. In other words, we do not merely rely upon the judgment of rating
agencies, but rather independently verify the credit quality of each
security.
Why do we structure the portfolio this way? Primarily, so that
you can feel comfortable with your investment in Tax-Free Fund For Utah in
terms of knowing that that portion of your savings possesses a high level of
capital preservation.
<PAGE>
PATTERN OF PRICING OF SHARE VALUE
When you look at the pricing of share value of Tax-Free Fund For
Utah, you will note that it presents a high level of share price consistency.
This is in stark contrast to the currency deterioration and volatility of
currency and securities markets that is taking place around the world. The
chart below shows you that consistency for every year since the Fund began.
[Graphic of bar chart with the following information:]
SHARE NET ASSET VALUE
In Dollars
7/31/92 9.60
12/31/92 9.57
6/30/93 10.00
12/31/93 10.14
6/30/94 9.32
12/31/94 8.95
6/30/95 9.59
12/31/95 10.05
6/30/96 9.67
12/31/96 9.92
6/30/97 9.94
12/31/97 10.22
OTHER STEPS TAKEN TO PROTECT YOUR MONEY
As we have pointed out in previous reports to you, we have also
consistently sought to diversify the holdings of municipal bonds in the
portfolio so that no one segment could hurt the overall value of your money
in the remote event a problem occurred. As a result, it is worth pointing out
that the portfolio of securities presently consists of 58 issues spread over
a variety of categories. This diversification is illustrated in the pie chart
below.
[Graphic of pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY PROJECT
Industrial Development 1.35%
Higher Education 5.55%
Utilities 12.22%
Water and Sewer 12.68%
Pollution Control 1.27%
Leases 19.73%
Single Family Mortgages 5.69%
Transportation 7.86%
School Districts 28.41%
Other 5.24%
<PAGE>
We also ensure that the maturity of the portfolio is spread out
over various time periods, with the average portfolio maturity being 14
years, as is indicated in the pie chart below.
[Graphic of pie chart with the following information:]
PORTFOLIO DISTRIBUTION BY MATURITY
(in Years)
0 - 10 12.93%
11 - 15 52.06%
16 - 20 Years 20.48%
Over 20 Years 14.53%
Altogether then, when you consider the quality, diversification,
and maturity of the portfolio, what we have consistently tried to do for you
is to provide you with the means by which you can have "PEACE OF MIND" with
your investment in Tax-Free Fund For Utah.
WORKING IN YOUR INTEREST
You can be assured that all those associated with the management
of your investment will consistently work in your investment interest. We
very much value you as a shareholder and appreciate the confidence you have
shown in Tax-Free Fund For Utah.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
<PAGE>
TAX-FREE FUND FOR UTAH
STATEMENT OF INVESTMENTS
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Rating
Face Moody's/
Amount General Obligation Bonds (30.5%) S&P Value
<C> <S> <C>
City and County General Obligation Bonds (3.6%)
$ 125,000 Blanding City, Utah, San Juan County, Natural Gas
Project G.O., Series 1994, 5.800% 07/15/13 Baa/NR $ 129,375
225,000 Provo City Utah Housing Authority
Multi-Family Revenue, 5.800%, 07/20/22 Aaa/NR 231,750
290,000 Sandy City, Utah Refunding Public
Building G.O., 6.700%, 12/15/10 Aa/NR 316,100
100,000 Salt Lake City, Utah G.O., 6.375%, 06/15/11 Aaa/NR 106,375
300,000 Weber County, Utah Unlimited Tax G.O.,
FGIC Insured, 5.625%, 1/15/11 Aaa/AAA 313,500
1,097,100
School District General Obligation Bonds (26.4%)
535,000 Beaver County, Utah School District G.O., Series
1994, AMBAC Insured, 5.200%, 12/15/12 Aaa/AAA 547,038
510,000 Cache County, Utah School District G.O.,
Series A, AMBAC Insured, 5.750%, 06/15/08 Aaa/AAA 543,150
700,000 Cache County, Utah School District G.O.,
Series A, AMBAC Insured, 5.80%, 06/15/09 Aaa/AAA 743,750
1,000,000 Cache County, Utah School District G.O.,
Series A, AMBAC Insured, 5.900%, 06/15/13 Aaa/AAA 1,055,000
595,000 Carbon County, Utah School District G.O.,
Series 1993, MBIA Insured, 5.450%, 06/15/10 Aaa/AAA 616,569
1,000,000 Davis County, Utah School District G.O.,
MBIA Insured, 5.850%, 06/01/09 Aaa/AAA 1,076,250
500,000 Jordan, Utah School District G.O.,
5.900%, 06/15/04 Aa/NR 538,750
665,000 Jordan, Utah School District G.O.,
6.000%, 06/15/05 Aa3/NR 721,525
235,000 Jordan, Utah School District G.O.,
6.100%, 06/15/07 Aa3/NR 254,387
1,000,000 Nebo County, Utah School District
G.O, FGIC Insured, 5.750%, 06/15/11 Aaa/AAA 1,057,500
770,000 Nebo County, Utah School District ,
FGIC Insured, 6.00%, 06/15/18 Aaa/AAA 827,750
7,981,669
Recreational Facilities General Obligation
Bonds (.5%)
150,000 West Bountiful City, Utah Golf Course G.O,
6.350%, 09/01/13 Baa/NR 161,062
Total General Obligation Bonds 9,239,831
REVENUE BONDS (65.5%)
Education Revenue Bonds (6.4%)
275,000 Salt Lake County Utah, Westminster
College Revenue 5.700%, 10/01/17 Aaa/AAA 282,562
250,000 Salt Lake County Utah, Westminster
College Revenue Aaa/AAA 257,500
200,000 University of Utah Revenue Refunding,
(Biology Research Facilities),
MBIA Insured, 5.500%, 04/01/11 Aaa/AAA 211,250
500,000 Utah State Board of Regents, Utah State
University Revenue Refunding
Student Building Fees, Series 1994B,
MBIA Insured, 5.750%, 12/01/07 Aaa/AAA 538,125
300,000 Utah State University Agricultural Education
Facilities, MBIA Insured, 6.150%, 12/01/14 Aaa/AAA 325,125
300,000 Weber County, Utah School District,
MBIA Insured, 6.000%, 06/15/07 Aaa/AAA 317,250
1,931,812
Hospital Revenue Bonds (0.9%)
250,000 Salt Lake City, Utah Hospital Revenue,
Intermountain Health Care, 8.000%, 05/15/07 NR/AAA 272,812
Industrial Development Revenue Bonds (1.3%)
120,000 Salt Lake County, Utah Industrial
Development, Plaza 5400, 6.200%, 09/01/12 NR/AAA 126,750
250,000 Sandy City, Utah Industrial Development, H
Shirl Wright Project, 6.125%, 08/01/16 NR/AAA 265,000
391,750
Lease Revenue Bonds (19.0%)
600,000 Layton City, Utah Municipal Building
Authority, MBIA Insured, 5.700%, 08/15/08 Aaa/AAA 633,750
200,000 Ogden City, Utah Municipal Building
Authority, Series 1992, 6.800%, 12/15/08 NR/NR* 211,750
200,000 Ogden City, Utah Municipal Building
Authority, Series 1992, 7.000%, 12/15/12 NR/NR* 210,750
600,000 Salt Lake City, Utah Municipal Building
Authority, Series 1993A, 5.750%, 10/15/08 A1/A+ 639,750
1,000,000 Salt Lake City, Utah Municipal
Building Authority, 6.000%, 10/15/14 A1/A+ 1,057,500
1,000,000 Salt Lake County, Utah Municipal Building
Authority, Series 1994A, MBIA Insured
6.050%, 10/01/08 Aaa/AAA 1,096,250
475,000 Utah Municipal Building Authority, Logan
Municipal Building, Series 1993, 5.900%,
04/01/11 A/NR 494,594
685,000 Utah State Building Ownership Authority,
Series A, 5.750%, 08/15/07 Aa/AA 717,538
350,000 Utah State Building Ownership Authority,
5.750%, 08/15/08 Aa/AA 365,750
315,000 West Valley City, Utah Municipal Building
Authority, Series 1993, MBIA Insured,
6.000%, 01/15/10 Aaa/AAA 335,081
5,762,713
Mortgage Revenue Bonds (5.5%)
230,000 Utah State Housing Finance Agency, Single
Family Housing Mortgage
Series E-1, 5.850%, 07/01/13 Aa/NR 240,350
150,000 Utah State Housing Finance Agency, Single
Family Housing Mortgage Revenue,
Series 1994B, 6.200%, 07/01/06 A1/A+ 159,938
710,000 Utah State Housing Finance Agency, Single
Family Housing Mortgage Revenue,
Series E-1, 6.600%, 07/01/11 NR/AA 762,362
475,000 Utah State Housing Finance Agency,
Single Family Housing Mortgage
Revenue, Series 1994C, 6.350%, 07/01/11 Aa/NR 509,438
1,672,088
Pollution Control Revenue Bonds (1.3%)
350,000 Box Elder County Pollution Control Revenue,
Nucor Corporation Project, 6.900%, 05/15/17 NR/AA- 385,875
Transportation Revenue Bonds (7.5%)
875,000 Salt Lake City, Utah Airport Revenue,
FGIC Insured, Series B, 5.875%, 12/01/12 Aaa/AAA 938,438
285,000 Salt Lake City, Utah Airport Revenue,
FGIC Insured, Series B, 5.875%, 12/01/18 Aaa/AAA 300,675
1,000,000 Utah Transit Authority Sis Tx
FSA Insured, 5.375%, 6/15/22 Aaa/AAA 1,015,000
2,254,113
Water and Sewer Revenue Bonds (12.2%)
270,000 St. George, Utah Sewer Revenue, AMBAC
Insured, 5.500%, 06/15/07 Aaa/AAA 283,500
300,000 St. George, Utah Water Revenue,
FGIC Insured, 5.375%, 06/01/16 Aaa/AAA 302,250
500,000 Salt Lake City, Utah Water And Sewer Revenue,
AMBAC Insured, 5.750%, 02/01/13 Aaa/AAA 526,250
525,000 Salt Lake City, Utah Water And Sewer
Revenue, AMBAC Insured, 6.00%, 02/01/10 Aaa/AAA 570,937
300,000 Salt Lake County, Utah Water & Sewer Revenue
AMBAC Insured, 5.100%, 10/01/08 Aaa/AAA 308,250
290,000 Salt Lake County Utah Conservancy
District Revenue, Series A
AMBAC Insured, 5.350%, 10/01/18 Aaa/AAA 292,537
800,000 Timpanogos, Utah Water & Sewer Revenue, Series A
AMBAC Insured, 6.00%, 06/01/16 Aaa/AAA 864,000
200,000 Timpanogos, Utah Water & Sewer Revenue. Series A
AMBAC Insured, 5.90%, 06/01/11 Aaa/AAA 216,500
300,000 White City Water Improvement District, Utah Water
Revenue AMBAC Insured, 5.90%, 02/01/22 NR/AAA 318,375
3,682,599
Utility Revenue Bonds (11.4%)
790,000 Utah Association Municipal Power
Systems Revenue, 5.250%, 12/01/09 NR/A- 813,700
350,000 Utah Association Municipal Power Systems
Revenue, AMBAC Insured, 5.500%, 12/01/13 Aaa/AAA 361,375
695,000 Utah State Municipal Power Agency,
Electric Systems Revenue, FGIC Insured,
5.500%, 07/01/10 Aaa/AAA 728,882
650,000 Utah State Municipal Power
Agency, Electric Systems Revenue,
FGIC Insured, 5.500%, 07/01/11 Aaa/AAA 680,062
875,000 Utah State Municipal Power Agency, Electric
Systems Revenue, FGIC Insured, 5.250%,
07/01/18 Aaa/AAA 875,000
3,459,019
Total Revenue Bonds 19,812,781
Total Investments (cost $27,441,298**) 96.0% 29,052,613
Other assets in excess of liabilities 4.0 1,218,104
Net Assets 100.0% $ 30,270,717
<FN> (*) Any security not rated has been determined by
the Investment Adviser to have sufficient
quality to be ranked in the top four ratings
if a credit rating were to be assigned by a
rating service </FN>
<FN>(**) Cost for Federal income tax purposes is identical. </FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND FOR UTAH
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 (UNAUDITED)
ASSETS
Investments at value (identified cost $27,441,298) $ 29,052,613
Cash 783,834
Interest receivable 347,121
Receivable for investment securities sold 120,000
Due from Administrator for reimbursement of expenses (note 3) 13,156
Other assets 88
Total assets 30,316,812
LIABILITIES
Distribution fees payable 16,024
Dividends payable 21,321
Management fees payable 1,531
Accrued expenses 7,219
Total liabilities 46,095
NET ASSETS $ 30,270,717
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares,
par value $.01 per share $ 29,606
Additional paid-in capital 29,085,219
Accumulated net realized loss on investments (455,423)
Net unrealized appreciation on investments 1,611,315
$ 30,270,717
CLASS A
Net Assets $ 29,415,745
Capital shares outstanding 2,876,944
Net asset value and redemption price per share $ 10.22
Offering price per share (100/96 of $10.22 adjusted to
nearest cent) $ 10.65
CLASS C
Net Assets $ 854,856
Capital shares outstanding 83,674
Net asset value and offering price per share $ 10.22
Redemption price per share (*generally, a charge of 1% is
imposed on the proceeds of shares redeemed during the
first 12 months after purchase) $ 10.22*
CLASS Y
Net Assets $ 116
Capital shares outstanding 11
Net asset value, offering and redemption price per share $ 10.23
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND FOR UTAH
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 809,705
Expenses:
Management fee (note 3) $ 74,144
Distribution and service fees (note 3) 30,968
Transfer and shareholder servicing agent fees 17,000
Shareholders' reports and proxy statements 16,000
Legal fees 16,000
Trustees' fees and expenses 14,000
Audit and accounting fees 10,000
Custodian fees (note 7) 3,500
Registration fees and dues 3,000
Insurance 300
Miscellaneous 10,835
195,747
Management fee waived (note 3) (65,246)
Reimbursement of expenses by Administrator (note 3) (82,111)
Expenses paid indirectly (note 7) (1,300)
Net expenses 47,090
Net investment income 762,615
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from securities transactions 66,461
Change in unrealized appreciation on investments 765,424
Net realized and unrealized gain on investments 831,885
Net increase in net assets resulting from
operations $1,594,500
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND FOR UTAH
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Dec. 31, 1997 June 30, 1997
<S> <C> <C>
OPERATIONS:
Net investment income $ 762,615 $ 1,564,340
Net realized gain from securities
transactions 66,461 870
Change in unrealized appreciation on
investments 765,424 636,155
Change in net assets from operations 1,594,500 2,201,365
DISTRIBUTIONS TO SHAREHOLDERS (note 6):
Class A Shares:
Net investment income (762,175) (1,580,556)
Distributions in excess of net investment
income - -
Net realized gain on investments - -
Class C Shares:
Net investment income (6,499) (670)
Distributions in excess of net investment
income - -
Net realized gain on investments - -
Class Y Shares:
Net investment income (313) (425)
Distributions in excess of net investment
income - -
Net realized gain on investments - -
Change in net assets from distributions (768,987) (1,581,651)
CAPITAL SHARE TRANSACTIONS (note 8):
Proceeds from shares sold 2,356,278 3,500,104
Reinvested dividends and distributions 452,025 927,229
Cost of shares redeemed (2,515,443) (4,775,558)
Change in net assets from capital share
transactions 292,860 (348,225)
Change in net assets 1,118,373 271,489
NET ASSETS:
Beginning of period 29,152,344 28,880,855
End of period $ 30,270,717 $ 29,152,344
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND FOR UTAH
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Tax-Free Fund For Utah (the "Fund"), a non-diversified, open-end
investment company, was organized on December 12, 1990 as a Massachusetts
business trust and commenced operations on July 24, 1992. The Fund is
authorized to issue an unlimited number of shares and, since its inception to
May 21, 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 October 31, 1997
the Fund established Class I shares, which are offered and sold only through
financial intermediaries and are not offered directly to retail customers.
At December 31,1997, 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.
In Fiscal 1997, the Fund began amortizing bond premium using the
constant yield method. Accordingly, net unrealized appreciation and
additional paid-in capital have been adjusted by equal amounts at the
beginning of the year. This change had no effect on the Fund's net asset
<PAGE>
value or distribution policy and conforms to the amortization policy
followed by the Fund for Federal tax purposes.
b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities
transactions are recorded on the trade date. Realized gains and losses
from securities transactions are reported on the identified cost basis.
Interest income is recorded daily on the accrual basis and is adjusted
for amortization of premium and accretion of original issue discount.
Market discount is recognized upon disposition of the security.
c) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as
a regulated investment company by complying with the provisions of the
Internal Revenue Code applicable to certain investment companies. The
Fund intends to make distributions of income and securities profits
sufficient to relieve it from all, or substantially all, Federal income
and excise taxes.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses,
are allocated daily to each class of shares based on the relative
net assets of each class. Class-specific expenses, which include
distribution and service fees and any other items that are
specifically attributed to a particular class, are charged directly to
such class.
e) USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net
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-advisor 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 any
sub-advisor 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.
First Security Investment Management, Inc. (the "Sub-Adviser")
serves as the Investment Sub-Adviser for the Fund under a Sub-Advisory
Agreement between the Manager and the Sub-Adviser.
<PAGE>
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 0.23 of
1% on the Fund's net assets.
On October 24,1997, the Mangement arrangements desribed above were
approved by the Fund's shareholders and went into effect on October 31, 1997.
From inception of the Fund to that date, Aquila Management Corporation and
the First Security Investment Management Inc. 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 December 31, 1997, the Fund incurred fees
for advisory and administrative services of $74,144 of which $65,246 was
voluntarily waived. Additionally, the Manager voluntarily agreed to reimburse
the Fund for other expenses during this period in the amount of $82,111. Of
this amount, $68,955 was paid prior to December 31, 1997 and the balance of
$13,156 was paid in early January, 1998.
Specific details as to the nature and extent of the services
provided by the Manager and the Sub-Adviser are more fully defined in the
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 0.20% of the Fund's average
net assets represented by Class A Shares. For the six months ended December
31, 1997, service fees on Class A Shares amounted to $29,270, of which the
Distributor received $889.
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
<PAGE>
ended December 31, 1997, amounted to $1,274. 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 December 31, 1997,
amounted to $424. The total of these payments with respect to Class C Shares
amounted to $1,698, of which the Distributor received $1,054.
Specific details about the Plans are more fully defined in the
Fund's Prospectus and Statement of Additional Information.
Under a Distribution Agreement, Aquila Distributors, Inc. 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 Utah, with the bulk of sales commissions inuring to such
dealers. For the six months ended December 31, 1997, the Distributor received
sales commissions of $2,549.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended December 31, 1997, purchases of
securities and proceeds from the sales of securities aggregated $1,738,021
and $2,410,320, respectively.
At December 31, 1997, aggregate gross unrealized appreciation for
all securities in which there is an excess of market value over tax cost
amounted to $1,621,017 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted
to $9,702, for a net unrealized appreciation of $1,611,315.
5. PORTFOLIO ORIENTATION
Since the Fund invests principally and may invest entirely in
double tax-free municipal obligations of issuers within Utah, it is subject
to possible risks associated with economic, political, or legal developments
or industrial or regional matters specifically affecting Utah and whatever
effects these may have upon Utah issuers' ability to meet their obligations.
6. DISTRIBUTIONS
The Fund declares dividends daily from net investment income and
makes payments monthly in additional shares at the net asset value per share
or in cash, at the shareholder's option. Net realized capital gains, if any,
are distributed annually.
The Fund intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net
investment income to be exempt from regular Federal and State of Utah
<PAGE>
income taxes. However, due to differences between financial reporting and
Federal income tax reporting requirements, distributions made by the Fund
may not be the same as the Fund's net investment income, and/or net realized
securities gains. Further, a small portion of the dividends may, under some
circumstances, be subject to ordinary income taxes. Also, annual capital
gains distributions, if any, are taxable.
7. 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
December 31, 1997, the Fund's custodian fees amounted to $3,500, of which
$1,300 was offset by such credits. 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 with the custodian.
8. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1997 June 30, 1997
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 154,580 $1,558,994 346,477 $3,420,264
Reinvested distributions 44,328 448,285 94,031 926,736
Cost of shares redeemed (245,341) (2,474,172) (483,708) (4,775,559)
Net change (46,433) (466,893) (43,200) (428,559)
CLASS C SHARES:
Proceeds from shares sold 79,194 797,283 4,061 39,841
Reinvested distributions 368 3,738 52 486
Cost of shares redeemed (11) (111) - -
Net change 79,551 800,910 4,113 40,327
CLASS Y SHARES:
Proceeds from shares sold - - 4,094 40,000
Reinvested distributions - 3 1 7
Cost of shares redeemed (4,094) (41,160) - -
Net change (4,094) (41,157) 4,095 40,007
Total transactions in
Fund shares 29,024 $ 292,860 (34,992) $ (348,225)
</TABLE>
TAX-FREE FUND FOR UTAH
FINANCIAL HIGHLIGHTS
(UNAUDITED)
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class A(1)
Six Months Period(2)
Ended Dec. Year ended December 31, Ended June
31, 1997 1997 1996 1995 1994 30, 1993
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.94 $9.74 $9.59 $9.32 $10.00 $9.60
Income from Investment
Operations:
Net investment income 0.26 0.52 0.54 0.55 0.55 0.50
Net gain (loss) on
securities (both
realized and
unrealized) 0.28 0.21 0.15 0.27 (0.65) 0.40
Total from Investment
Operations 0.54 0.73 0.69 0.82 (0.10) 0.90
Less Distributions
(note 6):
Dividends from net
investment incom (0.26) (0.53) (0.54) (0.55) (0.55) (0.50)
Distributions from
capital gains - - - - (0.03) -
Total Distributions (0.26) (0.53) (0.54) (0.55) (0.58) (0.50)
Net Asset Value, End
of Period $10.22 $9.94 $9.74 $9.59 $9.32 $10.00
Total Return (not
reflecting sales
charge)(%) 5.50# 7.72 7.17 9.09 (1.09) 9.67#
Ratios/Supplemental Data
Net Assets, End of
Period ($ thousands) 29,416 29,071 28,881 27,536 26,116 12,938
Ratio of Expenses to
Average Net Assets (%) 0.31* 0.27 0.19 0.08 0.03 0*
Ratio of Net Investment
Income to Average Net
Assets (%) 5.16* 5.45 5.49 5.85 5.58 5.64*
Portfolio Turnover Rate
(%) 6.01# 5.09 11.15 22.92 27.53 36.52#
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary waiver
of fees, the Administrator's voluntary expense reimbursement and the expense
offset in custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income
($) 0.21 0.42 0.43 0.43 0.40 0.27
Ratio of Expenses to
Average Net Assets (%) 1.31* 1.33 1.30 1.30 1.60 2.67*
Ratio of Net Investment
Income to Average Net
Assets (%) 4.16* 4.39 4.37 4.63 4.00 2.97*
<FN> (1) Designated as Class A Shares on May 21, 1996. </FN>
<FN> (2) From July 24, 1992 (commencement of operations) to June 30,
1993. </FN>
<FN> # Not annualized </FN>
<FN> * Annualized. </FN>
See accompanying notes to financial statements.
<PAGE>
For a share outstanding throughout each period
</TABLE>
<TABLE>
<CAPTION>
Class C(1) Class Y(1)
Six Period Six Period
Months Year (2) Months Year (2)
Ended Ended Ended Ended Ended Ended
Dec. June June Dec. June June
31, 30, 30, 31, 30, 30,
1997 1997 1996 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C.
Net Asset Value,
Beginning of Period $9.94 $9.74 $9.77 $9.94 $9.74 $9.77
Income from Investment
Operations:
Net investment income 0.21 0.44 0.05 0.27 0.61 0.06
Net gain (loss) on
securities (both
realized and
unrealized) 0.28 0.21 (0.03) 0.29 0.21 (0.03)
Total from Investment
Operations 0.49 0.65 0.02 0.56 0.82 0.03
Less Distributions
(note 6):
Dividends from net
investment income (0.21) (0.45 (0.05) (0.27) (0.62) (0.06)
Distributions from
capital gains - - - - - -
Total Distributions (0.21) (0.45) (0.05) (0.27) (0.62) (0.06)
Net Asset Value, End
of Period $10.22 $9.94 $9.74 $10.23 $9.94 $9.74
Total Return (not
reflecting sales
charge) (%) 4.95# 6.80 0.20# 5.64# 8.69 0.29#
Ratios/Supplemental Data
Net Assets, End of
Period ($ thousands) 855 41 0.1 0.1 41 0.1
Ratio of Expenses to
Average Net Assets (%) 1.33* 1.07 0.14# 0.27* 0.07 0.03#
Ratio of Net Investment
Income to Average Net
Assets (%) 3.89* 4.65 0.50# 5.13* 5.65 0.61#
Portfolio Turnover Rate
(%) 6.01# 5.09 11.15# 6.01# 5.09 11.15#
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary waiver
of fees, the Administrator's voluntary expense reimbursement and the expense
offset in custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income
($) 0.17 0.35 0.04 0.23 0.50 0.05
Ratio of Expenses to
Average Net Assets(%) 2.06* 2.13 0.23# 1.12* 1.13 0.11#
Ratio of Net Investment
Income to Average Net
Assets (%) 3.16* 3.59 0.42# 4.28* 4.59 0.53#
<FN> (1) New Class of Shares established on May 21, 1996.</FN>
<FN> (2) From May 21, 1996 to June 30, 1996. </FN>
<FN> # Not annualized. </FN>
<FN> * Annualized. </FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REPORT ON THE ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
The Annual Meeting of Shareholders of the Tax-Free Fund For Utah
(the "Fund") was held on October 24, 1997*. At the meeting, the following
matters were submitted to a shareholder vote and approved:
(i) the election of Lacy B. Herrmann, Philip E. Albrecht, Gary C.
Cornia, William L. Ensign, D. George Harris, Diana P. Herrmann,
Anne J. Mills, and R. Thayne Robson, as Trustees to hold office
until the next annual meeting of the Fund's shareholders or until
his or her successor is duly elected (each Trustee received at
least 21,944,520.045 affirmative votes (98.67%); no more than
296,602.051 votes (1.33%) were withheld for any Trustee).
(ii) the ratification of the selection of KPMG Peat Marwick LLP as
the Fund's independent auditors for the fiscal year ending June
30, 1998 (votes for: 21,715,133.932 (97.64%); votes against:
75,313.04 (0.34%); abstentions: 450,665.004 (2.03%); broker
non-votes: 0 (0.00%)).
(iii) the approval of a proposed investment Advisory and
Administration Agreement with Aquila Management Corp. (votes for:
21,397,609.085 (96.20%); votes against: 156,811.171 (0.71%);
abstentions: 658,871.839 (2.96%); broker non-votes: 27,819.88
(0.13%)), and
(iv) the approval of a proposed Sub-Advisory Agreement with First
Security Investment Management, Inc. (votes for: 21,433,524.965
(96.37%); votes against: 89,968.571 (0.40%); abstentions:
689,798.559 (3.10%); broker non-votes: 27,819.88 (0.13%)).
* On the record date for the Annual Meeting, the holders of 2,919,276.47
Class A Shares, 4,137.71 Class C Shares, and 4,105.31 Class Y Shares were
outstanding and entitled to vote representing a total net asset value of
$29,626,538.291. The holders of shares entitled to vote representing a
total net asset value of $22,241,122.096 (75.07%) were present in person
or by proxy at the meeting.
