-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, USCH+p12iNaQIZ61KaUnhJhByYLpXnTa9XVH823efPEyW8gIVHcj/lcjSVuzqcoT HhxXRXjOrXEfn3/bdjUToA== 0000811239-09-000002.txt : 20090304 0000811239-09-000002.hdr.sgml : 20090304 20090304124124 ACCESSION NUMBER: 0000811239-09-000002 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20081231 FILED AS OF DATE: 20090304 DATE AS OF CHANGE: 20090304 EFFECTIVENESS DATE: 20090304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAX-FREE FUND OF COLORADO CENTRAL INDEX KEY: 0000811239 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05047 FILM NUMBER: 09654481 BUSINESS ADDRESS: STREET 1: 380 MADISON AVE STREET 2: SUITE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126976666 MAIL ADDRESS: STREET 1: 380 MADISON AVENUE STREET 2: SUITE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: TAX FREE FUND OF COLORADO DATE OF NAME CHANGE: 19920703 0000811239 S000009141 TAX-FREE FUND OF COLORADO C000024860 Tax-Free Fund of Colorado Class A COTFX C000024861 Tax-Free Fund of Colorado Class C COTCX C000024862 Tax-Free Fund of Colorado Class I COTIX C000024863 Tax-Free Fund of Colorado Class Y COTYX N-CSR 1 tffcncsr.txt TAX-FREE FUND OF COLORADO 12/31/2008 NCSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-5047 Tax-Free Fund of Colorado (Exact name of Registrant as specified in charter) 380 Madison Avenue New York, New York 10017 (Address of principal executive offices) (Zip code) Joseph P. DiMaggio 380 Madison Avenue New York, New York 10017 (Name and address of agent for service) Registrant's telephone number, including area code: (212) 697-6666 Date of fiscal year end: 12/31/08 Date of reporting period: 12/31/08 FORM N-CSR ITEM 1. REPORTS TO STOCKHOLDERS. ANNUAL REPORT DECEMBER 31, 2008 [LOGO OF TAX-FREE FUND OF COLORADO: A SQUARE WITH SILLHOUETTES OF TWO MOUNTAINS AND A RISING SUN] TAX-FREE FUND OF COLORADO A TAX-FREE INCOME INVESTMENT [LOGO OF THE AQUILA GROUP OF FUNDS: ONE OF THE AN EAGLE'S HEAD] AQUILA GROUP OF FUNDS (R) [LOGO OF TAX-FREE FUND OF COLORADO: A SQUARE WITH SILHOUETTES OF TWO MOUNTAINS AND A RISING SUN] SERVING COLORADO INVESTORS FOR MORE THAN TWO DECADES TAX-FREE FUND OF COLORADO "PROPER ASSET ALLOCATION - A STRATEGY FOR ALL SEASONS" February, 2009 The market has definitely been volatile enough recently to cause even the most seasoned investor to ask, "What should I do now?" We believe you will be in a better position to weather this, or any, economic storm, if your portfolio is built with a strong foundation. In short, is your portfolio properly allocated based on your specific needs? As you hopefully already know, asset allocation is an investment strategy that strives to balance risk and reward by diversifying assets according to your specific desires. These include: o investment time horizon (specifically your age and retirement objectives); o risk threshold (how much of your investment capital you are willing to lose during a given time frame); o financial situation (your wealth, income, expenses, tax bracket, liquidity needs, etc.); and o goals (the financial goals you and your family want to achieve). Since the three main asset classes - equities, fixed-income, and cash/cash equivalents - have different levels of risk and return, each is expected to behave differently over time. The objective of asset allocation is to create a diversified portfolio with an acceptable level of risk and the highest possible return given that level of risk. Although there is no simple formula that can find the right asset allocation for every individual, the consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make. NOT A PART OF THE ANNUAL REPORT The way you allocate your investment among stocks, bonds, and cash/cash equivalents will be the principal determinant of your investment results - secondary to your selection of individual securities. Once you and your financial professional have developed an appropriate asset allocation for your portfolio, we believe that changes should be made based on need, not on scary headlines. A properly constructed portfolio with sound asset allocation should be in a good position to weather all seasons. Sincerely [PHOTO OMITTED] /s/ Lacy B. Herrmann /s/ Diana P. Herrmann Lacy B. Herrmann Diana P. Herrmann Founder and Chairman Emeritus President NOT A PART OF THE ANNUAL REPORT [LOGO OF TAX-FREE FUND OF COLORADO: A SQUARE WITH SILHOUETTES OF TWO MOUNTAINS AND A RISING SUN] SERVING COLORADO INVESTORS FOR MORE THAN TWO DECADES TAX-FREE FUND OF COLORADO ANNUAL REPORT MANAGEMENT DISCUSSION 2008 REVIEW The primary theme in the financial markets in 2008 was crisis. We began the year with a growing problem in the sub prime mortgage market which quickly translated to escalating liquidity and credit quality problems in the banking, brokerage and insurance industries. These difficulties arose from a number of factors, including many years of easy credit availability, lax regulation, low interest rates and the mistaken belief that real estate values would never decline significantly. As the financial sector began to realize the extent of their declining asset quality problem, lending began to dry up and companies began looking to unload poor quality assets (loans) at almost any price. Naturally, as this asset deterioration was occurring throughout the financial system, there were few entities willing to accept these distressed assets. The primary culprit of the current financial morass is the residential mortgage market. The past several years have been marked by record levels of home ownership driven by loose lending standards, no money down, teaser rates, and adjustable mortgages. Home owners were borrowing more than they could afford to pay back and when the monthly payments began to reset with higher interest rates, borrowers began to default and home foreclosures began to soar. In the face of our seizing financial system the Federal Government has been forced to be a lender of last resort. The U.S. Treasury and Federal Reserve Boards have developed a variety of stimulus programs designed to bolster the banking system, provide liquidity to the financial markets and encourage consumers to begin spending again. The cost of these programs has yet to be determined but appears to be in the trillions of dollars. Due to the worldwide flight to safety in the fixed income markets, U.S. Treasury yields have declined to historical lows. By the end of the year, interest rates on 1 to 5 year notes declined to 0.34% and 1.53%, respectively, and rates on 10 and 30 year bonds declined to 2.27% and 2.65%. The Federal Reserve has moved their target for the overnight Federal Funds rate to 0 - 0.25% in an effort to provide liquidity and stimulate the economy. We believe that we will remain in this low interest rate environment until there are signs of increased economic activity late in 2009 or early 2010. Interest rates on municipal bonds did not behave in the same fashion as Treasuries during 2008. Yields on shorter term securities declined by 200 basis points (1 basis point equals 1/100th of 1%) for 1 year maturities and about 50 basis points for 7 year bonds. AAA municipals with maturities of 10 to 30 years experienced an increase in yield of 17 to 83 basis points, respectively. The forced sales of bonds in the derivative markets, mutual fund liquidations and credit rating downgrades of municipal bond insurers were the primary cause for the rise in yields. There was also a dramatic yield increase in higher risk, low rated municipal bonds. This was a continuation of the trend which began in 2007 where municipal investors are requiring higher returns for investing in higher risk securities with longer maturities and lower credit ratings. The Colorado economy has also entered a recession. We have seen the unemployment rate increase to almost 6% and it is projected to go higher in 2009. The housing market contraction which began in 2006 continues at a frightening pace. Permits for new homes are down more than 30% from 2007 MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED) depressed levels, and the median sales price of existing homes declined by 9-12% depending on the region. On a positive note, Colorado home values are holding up much better than other areas of the country because we did not have the runaway price inflation experienced in other high growth markets. Hopefully, Colorado will lead the nation in price recovery as it led the nation into the downturn. State and local governments are also feeling the effects of the economic downturns. The State Office of Budget and Planning has estimated a $600 million shortfall in General Fund revenues. Local governments are dealing with lower sales tax collections and flattening property tax income. Fortunately, our Colorado governments have a history of making the difficult budget cuts necessary to maintain break-even operations. The conservative investment strategy for Tax-Free Fund of Colorado was rewarded during 2008. The positive factors affecting our investment performance were our intermediate maturity, high credit quality and above average interest rates on our seasoned holdings. During the year our average maturity lengthened from 6 years to 8.5 years as we sought to take advantage of higher yields on the longer maturities within our intermediate range. The municipal bond insurance companies have been under review by the major rating agencies and the ratings of some of the insurance companies have now either been downgraded and/or have a negative outlook. As a result, we experienced a reduction in our average credit ratings. The underlying credit quality of our portfolio remains very strong, however, with an average rating of A/AA. The average interest rate on the portfolio holdings remained slightly above 5% during the year. These higher coupon bonds held their value very well in hostile market conditions. Negative factors impacting our performance were longer maturity, lower credit quality bonds that were added to the portfolio in late 2007 and early 2008. We began using these securities a little earlier than when they achieved their cheapest valuations, but they only represented about 10% of the portfolio. We believe we achieved our goal of improving the yield and maintaining a relatively stable price for 2008. In a market of unprecedented volatility, the total return for Class A investors based on Net Asset Value was +0.57% and the double tax-exempt dividend yield averaged approximately 4.10% for the year. 2009 STRATEGY We believe that the present valuation characteristics of municipal bonds are very favorable. The interest rates on tax-free bonds are currently about the same or higher than U.S. Treasury securities with similar maturities. We believe the prospect for rising tax rates seems almost certain given the amount of Federal economic stimulus legislation being added to the Treasury's balance sheet. The value of tax-exempt income is becoming widely recognized by the investing public and demand for municipal bonds is increasing. The most critical aspect of investing in municipals in this environment is credit research. Knowing what you own will become more difficult with the rapidly changing financial condition of state and local issuers. At Tax-Free Fund of Colorado we plan to redouble our efforts in ongoing credit surveillance and new issue credit research. We plan to add to our positions in 15-20 year maturities as there is now a yield pick up of over 2.5% versus 5 year bonds. We will strive to maintain an average maturity in the intermediate range of 8 to 12 years as has always been our practice. We intend to continue our emphasis on strong credit quality issuers where we have compiled a history of financial performance and have access to management. In the event we have to sell securities, we expect to look to the shorter bonds that will mature or be called in the next 2 or 3 years. If interest rates begin to rise later in the year, we believe we are in a very liquid and flexible position to take advantage of those opportunities as they present themselves. We hope that our shareholders are taking some comfort in the fact that Tax-Free Fund of Colorado continues, in our view, to meet expectations as a safe, stable product that produces a reliable double tax-free income stream. In uncertain and volatile market conditions we strive to provide a solid foundation for your investment portfolio. Thank you for your interest in Tax-Free Fund of Colorado. 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, 2008 as compared with the Barclays Capital Quality Intermediate Municipal Bond Index (formerly known as 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 Barclays Capital Quality Intermediate Municipal Bond 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:] Tax-Free Fund Tax-Free Fund of Colorado of Colorado Cost of Class A Shares Class A Shares Barclays Living Index no sales charge with sales charge Capital Index 12/98 10,000 10,000 9,600 10,000 12/99 10,268 9,905 9,512 10,029 12/00 10,616 10,727 10,301 10,895 12/01 10,781 11,215 10,769 11,495 12/02 11,037 12,198 11,713 12,557 12/03 11,245 12,796 12,287 13,139 12/04 11,611 13,141 12,619 13,536 12/05 12,007 13,311 12,785 13,764 12/06 12,312 13,782 13,234 14,281 12/07 12,815 14,172 13,608 14,977 12/08 12,827 14,288 13,720 15,651
AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED DECEMBER 31, 2008 ----------------------------------- SINCE CLASS AND INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION - ----------------------------------------- ------ ------- -------- --------- Class A (commenced operations on 5/21/87) With Maximum Sales Charge (3.49)% 1.36% 3.21% 5.23% Without Sales Charge 0.57% 2.19% 3.63% 5.43% Class C (commenced operations on 4/30/96) With CDSC (1.38)% 1.23% 2.65% 3.17% Without CDSC (0.39)% 1.23% 2.65% 3.17% Class Y (commenced operations on 4/30/96) No Sales Charge 0.63% 2.25% 3.69% 4.36% Barclays Capital Quality Intermediate Municipal Bond Index 4.49% 3.56% 4.58% 5.85% (Class A) 5.01% (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 class's income may be subject to Federal and state income taxes. Past performance is not predictive of future investment results. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of Tax-Free Fund of Colorado: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Tax-Free Fund of Colorado as of December 31, 2008 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 four 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. The financial highlights for the year ended December 31, 2004 was audited by other auditors, whose report dated February 18, 2005 expressed an unqualified opinion on such financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, 2008, 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, 2008, 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 four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER LLP Philadelphia, Pennsylvania February 26, 2009 - -------------------------------------------------------------------------------- TAX-FREE FUND OF COLORADO SCHEDULE OF INVESTMENTS DECEMBER 31, 2008
RATING PRINCIPAL MOODY'S/ AMOUNT GENERAL OBLIGATION BONDS (26.6%) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- CITY & COUNTY (1.1%) Denver, Colorado City & County Art Museum $ 2,000,000 5.000%, 08/01/15 ........................................ Aa1/AAA $ 2,142,100 ------------- METROPOLITAN DISTRICT (5.7%) Arapahoe, Colorado Park & Recreation District 1,070,000 5.000%, 12/01/17 FGIC Insured ........................... A3/NR 1,110,617 Aspen Grove Business Improvement District, Colorado Refunding 1,150,000 4.750%, 12/01/21Radian Insured .......................... NR/BBB+ 947,473 Foothills, Colorado Park & Recreational District 1,310,000 5.000%, 12/01/12 FSA Insured ............................ Aa3/NR+ 1,401,124 1,325,000 5.000%, 12/01/13 FSA Insured ............................ Aa3/NR+ 1,409,124 Fraser Valley Metropolitan Recreational District, Colorado 1,375,000 5.000%, 12/01/25 ........................................ NR/A 1,342,743 Highlands Ranch, Colorado Metropolitan District #1, Refunding 1,730,000 5.750%, 09/01/09 AMBAC Insured .......................... Baa1/AA+ 1,772,956 Hyland Hills Metro Park & Recreation District, Colorado Special Revenue Refunding & Improvement 1,275,000 4.375%, 12/15/26 ACA Insured ............................ NR/NR* 697,336 Lincoln Park, Colorado Metropolitan District, Refunding & Improvement 1,535,000 5.625%, 12/01/20 ........................................ NR/BBB- 1,200,692 North Metro Fire Rescue District, Colorado 1,200,000 4.625%, 12/01/20 AMBAC Insured .......................... Baa1/A+ 1,226,664 South Suburban, Colorado Park & Recreational District 300,000 5.125%, 12/15/09 FGIC Insured ........................... Aa3/AA 304,257 ------------- Total Metropolitan District ............................. 11,412,986 ------------- SCHOOL DISTRICTS (19.8%) Adams & Arapahoe Counties, Colorado Joint School District #28J 2,500,000 5.500%, 12/01/23 ........................................ Aa3/AA- 2,610,475
RATING PRINCIPAL MOODY'S/ AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- SCHOOL DISTRICTS (CONTINUED) Adams & Weld Counties, Colorado School District #27J $ 1,000,000 5.375%, 12/01/26 MBIA Insured ........................... Aa3/AA $ 1,020,910 Adams County, Colorado School District #12 (Adams 12 Five Star Schools) 1,170,000 5.000%, 12/15/12 MBIA Insured ........................... Aa3/AA+ 1,252,438 830,000 5.000%, 12/15/12 MBIA Insured Pre-Refunded .............. Aa3/AAA 905,007 Arapahoe County, Colorado Cherry Creek School District #5 2,760,000 5.500%, 12/15/11 Pre-Refunded ........................... Aa2/AA 2,880,088 2,750,000 5.500%, 12/15/12 Pre-Refunded ........................... Aa2/AA 2,869,652 Arapahoe County, Colorado School District #006 Littleton 1,000,000 5.250%, 12/01/21 FGIC Insured ........................... Aa2/AA 1,038,850 Boulder Larimer & Weld Counties, Colorado 1,260,000 5.000%, 12/15/26 FSA Insured ............................ Aa3/AAA 1,233,666 Clear Creek, Colorado School District 1,000,000 5.000%, 12/01/16 FSA Insured ........................ Aa3/AAA 1,003,470 El Paso County, Colorado School District #20 1,500,000 5.000%, 12/15/14 FGIC Insured ........................... Aa3/NR 1,620,570 El Paso County, Colorado School District #020 1,085,000 5.500%, 12/15/23 FGIC Insured ........................... Aa3/NR 1,127,206 El Paso County, Colorado School District #38 1,110,000 5.700%, 12/01/12 Pre-Refunded ........................... Aa3/NR 1,194,282 El Paso County, Colorado School District #49 1,500,000 5.500%, 12/01/13 FSA Insured Pre-Refunded ............... Aa3/AAA 1,637,745 1,000,000 5.250%, 12/01/14 FGIC Insured Pre-Refunded .............. Aa3/AA- 1,097,730 Garfield County, Colorado School District 1,250,000 5.000%, 12/01/17 FSA Insured ............................ Aa3/NR+ 1,315,938 Jefferson County, Colorado School District #R-001 3,000,000 5.250%, 12/15/25 FSA Insured ............................ Aa3/AAA 3,090,180 La Plata County, Colorado School District #9 1,500,000 5.000%, 11/01/18 MBIA Insured Pre-Refunded .............. Aa3/NR 1,664,640
RATING PRINCIPAL MOODY'S/ AMOUNT GENERAL OBLIGATION BONDS (CONTINUED) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- SCHOOL DISTRICTS (CONTINUED) Pueblo County, Colorado School District #70 $ 1,000,000 5.000%, 12/01/15 FGIC Insured ........................... A2/AA $ 1,041,030 3,440,000 5.000%, 12/01/16 FGIC Insured ........................... A2/AA 3,561,879 Teller County, Colorado School District #2 Woodland Park 1,265,000 5.000%, 12/01/17 MBIA Insured ........................... Aa3/AA+ 1,352,133 Weld and Adams Counties, Colorado School District #3J 1,000,000 5.500%, 12/15/10 AMBAC Insured Pre-Refunded ............. Aa3/AA- 1,044,000 Weld County, Colorado School District #2 1,315,000 5.000%, 12/01/15 FSA Insured ............................ Aa3/AAA 1,406,143 Weld County, Colorado School District #6 1,195,000 5.000%, 12/01/15 FSA Insured Pre-Refunded ............... Aa3/AAA 1,305,143 Weld County, Colorado School District #8 1,115,000 5.000%, 12/01/15 FSA Insured Pre-Refunded ............... Aa3/AAA 1,242,177 1,385,000 5.250%, 12/01/17 FSA Insured Pre-Refunded ............... Aa3/AAA 1,555,923 ------------- Total School Districts .................................. 40,071,275 ------------- Total General Obligation Bonds .......................... 53,626,361 ------------- REVENUE BONDS (72.9%) ELECTRIC (2.1%) Colorado Springs, Colorado Utilities Revenue 1,660,000 5.000%, 11/15/17 ........................................ Aa2/AA 1,746,619 Colorado Springs, Colorado Utilities Revenue Refunding Series B 1,285,000 5.250%, 11/15/23 ........................................ Aa2/AA 1,352,617 Colorado Springs, Colorado Utilities Revenue Subordinated Lien Improvement Series B 1,160,000 5.000%, 11/15/23 ........................................ Aa2/AA 1,181,738 ------------- Total Electric .......................................... 4,280,974 ------------- HIGHER EDUCATION (16.4%) Boulder, Colorado Development Revenue UCAR 1,880,000 5.000%, 09/01/27 MBIA Insured ........................... A2/AA 1,820,047
RATING PRINCIPAL MOODY'S/ AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- HIGHER EDUCATION (CONTINUED) Colorado Educational & Cultural Facility Authority, Johnson & Wales $ 860,000 5.000%, 04/01/18 Syncora Guarantee Inc. Insured** ....... NR/BBB- $ 786,384 Colorado Educational & Cultural Facility Authority, Regis University Project 1,695,000 5.000%, 06/01/24 Radian Insured ......................... A3/BBB+ 1,279,674 Colorado Educational & Cultural Facility Authority, Student Housing - Campus Village Apartments Refunding 2,835,000 5.375%, 06/01/28 ........................................ NR/A 2,169,342 Colorado Educational & Cultural Facility Authority, University of Colorado Foundation Project 2,110,000 5.000%, 07/01/17 AMBAC Insured .......................... Baa1/AA- 2,302,748 1,865,000 5.375%, 07/01/18 AMBAC Insured .......................... Baa1/AA- 2,058,699 Colorado Educational & Cultural Facility Authority Revenue Refunding, University of Denver Project 1,000,000 5.250%, 03/01/26 FGIC Insured ........................... A1/AA 991,010 Colorado Educational & Cultural Facility Authority, University of Denver Project, Series B Refunding 1,620,000 5.250%, 03/01/23 FGIC Insured ........................... A1/A 1,615,075 Colorado Mountain Jr. College District Student Housing Facilities Enterprise Revenue 1,000,000 4.500%, 06/01/18 MBIA Insured ........................... Baa1/AA 1,030,150 Colorado State Board of Governors University Enterprise System, Series A, Refunding and Improvement 425,000 5.000%, 03/01/17 Prerefunded, ETM ....................... A1/NR+ 475,737 Colorado State Board of Governors University Enterprise System, Series A, Refunding and Improvement 1,105,000 5.000%, 03/01/17 AMBAC Insured .......................... A1/NR++ 1,164,560 Colorado State COP UCDHSC Fitzsimons Academic Projects Series B 3,135,000 5.250%, 11/01/25 MBIA Insured ........................... Baa1/AA 3,168,764
RATING PRINCIPAL MOODY'S/ AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- HIGHER EDUCATION (CONTINUED) Mesa State College, Colorado Auxiliary Facilities Enterprise $ 2,000,000 5.700%, 05/15/26 ........................................ Aa3/AA- $ 2,081,640 University of Colorado Enterprise System 1,000,000 5.000%, 06/01/11 ........................................ Aa3/AA- 1,066,130 2,325,000 5.000%, 06/01/15 AMBAC Insured Pre-Refunded ............. Aa3/AA- 2,568,660 1,735,000 5.000%, 06/01/16 Pre-Refunded ........................... Aa3/AA- 1,950,175 1,000,000 5.250%, 06/01/17 FGIC Insured Pre-Refunded .............. Aa3/AA- 1,134,490 University of Colorado Enterprise System Revenue, Refunding & Improvement 3,905,000 5.000%, 06/01/24 FGIC Insured ........................... Aa3/AA 3,934,600 University of Northern Colorado Auxiliary Facilities 1,390,000 5.000%, 06/01/15 AMBAC Insured .......................... A2/A 1,437,608 ------------- Total Higher Education 33,035,493 ------------- HOSPITAL (8.2%) Colorado Health Facility Authority Hospital Revenue, Valley View Hospital Association, Refunding 1,000,000 5.500%, 05/15/28 ........................................ NR/BBB 673,570 Colorado Health Facility Authority Hospital Revenue, Catholic Health 1,000,000 4.750%, 09/01/25 FSA Insured ............................ Aa2/AAA 916,000 Colorado Health Facility Authority Revenue, Catholic Health Initiatives 2,000,000 5.000%, 10/01/16 ........................................ Aa2/AA 2,021,580 Colorado Health Facility Authority Revenue, Catholic Health Initiatives 1,000,000 6.000%, 10/01/23 ........................................ Aa2/AA 1,009,730 Colorado Health Facility Authority Hospital Revenue, Evangelical Lutheran Project Refunding 1,575,000 5.250%, 06/01/19 ........................................ A3/A- 1,382,378 Colorado Health Facility Authority Hospital Revenue, Poudre Valley Health Care Series F Refunding 2,800,000 5.000%, 03/01/25 ........................................ Baa1/BBB+ 1,891,428
RATING PRINCIPAL MOODY'S/ AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- Hospital (continued) Colorado Health Facility Authority Hospital Revenue, Sisters of Charity - Health Care $ 1,000,000 6.250%, 05/15/09 AMBAC Insured ETM ...................... Baa1/A+ $ 1,015,170 Colorado Health Facility Authority Hospital Revenue, Sisters of Charity - Leavenworth 1,500,000 5.250%, 12/01/10 MBIA Insured ........................... Aa2/AA 1,510,395 Colorado Health Facility Authority Hospital Revenue, Evangelical Lutheran Project Refunding 1,000,000 5.250%, 06/01/21 ........................................ A3/A- 842,260 2,000,000 5.250%, 06/01/24 ........................................ A3/A- 1,599,400 Denver, Colorado Health & Hospital Authority Healthcare, Revenue Series A Refunding 2,000,000 5.000%, 12/01/18 ........................................ NR/BBB 1,517,440 Denver, Colorado Health & Hospital Authority Healthcare, Revenue Series A Refunding 1,500,000 5.000%, 12/01/19 ........................................ NR/BBB 1,107,150 Park Hospital District Larimer County, Colorado Limited Tax Revenue 1,010,000 4.500%, 01/01/21 Assured Guaranty Insured ............... Aa2/AAA 1,009,071 ------------- Total Hospital .......................................... 16,495,572 ------------- HOUSING (1.3%) Colorado Housing & Finance Authority 300,000 6.050%, 10/01/16 Series 1999A3 .......................... Aa2/NR 297,591 10,000 6.125%, 11/01/23 Series 1998D3 .......................... Aa2/NR 9,501 Colorado Housing & Finance Authority, Single Family Program Refunding 145,000 5.000%, 08/01/13 Series 2001 Series B ................... A1/A+ 136,515 Colorado Housing Finance Authority, Single Family Mortgage 35,000 5.700%, 10/01/22 Series 2000C3 .......................... Aa2/AA 34,869 Colorado Housing Finance Authority, Single Family Mortgage Class III Series A-5 2,000,000 5.000%, 11/01/34 ........................................ A1/A+ 1,913,940
RATING PRINCIPAL MOODY'S/ AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- HOUSING (CONTINUED) Colorado Housing Finance Authority, Single Family Mortgage Subordinated $ 65,000 5.400%, 10/01/12 Series 2000D ........................... A1/A+ $ 63,415 Denver, Colorado Single Family Mortgage Revenue 85,000 5.000%, 11/01/15 GNMA Insured ........................... NR/AAA 81,852 ------------- Total Housing ........................................... 2,537,683 ------------- LEASE (15.4%) Adams 12 Five Star Schools COP 1,770,000 4.625%, 12/01/24 ........................................ A1/A+ 1,615,567 Aurora, Colorado COP 2,105,000 5.250%, 12/01/13 AMBAC Insured Pre-Refunded ............. Baa1/AA- 2,241,025 Broomfield, Colorado COP 2,500,000 5.100%, 12/01/12 AMBAC Insured .......................... A2/NR 2,590,225 Colorado Educational & Cultural Facilities Authority Revenue, Ave Maria School Project Refunding 1,000,000 4.850%, 12/01/25 Radian Insured ......................... A3/BBB+ 784,350 Colorado Educational & Cultural Facilities Authority Revenue, Peak to Peak Charter School, Refunding 1,500,000 5.250%, 08/15/24 Syncora Guarantee Inc. Insured** ....... NR/A 1,467,105 Colorado State Higher Ed Capital Construction Lease 3,000,000 5.250%, 11/01/23 ........................................ Aa3/AA- 3,027,270 Denver, Colorado City and County COP (Botanical Gardens) 2,015,000 5.250%, 12/01/22 ........................................ Aa3/AA+ 2,063,360 Denver, Colorado City and County COP (Roslyn Fire) 1,835,000 5.000%, 12/01/15 ........................................ Aa2/AA+ 1,932,585 El Paso County, Colorado COP 1,100,000 5.250%, 12/01/09 MBIA Insured ........................... A1/AA 1,134,617 El Paso County, Colorado COP (Pikes Peak Regional Development Authority) 1,925,000 5.000%, 12/01/18 AMBAC Insured .......................... Baa1/AA- 2,038,864 Fort Collins, Colorado Lease COP Series A 3,020,000 4.750%, 06/01/18 AMBAC Insured .......................... Aa2/NR 3,140,891 Fremont County, Colorado COP Refunding & Improvement Series A 2,075,000 5.000%, 12/15/18 MBIA Insured ........................... Baa1/AA 2,169,994
RATING PRINCIPAL MOODY'S/ AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- LEASE (CONTINUED) Lakewood, Colorado COP $ 1,440,000 5.200%, 12/01/13 AMBAC Insured Pre-Refunded ............. Baa1/AA- $ 1,537,315 Northern Colorado Water Conservancy District COP 1,000,000 5.000%, 10/01/15 MBIA Insured ........................... Baa1/AA 1,044,920 Pueblo, Colorado COP (Police Complex Project) 2,170,000 5.500%, 08/15/22 AGC Insured ............................ Aa2/AAA 2,174,687 Rangeview Library District Project, Colorado COP 1,000,000 5.000%, 12/15/28 AGC Insured ............................ Aa2/AAA 963,310 Westminster, Colorado COP 1,055,000 5.350%, 09/01/11 MBIA Insured Pre-Refunded .............. Baa1/AA 1,096,673 ------------- Total Lease ............................................. 31,022,758 ------------- SALES TAX (12.2%) Boulder, Colorado 1,045,000 5.250%, 08/15/10 AMBAC Insured .......................... Aa2/AA- 1,065,095 Boulder, Colorado Open Space Acquisition 1,250,000 5.500%, 08/15/12 ........................................ Aa1/AA+ 1,335,762 Boulder, Colorado Open Space Capital Improvement 1,630,000 5.000%, 07/15/17 MBIA Insured ........................... Aa2/AA 1,710,962 Boulder County, Colorado Open Space Capital Improvement Series A 1,500,000 5.000%, 01/01/24 FSA Insured ............................ Aa3/AAA 1,518,555 Boulder, Colorado Sales & Use Tax Open Space Series A 1,000,000 5.450%, 12/15/12 FGIC Insured Pre-Refunded .............. NR/AA- 1,052,970 Colorado Springs, Colorado Sales & Use Tax Revenue Service Sales 1,320,000 5.000%, 12/01/12 ........................................ A1/AA+ 1,351,508 Commerce City, Colorado Sales & Use Tax Revenue 1,000,000 5.000%, 08/01/21 AMBAC Insured .......................... Baa1/AA 989,850 Denver, Colorado City & County Excise Tax Revenue 2,000,000 5.375%, 09/01/10 FSA Insured ............................ Aa3/AAA 2,036,940 2,260,000 5.000%, 09/01/12 FSA Insured Pre-Refunded ............... Aa3/AAA 2,422,426 Douglas County, Colorado Sales & Use Tax Open Space Revenue 1,780,000 5.500%, 10/15/12 FSA Insured ............................ Aa3/AAA 1,880,356
RATING PRINCIPAL MOODY'S/ AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- SALES TAX (CONTINUED) Golden, Colorado Sales & Use Tax $ 1,265,000 5.000%, 12/01/12 AMBAC Insured .......................... Baa1/A $ 1,336,599 Jefferson County, Colorado Open Space Sales Tax 1,600,000 5.000%, 11/01/13 AMBAC Insured .......................... Aa3/AA- 1,698,752 1,080,000 5.000%, 11/01/14 AMBAC Insured .......................... Aa3/AA- 1,140,037 Larimer County, Colorado Sales Tax Revenue Bond 1,000,000 5.500%, 12/15/12 AMBAC Insured .......................... A1/AA- 1,074,660 Longmont, Colorado Sales & Use Tax 1,875,000 5.500%, 11/15/14 Pre-Refunded ........................... NR/AA+ 2,009,044 Park Meadows Business Implementation District, Colorado Shared Sales Tax Revenue Bond 1,500,000 5.300%, 12/01/27 ........................................ NR/NR* 921,285 Thornton, Colorado Sales Tax 1,000,000 5.000%, 09/01/14 FSA Insured ............................ Aa3/AAA 1,052,430 ------------- Total Sales Tax ......................................... 24,597,231 ------------- TRANSPORTATION (7.3%) Colorado Department of Transportation-Tax Revenue Anticipation Note 1,000,000 6.000%, 06/15/13 AMBAC Insured Pre-Refunded ............. Aaa/AA 1,073,610 E-470 Public Highway Authority, Colorado Revenue Series D2 4,000,000 5.000%, 09/01/39 MBIA Insured ........................... Baa1/AA 3,812,920 Northwest Parkway, Colorado Public Highway Authority Series A 2,515,000 5.150%, 06/15/14 AMBAC Insured .......................... Baa1/A 2,751,385 Regional Transportation District, Colorado COP 1,190,000 5.000%, 06/01/15 AMBAC Insured ...................... A1/A++ 1,243,110 Regional Transportation District, Colorado COP, Series A 3,500,000 5.000%, 06/01/25 AMBAC Insured .......................... A1/AA 3,135,895 Regional Transportation District, Colorado Sales Tax Revenue 2,000,000 5.000%, 11/01/13 FGIC Insured ........................... Aa3/AAA 2,099,740 Walker Field, Colorado Public Airport Authority Airport Revenue 1,000,000 5.000%, 12/01/22 ........................................ Baa3/NR 692,300 ------------- Total Transportation .................................... 14,808,960 -------------
RATING PRINCIPAL MOODY'S/ AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- WATER & SEWER (9.2%) Boulder, Colorado Water & Sewer Revenue $ 1,000,000 5.400%, 12/01/14 Pre-Refunded ........................... Aa2/AA+ $ 1,071,310 Broomfield, Colorado Sewer and Waste Water Revenue 1,985,000 5.000%, 12/01/15 AMBAC Insured .......................... A3/NR 2,087,208 Broomfield, Colorado Water Activity Enterprise 1,500,000 5.300%, 12/01/12 MBIA Insured ........................... A2/NR 1,593,570 1,730,000 5.250%, 12/01/13 MBIA Insured ........................... A2/NR 1,812,504 Colorado Clean Water Revenue 170,000 5.375%, 09/01/10 Un-Refunded portion .................... Aaa/AAA 170,092 Colorado Water Resource & Power Development Authority 2,675,000 5.000%, 09/01/16 MBIA Insured ........................... Baa1/AA 2,720,903 1,855,000 5.000%, 09/01/17 MBIA Insured ........................... Baa1/AA 1,860,305 Colorado Water Resource & Power Development Authority Clean Water Revenue Series A 1,375,000 5.000%, 09/01/12 Pre-Refunded ........................... Aaa/AAA 1,491,064 260,000 5.000%, 09/01/12 Un-Refunded portion .................... Aaa/AAA 276,851 Colorado Water Resource & Power Development Authority Clean Water Revenue Series B 180,000 5.500%, 09/01/09 Un-Refunded portion .................... Aaa/AAA 180,095 Colorado Water Resource & Power Development Authority Small Water Resource Series A 600,000 5.550%, 11/01/13 FGIC Insured Un-Refunded portion ....... NR/NR* 623,406 400,000 5.550%, 11/01/13 FGIC Insured Pre-Refunded .............. NR/NR* 427,240 Denver, Colorado City and County Wastewater Revenue 1,560,000 5.000%, 11/01/15 FGIC Insured ........................... Aa3/AAA 1,665,924 Pueblo, Colorado Board Water Works 1,000,000 5.500%, 11/01/10 FSA Insured ............................ Aa3/AAA 1,055,560 Ute, Colorado Water Conservancy District 1,570,00 5.500%, 06/15/12 MBIA Insured ........................... Baa1/AA 1,632,627 ------------- Total Water & Sewer ..................................... 18,668,659 -------------
RATING PRINCIPAL MOODY'S/ AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE - --------------- --------------------------------------------------------- -------- ------------- MISCELLANEOUS REVENUE (0.8%) Denver, Colorado City & County Helen Bonfils Project $ 620,000 5.875%, 12/01/09 ........................................ NR/A+ $ 620,533 Westminster, Colorado Golf Course Activity 1,000,000 5.400%, 12/01/13 Radian Group, Inc. Insured ............. NR/A 1,008,090 ------------- Total Miscellaneous Revenue ............................. 1,628,623 ------------- Total Revenue Bonds ..................................... 147,075,953 ------------- Total Investments (cost $201,952,940 - note 4) .......... 99.5% 200,702,314 Other assets less liabilities ........................... 0.5 1,097,355 ----- ------------- Net Assets .............................................. 100.0% $ 201,799,669 ===== =============
PERCENT OF PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED) PORTFOLIO* ---------------------------------------------------- ---------- Aaa of Moody's or AAA of S&P or AAA of Fitch ....... 22.8% Aa of Moody's or AA of S&P ......................... 54.6 A of Moody's or S&P or Fitch ....................... 16.9 Baa of Moody's or BBB of S&P ....................... 4.4 Not rated* ......................................... 1.3 ----- 100.0% ===== * Calculated using the highest rating of the three rating services. ** Any security not rated (NR) by any of the approved credit rating services has been determined by the Investment Sub-Advisor to have sufficient quality to be ranked in the top four credit ratings if a credit rating were to be assigned by a rating service. FITCH RATINGS ------------- + AAA ++ A PORTFOLIO ABBREVIATIONS: ------------------------ ACA - American Capital Assurance FSA - Financial Security Assurance Financial Guaranty Corp. GNMA - Government National Mortgage AGC - Assured Guaranty Corp. Association MBIA - Municipal Bond Investors AMBAC - American Municipal Bond Assurance Assurance Corp. NR - Not Rated COP - Certificates of Participation UCAR- University Corporation for ETM - Escrowed to Maturity Atmospheric Research FGIC - Financial Guaranty Insurance Co. See accompanying notes to financial statements. TAX-FREE FUND OF COLORADO STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2008 ASSETS Investments at value (cost $201,952,940) ................................................. $ 200,702,314 Cash ..................................................................................... 1,566,273 Interest receivable ...................................................................... 1,601,864 Receivable for Fund shares sold .......................................................... 271,122 Receivable for investment securities sold ................................................ 5,000 Other assets ............................................................................. 15,697 ------------- Total assets ............................................................................. 204,162,270 ------------- LIABILITIES Payable for Fund shares redeemed ......................................................... 1,808,125 Dividends payable ........................................................................ 379,609 Management fee payable ................................................................... 85,077 Distribution and service fees payable .................................................... 14,800 Accrued expenses ......................................................................... 74,990 ------------- Total liabilities ........................................................................ 2,362,601 ------------- NET ASSETS ................................................................................... $ 201,799,669 ============= Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share ...... $ 204,246 Additional paid-in capital ............................................................... 203,352,364 Net unrealized depreciation on investments (note 4) ...................................... (1,250,626) Accumulated net realized loss on investments ............................................. (541,110) Undistributed net investment income ...................................................... 34,795 ------------- $ 201,799,669 ============= CLASS A Net Assets ............................................................................... $ 182,629,882 ============= Capital shares outstanding ............................................................... 18,485,393 ============= Net asset value and redemption price per share ........................................... $ 9.88 ============= Maximum offering price per share (100/96 of $9.88 adjusted to nearest cent) .............. $ 10.29 ============= CLASS C Net Assets ............................................................................... $ 8,188,968 ============= Capital shares outstanding ............................................................... 830,466 ============= Net asset value and offering price per share ............................................. $ 9.86 ============= 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) ........................................... $ 9.86* ============= CLASS Y Net Assets ............................................................................... $ 10,980,819 ============= Capital shares outstanding ............................................................... 1,108,738 ============= Net asset value, offering and redemption price per share ................................. $ 9.90 =============
See accompanying notes to financial statements. TAX-FREE FUND OF COLORADO STATEMENT OF OPERATIONS YEAR Ended DECEMBER 31, 2008 INVESTMENT INCOME: Interest income ............................................... $ 9,597,638 Expenses: Management fee (note 3) ....................................... $ 1,020,555 Distribution and service fees (note 3) ........................ 188,765 Transfer and shareholder servicing agent fees ................. 173,764 Trustees' fees and expenses (note 8) .......................... 106,441 Legal fees (note 3) ........................................... 70,474 Shareholders' reports and proxy statements .................... 49,716 Custodian fees (note 6) ....................................... 22,435 Auditing and tax fees ......................................... 21,396 Registration fees and dues .................................... 14,607 Insurance ..................................................... 9,085 Chief compliance officer (note 3) ............................. 4,159 Miscellaneous ................................................. 35,601 ----------- Total expenses ................................................ 1,716,998 Expenses paid indirectly (note 6) ............................. (13,651) ----------- Net expenses .................................................. 1,703,347 ----------- Net investment income ......................................... 7,894,291 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from securities transactions ......... 207,443 Change in unrealized appreciation on investments .............. (6,965,614) ----------- Net realized and unrealized gain (loss) on investments ........ (6,758,171) ----------- Net change in net assets resulting from operations ............ $ 1,136,120 ===========
See accompanying notes to financial statements. TAX-FREE FUND OF COLORADO STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------- ----------------- OPERATIONS: Net investment income ........................................ $ 7,894,291 $ 7,759,543 Net realized gain (loss) from securities transactions ........ 207,443 (206,241) Change in unrealized appreciation on investments ............. (6,965,614) (1,296,578) ------------- ------------- Change in net assets from operations ....................... 1,136,120 6,256,724 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS (note 10): Class A Shares: Net investment income ........................................ (7,578,115) (7,672,295) Class C Shares: Net investment income ........................................ (294,661) (342,777) Class Y Shares: Net investment income ........................................ (307,126) (232,447) ------------- ------------- Change in net assets from distributions .................... (8,179,902) (8,247,519) ------------- ------------- CAPITAL SHARE TRANSACTIONS (note 7): Proceeds from shares sold .................................... 33,331,739 18,965,362 Reinvested dividends and distributions ....................... 4,583,846 4,637,380 Cost of shares redeemed ...................................... (30,945,266) (35,203,765) ------------- ------------- Change in net assets from capital share transactions ......... 6,970,319 (11,601,023) ------------- ------------- Change in net assets ....................................... (73,463) (13,591,818) NET ASSETS: Beginning of period .......................................... 201,873,132 215,464,950 ------------- ------------- End of period* ............................................... $ 201,799,669 $ 201,873,132 ============= ============= * Includes undistributed net investment income of: ........... $ 34,795 $ 26,082 ============= =============
See accompanying notes to financial statements. TAX-FREE FUND OF COLORADO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 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 distribution 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. Class C Shares, together with a pro-rata portion of all Class C Shares acquired through reinvestment of dividends and other distributions paid in additional Class C Shares, automatically convert to Class A Shares after 6 years. 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. Class I Shares are sold at net asset value without any sales charge, redemption fees, or contingent deferred sales charge. Class I Shares carry a distribution and service fee. As of the report date no Class I Shares were 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 accounting principles generally accepted in the United States of America 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 by the pricing service at the mean of bid and asked quotations. If market quotations or a valuation from the pricing service is not readily available, the security is valued at fair value determined in good faith 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 is 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 exceeds 60 days. b) FAIR VALUE MEASUREMENTS: The Fund adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("SFAS 157"), effective January 1, 2008. SFAS 157 established a three-tier hierarchy of inputs to establish classification of fair value measurements for disclosure purposes. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The Fund's investments are assigned levels based upon the observability. The three-tier hierarchy of inputs is summarized below: Level 1 - quoted prices in active markets for identical securities Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the valuation inputs, representing 100% of the Fund's investments, used to value the Fund's net assets as of December 31, 2008: VALUATION INPUTS INVESTMENTS IN SECURITIES ---------------- ------------------------- Level 1 - Quoted Prices ....................... $ -- Level 2 - Other Significant Observable Inputs.. 200,702,314 Level 3 - Significant Unobservable Inputs ..... -- ---------------- Total ......................................... $ 200,702,314 ================ c) 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 and market discount. d) 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. The Fund has adopted FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"). Management has reviewed the tax positions for each of the open tax years (2005-2008) and has determined that the implementation of FIN 48 did not have a material impact on the Fund's financial statements. e) MULTIPLE CLASS ALLOCATIONS: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses 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. f) USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. g) RECLASSIFICATION OF CAPITAL ACCOUNTS: Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. On December 31, 2008 the Fund increased undistributed net investment income by $294,324 and decreased additional paid-in capital by $294,324 due primarily to differing book/tax treatment of distributions and bond amortization. h) ACCOUNTING PRONOUNCEMENT: In March 2008, Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161") was issued and is effective for fiscal years beginning after November 15, 2008. SFAS 161 is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity's results of operations and financial position. Management is currently evaluating the implications of SFAS 161 and its impact, if any, on the Fund's financial statement disclosures. 3. FEES AND RELATED PARTY TRANSACTIONS a) MANAGEMENT ARRANGEMENTS: Aquila Investment Management LLC (the "Manager"), a wholly-owned subsidiary of Aquila Management Corporation, 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 managing relationships with all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor and additionally maintaining the Fund's accounting books and records. For its services, the 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 average net assets. Kirkpatrick Pettis Capital Management, Inc. (the "Sub-Adviser"), a wholly-owned subsidiary of the Davidson 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 average net assets. Under a Compliance Agreement with the Manager, the Manager is compensated for Chief Compliance Officer related services provided to enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940. 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 Trust'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 currently makes payment of this distribution fee at the annual rate of 0.05 of 1% 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 permits the Fund to make service fee payments at the rate of up to 0.15 of 1% on the entire net assets represented by Class A Shares. For the year ended December 31, 2008, distribution fees on Class A Shares amounted to $93,553 of which the Distributor retained $3,685. 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 average net assets represented by Class C Shares and for the year ended December 31, 2008, amounted to $71,409. 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 1% of the Fund's average net assets represented by Class C Shares and for the year ended December 31, 2008 amounted to $23,803. The total of these payments with respect to Class C Shares amounted to $95,212 of which the Distributor retained $20,626. 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 brokerage and advisory firms ("intermediaries"), the Fund's shares are sold primarily through the facilities of intermediaries having offices within Colorado, with the bulk of sales commissions inuring to such intermediaries. For the year ended December 31, 2008, total commissions on sales of Class A Shares amounted to $307,906 of which the Distributor received $62,949. c) OTHER RELATED PARTY TRANSACTIONS: For the year ended December 31, 2008, the Fund incurred $70,416 of legal fees allocable to Butzel Long PC, counsel to the Fund, for legal services in conjunction with the Fund's ongoing operations. The Secretary of the Fund is a shareholder of that firm. 4. PURCHASES AND SALES OF SECURITIES During the year ended December 31, 2008, purchases of securities and proceeds from the sales of securities aggregated $67,993,097 and $49,444,283, respectively. At December 31, 2008, the aggregate tax cost for all securities was $201,918,145. At December 31, 2008 the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $6,674,704 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $7,890,535 for a net unrealized depreciation of $1,215,831. 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. 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. 7. CAPITAL SHARE TRANSACTIONS Transactions in Capital Shares of the Fund were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2008 DECEMBER 31, 2007 ----------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT ------------ ------------ ------------ ------------ CLASS A SHARES: Proceeds from shares sold .......... 2,464,452 $ 24,867,344 1,543,026 $ 15,781,661 Reinvested distributions ........... 431,178 4,357,710 430,513 4,399,250 Cost of shares redeemed ............ (2,525,879) (25,422,774) (3,031,187) (30,993,982) ------------ ------------ ------------ ------------ Net change ....................... 369,751 3,802,280 (1,057,648) (10,813,071) ------------ ------------ ------------ ------------ CLASS C SHARES: Proceeds from shares sold .......... 178,646 1,809,057 151,365 1,544,571 Reinvested distributions ........... 15,282 154,179 18,231 185,929 Cost of shares redeemed ............ (398,301) (4,000,837) (276,171) (2,819,549) ------------ ------------ ------------ ------------ Net change ....................... (204,373) (2,037,601) (106,575) (1,089,049) ------------ ------------ ------------ ------------ CLASS Y SHARES: Proceeds from shares sold .......... 663,100 6,655,338 159,917 1,639,130 Reinvested distributions ........... 7,122 71,957 5,095 52,201 Cost of shares redeemed ............ (149,303) (1,521,655) (135,641) (1,390,234) ------------ ------------ ------------ ------------ Net change ....................... 520,919 5,205,640 29,371 301,097 ------------ ------------ ------------ ------------ Total transactions in Fund shares .... 686,297 $ 6,970,319 (1,134,852) $(11,601,023) ============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES At December 31, 2008 there were 7 Trustees, one of which is affiliated with the Manager and is not paid any fees. The total amount of Trustees' service and attendance fees paid during the year ended December 31, 2008 was $73,667, to cover carrying out their responsibilities and attendance at regularly scheduled quarterly Board Meetings and meetings of the Independent Trustees held prior to each quarterly Board Meeting. When additional meetings (Audit, Nominating, Shareholder and special meetings) are held, meeting fees are paid to those Trustees in attendance. Trustees are reimbursed for their expenses such as travel, accommodations and meals incurred in connection with attendance at Board Meetings and the Annual Meeting of Shareholders. For the year ended December 31, 2008, such meeting-related expenses amounted to $32,774. 9. SECURITIES TRADED ON A WHEN-ISSUED BASIS The Fund may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the amount of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. 10. INCOME TAX INFORMATION AND DISTRIBUTIONS The Fund declares dividends daily from net investment income and makes payments monthly. Net realized capital gains, if any, are distributed annually and are taxable. Dividends and capital gains distributions are paid in additional shares at the net asset value per share, in cash, or in a combination of both, at the shareholder's option. 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 the distribution levels maintained by the Fund and the 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. At December 31, 2008, the Fund had a capital loss carryover of $408,064 of which $207,540 expires in 2014, and $200,524 expires in 2015. 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 carryover is used to offset future realized capital gains, it is probable the gains so offset will not be distributed. As of December 31, 2008, there were post-October capital loss deferrals of $133,046, which will be recognized in the following year. The tax character of distributions: Year Ended December 31, 2008 2007 -------------- -------------- Net tax-exempt income $ 7,885,578 $ 7,755,024 Ordinary income 294,324 492,495 -------------- -------------- $ 8,179,902 $ 8,247,519 ============== ============== As of December 31, 2008, the components of distributable earnings on a tax basis were as follows: Undistributed tax-exempt income $ 379,609 Unrealized depreciation (1,215,831) Other accumulated losses (541,110) Other temporary differences (379,609) -------------- $ (1,756,941) ============== The difference between book basis and tax basis unrealized appreciation is attributable primarily to premium/discount adjustments.The difference between book basis and tax basis undistributed income is due to the timing difference in recognizing dividends paid. 11. RECENT DEVELOPMENTS a) THE DAVIS CASE: In May, 2007, the U. S. Supreme Court agreed to hear an appeal in DEPARTMENT OF REVENUE OF KENTUCKY V. DAVIS, a case concerning the constitutionality of differential tax treatment for interest from in-state vs. out-of-state municipal securities, a practice which is common among the majority of the states. On May 19, 2008, the U. S. Supreme Court upheld the right of states to tax interest on out-of-state municipal bonds while exempting their own state's bond interest from taxation. The U. S. Supreme Court said differential tax treatment for interest from in-state vs. out-of-state municipal securities does not discriminate against interstate commerce, but rather promotes the financing of essential governmental services. b) INSURERS: Over the past year, municipal bond insurance companies have been under review by the three major rating agencies: Standard & Poor's, Moody's and Fitch. The ratings of some of the insurance companies have now either been downgraded and/or have a negative outlook. The financial markets continue to assess the severity of the losses caused by the subprime credit crisis and its impact on municipal bond insurance companies and the prices of insured municipal bonds. TAX-FREE FUND OF COLORADO FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD - ----------------------------------------------
CLASS A ----------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- 2008 2007 2006 2005 2004 --------- --------- --------- --------- --------- Net asset value, beginning of period ................... $ 10.23 $ 10.32 $ 10.42 $ 10.68 $ 10.84 --------- --------- --------- --------- --------- Income (loss) from investment operations: Net investment income ................................ 0.40++ 0.39++ 0.39+ 0.39+ 0.40+ Net gain (loss) on securities (both realized and unrealized) .................................... (0.34) (0.07) (0.07) (0.23) (0.13) --------- --------- --------- --------- --------- Total from investment operations ..................... 0.06 0.32 0.32 0.16 0.27 --------- --------- --------- --------- --------- Less distributions (note 10): Dividends from net investment income ................. (0.41) (0.41) (0.42) (0.42) (0.43) Distributions from capital gains ..................... - - - - - --------- --------- --------- --------- --------- Total distributions .................................. (0.41) (0.41) (0.42) (0.42) (0.43) --------- --------- --------- --------- --------- Net asset value, end of period ......................... $ 9.88 $ 10.23 $ 10.32 $ 10.42 $ 10.68 ========= ========= ========= ========= ========= Total return (not reflecting sales charge) ............. 0.57% 3.21% 3.11% 1.53% 2.57% Ratios/supplemental data Net assets, end of period (in thousands) ............. $ 182,630 $ 185,283 $ 197,926 $ 218,111 $ 226,070 Ratio of expenses to average net assets .............. 0.80% 0.80% 0.79% 0.79% 0.75% Ratio of net investment income to average net assets ......................................... 3.90% 3.80% 3.76% 3.73% 3.76% Portfolio turnover rate .............................. 24.63% 8.77% 7.48% 10.57% 12.55% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets ........ 0.79% 0.79% 0.78% 0.79% 0.74%
- ---------- + Per share amounts have been calculated using the monthly average shares method. ++ Per share amounts have been calculated using the daily average shares method. See accompanying notes to financial statements. TAX-FREE FUND OF COLORADO FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD - ----------------------------------------------
Class C ---------------------------------------------------------------------------- Year Ended December 31, ---------------------------------------------------------------------------- 2008 2007 2006 2005 2004 ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period .............. $ 10.21 $ 10.30 $ 10.40 $ 10.66 $ 10.82 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income ........................... 0.30++ 0.29++ 0.29+ 0.29+ 0.30+ Net gain (loss) on securities (both realized and unrealized) ...................... (0.34) (0.06) (0.07) (0.23) (0.13) ---------- ---------- ---------- ---------- ---------- Total from investment operations ................ (0.04) 0.23 0.22 0.06 0.17 ---------- ---------- ---------- ---------- ---------- Less distributions (note 10): Dividends from net investment income ............ (0.31) (0.32) (0.32) (0.32) (0.33) Distributions from capital gains ................ - - - - - ---------- ---------- ---------- ---------- ---------- Total distributions ............................. (0.31) (0.32) (0.32) (0.32) (0.33) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period .................... $ 9.86 $ 10.21 $ 10.30 $ 10.40 $ 10.66 ========== ========== ========== ========== ========== Total return (not reflecting sales charge) ........ (0.39)% 2.24% 2.14% 0.57% 1.60% Ratios/supplemental data Net assets, end of period (in thousands) ........ $ 8,189 $ 10,563 $ 11,760 $ 13,003 $ 15,210 Ratio of expenses to average net assets ......... 1.75% 1.75% 1.74% 1.74% 1.70% Ratio of net investment income to average net assets ............................ 2.95% 2.85% 2.81% 2.78% 2.81% Portfolio turnover rate ......................... 24.63% 8.77% 7.48% 10.57% 12.55% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets ......... 1.74% 1.74% 1.73% 1.74% 1.69% Class Y ---------------------------------------------------------------------------- Year Ended December 31, ---------------------------------------------------------------------------- 2008 2007 2006 2005 2004 ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period .............. $ 10.25 $ 10.35 $ 10.44 $ 10.71 $ 10.86 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income ........................... 0.40++ 0.40++ 0.40+ 0.40+ 0.41+ Net gain (loss) on securities (both realized and unrealized) ...................... (0.33) (0.08) (0.07) (0.24) (0.12) ---------- ---------- ---------- ---------- ---------- Total from investment operations ................ 0.07 0.32 0.33 0.16 0.29 ---------- ---------- ---------- ---------- ---------- Less distributions (note 10): Dividends from net investment income ............ (0.42) (0.42) (0.42) (0.43) (0.44) Distributions from capital gains ................ - - - - - ---------- ---------- ---------- ---------- ---------- Total distributions ............................. (0.42) (0.42) (0.42) (0.43) (0.44) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period .................... $ 9.90 $ 10.25 $ 10.35 $ 10.44 $ 10.71 ========== ========== ========== ========== ========== Total return (not reflecting sales charge) ........ 0.63% 3.17% 3.26% 1.49% 2.73% Ratios/supplemental data Net assets, end of period (in thousands) ........ $ 10,980 $ 6,027 $ 5,779 $ 14,671 $ 15,608 Ratio of expenses to average net assets ......... 0.75% 0.75% 0.75% 0.74% 0.70% Ratio of net investment income to average net assets ............................ 3.96% 3.84% 3.82% 3.77% 3.81% Portfolio turnover rate ......................... 24.63% 8.77% 7.48% 10.57% 12.55% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets ......... 0.74% 0.73% 0.74% 0.74% 0.69%
- ---------- + Per share amounts have been calculated using the monthly average shares method. ++ Per share amounts have been calculated using the daily average shares method. See accompanying notes to financial statements. - -------------------------------------------------------------------------------- ANALYSIS OF EXPENSES (UNAUDITED) As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end sales charges with respect to Class A shares or contingent deferred sales charges ("CDSC") with respect to Class C shares; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. The table below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The table below is based on an investment of $1,000 invested on July 1, 2008 and held for the six months ended December 31, 2008. ACTUAL EXPENSES This table provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled "Expenses Paid During the Period". SIX MONTHS ENDED DECEMBER 31, 2008 ACTUAL TOTAL RETURN BEGINNING ENDING EXPENSES WITHOUT ACCOUNT ACCOUNT PAID DURING SALES CHARGES(1) VALUE VALUE THE PERIOD(2) - -------------------------------------------------------------------------------- Class A (0.43)% $1,000.00 $995.70 $3.96 - -------------------------------------------------------------------------------- Class C (0.91)% $1,000.00 $990.90 $8.71 - -------------------------------------------------------------------------------- Class Y (0.40)% $1,000.00 $996.00 $3.71 - -------------------------------------------------------------------------------- (1) ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF ANY, AT NET ASSET VALUE AND DOES NOT REFLECT THE DEDUCTION OF THE APPLICABLE SALES CHARGES WITH RESPECT TO CLASS A SHARES OR THE APPLICABLE CONTINGENT DEFERRED SALES CHARGES ("CDSC") WITH RESPECT TO CLASS C SHARES. TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL RETURN FOR THE YEAR. (2) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.79%, 1.74% AND 0.74% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of other mutual funds. Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs with respect to Class A shares. The example does not reflect the deduction of contingent deferred sales charges ("CDSC") with respect to Class C shares. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different mutual funds. In addition, if these transaction costs were included, your costs would have been higher. SIX MONTHS ENDED DECEMBER 31, 2008 HYPOTHETICAL ANNUALIZED BEGINNING ENDING EXPENSES TOTAL ACCOUNT ACCOUNT PAID DURING RETURN VALUE VALUE THE PERIOD(1) - -------------------------------------------------------------------------------- Class A 5.00% $1,000.00 $1,021.17 $4.01 - -------------------------------------------------------------------------------- Class C 5.00% $1,000.00 $1,016.39 $8.82 - -------------------------------------------------------------------------------- Class Y 5.00% $1,000.00 $1,021.42 $3.76 - -------------------------------------------------------------------------------- (1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.79%, 1.74% AND 0.74% FOR THE FUND'S CLASS A, C AND Y SHARES, RESPECTIVELY, MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INFORMATION AVAILABLE (UNAUDITED) Much of the information that the funds in the Aquila Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent the entire list of portfolio securities of your Fund twice a year in the semi-annual and annual reports you receive. Additionally, we prepare, and have available, portfolio listings at the end of each quarter. Whenever you may be interested in seeing a listing of your Fund's portfolio other than in your shareholder reports, please check our website at http://www.aquilafunds.com or call us at 1-800-437-1020. The Fund additionally files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available free of charge on the SEC website at http://www.sec.gov. You may also review or, for a fee, copy the forms at the SEC's Public Reference Room in Washington, DC or by calling 1-800-SEC-0330. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROXY VOTING RECORD (UNAUDITED) The Fund does not invest in equity securities. Accordingly, there were no matters relating to a portfolio security considered at any shareholder meeting held during the 12 months ended June 30, 2008 with respect to which the Fund was entitled to vote. Applicable regulations require us to inform you that the foregoing proxy voting information is available on the SEC website at http://www.sec.gov. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 calendar year ended December 31, 2008, $7,885,578 of dividends paid by Tax-Free Fund of Colorado, constituting 96.40% of total dividends paid during calendar year 2008, were exempt-interest dividends and the balance was ordinary dividend income. Prior to January 31, 2009, shareholders were mailed the approriate tax form(s) which contained information on the status of distributions paid for the 2008 CALENDAR YEAR. - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION (UNAUDITED) TRUSTEES(1) AND OFFICERS
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- INTERESTED TRUSTEES(4) Diana P. Herrmann Trustee since Vice Chair and Chief Executive Officer of 12 ICI Mutual Insurance New York, NY 2000 and Aquila Management Corporation, Founder of Company (02/25/58) President the Aquila Group of Funds(R) (5) and parent of since 1999 Aquila Investment Management LLC, Manager, since 2004, President and Chief Operating Officer since 1997, a Director since 1984, Secretary since 1986 and previously its Executive Vice President, Senior Vice President or Vice President, 1986-1997; Chief Executive Officer and Vice Chair since 2004 and President, Chief Operating Officer and Manager of the Manager since 2003; Chair, Vice Chair, President, Executive Vice President or Senior Vice President of funds in the Aquila Group of Funds(R) since 1986; Director of the Distributor since 1997; trustee, Reserve Money-Market Funds, 1999-2000 and Reserve Private Equity Series, 1998-2000; Governor, Investment Company Institute (a trade organization for the U.S. fund industry dedicated to protecting shareholder interests and educating the public about investing) and head of its Small Funds Committee since 2004; active in charitable and volunteer organizations. NON-INTERESTED TRUSTEES Anne J. Mills Chair of the President, Loring Consulting Company since 4 None Castle Rock, CO Board of 2001; Vice President for Business Management (12/23/38) Trustees and CFO, Ottawa University, since 2006, Vice since 2005 President for Business Affairs, 1992-2001; and Trustee IBM Corporation, 1965-1991; currently active since 1987 with various charitable educational and religious organizations.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- Gary C. Cornia Vice Chair of Dean, Marriott School of Management, Brigham 4 Lincoln Institute of Land Orem, UT the Board of Young University, since 2008; Director, Policy, Cambridge, MA (06/24/48) Trustees Romney Institute of Public Management, since 2006 Marriott School of Management, 2004 - 2008; and Trustee Professor, Marriott School of Management, since 2000 1980 - present; Past President, the National Tax Association; Fellow, Lincoln Institute of Land Policy, 2002 - present; Associate Dean, Marriott School of Management, Brigham Young University, 1991-2000; member, Utah Governor's Tax Review Committee since 1993. Tucker Hart Adams Trustee President, The Adams Group, Inc., an 3 Griffis/Blessings, Inc. Colorado Springs, CO since 1989 economic consulting firm, since 1989; (commerical property (01/11/38) formerly Chief Economist, United Banks of development and Colorado; currently or formerly active with management); Kachi numerous professional and community Partners (middle market organizations. buyouts); Colorado Health Facilities Authority Thomas A. Christopher Trustee Vice President of Robinson, Hughes & 3 None Danville, KY since 2004 Christopher, C.P.A.s, P.S.C., since 1977; (12/19/47) President, A Good Place for Fun, Inc., a sports facility, since 1987; currently or formerly active with various professional and community organizations. Lyle W. Hillyard Trustee President of the law firm of Hillyard, 2 None Logan, UT since 2006 Anderson & Olsen, Logan, Utah, since 1967; (09/25/40) member of Utah Senate, 1985 to present, in the following positions: President, 2000, Senate Majority Leader, 1999-2000, Assistant Majority Whip, 1995-1998; served as Chairman of the following Senate Committees: Tax and Revenue, Senate Judiciary Standing, Joint Executive Appropriations, and Senate Rules; currently serves as Co-Chair, Joint Executive Appropriations.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- John C. Lucking Trustee President, Econ-Linc, an economic consulting 3 None Phoenix, AZ since 2000 firm, since 1995; formerly Consulting (05/20/43) Economist, Bank One Arizona and Chief Economist, Valley National Bank; member, Arizona's Joint Legislative Budget Committee Economic Advisory Panel and the Western Blue Chip Economic Forecast Panel; Board, Northern Arizona University Foundation since 1997; member, various historical, civic and economic associations. OTHER INDIVIDUALS TRUSTEES EMERITUS(6) Lacy B. Herrmann Founder and Founder and Chairman of the Board, Aquila N/A N/A New York, NY Chairman Management Corporation, the sponsoring (05/12/29) Emeritus organization and parent of the Manager or since 2005; Administrator and/or Adviser or Sub-Adviser Chairman of to each fund of the Aquila Group of Funds(R); the Board of Chairman of the Manager or Administrator Trustees, and/or Adviser or Sub-Adviser to each since 1987-2004 2004; Founder and Chairman Emeritus of each fund in the Aquila Group of Funds(R); previously Chairman and a Trustee of each fund in the Aquila Group of Funds(R) since its establishment until 2004 or 2005; Director of the Distributor since 1981 and formerly Vice President or Secretary, 1981-1998; Trustee Emeritus, Brown University and the Hopkins School; active in university, school and charitable organizations. J. William Weeks Trustee Retired; limited partner in real estate N/A N/A Palm Beach, FL Emeritus partnerships Alex, Brown & Sons No. 1 and 2; (06/22/27) since 2006 formerly Senior Vice President or Vice President of the Aquila Municipal Bond Funds; and Vice President of the Distributor.
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- Charles E. Childs, III Executive Vice Executive Vice President of all funds in the N/A N/A New York, NY President Aquila Group of Funds(R) and the Manager and (04/01/57) since 2003 the Manager's parent since 2003; formerly Senior Vice President, corporate development, Vice President, Assistant Vice President and Associate of the Manager's parent since 1987; Senior Vice President, Vice President or Assistant Vice President of the Aquila Money-Market Funds, 1988-2003. Stephen J. Caridi Senior Vice Vice President of the Distributor since N/A N/A New York, NY President 1995; Vice President, Hawaiian Tax-Free (05/06/61) since 2004 Trust since 1998; Senior Vice President, Narragansett Insured Tax-Free Income Fund since 1998, Vice President 1996-1997; Senior Vice President, Tax-Free Fund of Colorado since 2004; Vice President, Aquila Rocky Mountain Equity Fund since 2006. Robert W. Anderson Chief Chief Compliance Officer of the Fund and N/A N/A New York, NY Compliance each of the other funds in the Aquila Group (08/23/40 Officer since of Funds(R), the Manager and the Distributor 2004 and since 2004, Compliance Officer of the Assistant Manager or its predecessor and current Secretary parent 1998-2004; Assistant Secretary of the since 2000 Aquila Group of Funds(R) since 2000. Joseph P. DiMaggio Chief Financial Chief Financial Officer of the Aquila Group N/A N/A New York, NY Officer of Funds(R) since 2003 and Treasurer since (11/06/56) since 2003 2000. and Treasurer since 2000
NUMBER OF POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS HELD WITH IN FUND HELD BY TRUSTEE NAME, FUND AND PRINCIPAL COMPLEX (THE POSITION HELD IS ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.) - ----------------- ---------- ------------------- ---------- --------------------- Edward M. W. Hines Secretary Shareholder of Butzel Long, a professional N/A N/A New York, NY since 1987 corporation, counsel to the Fund, since (12/16/39) 2007; Partner of Hollyer Brady Barrett & Hines LLP, its predecessor as counsel, 1989-2007; Secretary of the Aquila Group of Funds(R). John M. Herndon Assistant Assistant Secretary of the Aquila Group of N/A N/A New York, NY Secretary Funds(R) since 1995 and Vice President of the (12/17/39) since 1995 three Aquila Money-Market Funds since 1990; Vice President of the Manager or its predecessor and current parent since 1990. Lori A. Vindigni Assistant Assistant Treasurer of the Aquila Group of N/A N/A New York, NY Treasurer Funds(R) since 2000; Assistant Vice President (11/02/66) since 2000 of the Manager or its predecessor and current parent since 1998; Fund Accountant for the Aquila Group of Funds(R), 1995-1998.
- ---------- (1) The Fund's Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request by calling 800-437-1020 (toll-free) or by visiting the EDGAR Database at the SEC's internet site at www.sec.gov. (2) The mailing address of each Trustee and officer is c/o Tax-Free Fund of Colorado, 380 Madison Avenue, New York, NY 10017. (3) Each Trustee holds office until the next annual meeting of shareholders or until his or her successor is elected and qualifies. The term of office of each officer is one year. (4) Ms. Herrmann is an interested person of the Fund as an officer of the Fund, as a director, officer and shareholder of the Manager's corporate parent, as an officer and Manager of the Manager, and as a shareholder and director of the Distributor. Ms. Herrmann is the daughter of Lacy B. Herrmann, the Founder and Chairman Emeritus of the Fund. (5) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S. Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash Assets Trust, each of which is a money-market fund, are called the "Aquila Money-Market Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona, Tax-Free Trust of Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free Fund of Kentucky, Narragansett Insured Tax-Free Income Fund and Tax-Free Fund For Utah, each of which is a tax-free municipal bond fund, are called the "Aquila Municipal Bond Funds"; Aquila Rocky Mountain Equity Fund is an equity fund; Aquila Three Peaks High Income Fund is a high income corporate bond fund; considered together, these 12 funds are called the "Aquila Group of Funds(R)." (6) A Trustee Emeritus may attend Board meetings but has no voting power. - -------------------------------------------------------------------------------- PRIVACY NOTICE (UNAUDITED) TAX-FREE FUND OF COLORADO OUR PRIVACY POLICY. In providing services to you as an individual who owns or is considering investing in shares of the Fund, we collect certain non-public personal information about you. Our policy is to keep this information strictly safeguarded and confidential, and to use or disclose it only as necessary to provide services to you or as otherwise permitted by law. Our privacy policy applies equally to former shareholders and persons who inquire about the Fund. INFORMATION WE COLLECT. "Non-public personal information" is personally identifiable financial information about you as an individual or your family. The kinds of non-public personal information we have about you may include the information you provide us on your share purchase application or in telephone calls or correspondence with us, and information about your fund transactions and holdings, how you voted your shares and the account where your shares are held. INFORMATION WE DISCLOSE. We disclose non-public personal information about you to companies that provide necessary services to us, such as the Fund's transfer agent, distributor, or manager, as permitted or required by law, or as authorized by you. Any other use is strictly prohibited. We do not sell information about you or any of our fund shareholders to anyone. NON-CALIFORNIA RESIDENTS: We also may disclose some of this information to another fund in the Aquila Group of Funds(R) (or its service providers) under joint marketing agreements that permit the funds to use the information only to provide you with information about other funds in the Aquila Group of Funds(R) or new services we are offering that may be of interest to you. CALIFORNIA RESIDENTS ONLY: In addition, unless you "opt-out" of the following disclosures using the form that was mailed to you under separate cover, we may disclose some of this information to another fund in the Aquila Group of Funds(R) (or its sevice providers) under joint marketing agreements that permit the funds to use the information only to provide you with information about other funds in the Aquila Group of Funds(R) or new services we are offering that may be of interest to you. HOW WE SAFEGUARD YOUR INFORMATION. We restrict access to non-public personal information about you to only those persons who need it to provide services to you or who are permitted by law to receive it. We maintain physical, electronic and procedural safeguards to protect the confidentiality of all non-public personal information we have about you. If you have any questions regarding our Privacy Policy, please contact us at 1-800-437-1020. AQUILA DISTRIBUTORS, INC. AQUILA INVESTMENT MANAGEMENT LLC This Privacy Policy also has been adopted by Aquila Distributors, Inc. and Aquila Investment Management LLC and applies to all non-public information about you that each of these companies may obtain in connection with services provided to the Fund or to you as a shareholder of the Fund. - -------------------------------------------------------------------------------- FOUNDERS Lacy B. Herrmann, Chairman Emeritus Aquila Management Corporation MANAGER AQUILA INVESTMENT MANAGEMENT LLC 380 Madison Avenue, Suite 2300 New York, New York 10017 Investment Sub-Adviser KIRKPATRICK PETTIS CAPITAL MANAGEMENT, INC. 1600 Broadway, Suite 1100 Denver, Colorado 80202 BOARD OF TRUSTEES Anne J. Mills, Chair Gary C. Cornia, Vice Chair Tucker Hart Adams Thomas A. Christopher Diana P. Herrmann Lyle W. Hillyard John C. Lucking TRUSTEE EMERITUS J. William Weeks OFFICERS Diana P. Herrmann, President Stephen J. Caridi, Senior Vice President Robert W. Anderson, Chief Compliance Officer Joseph P. DiMaggio, Chief Financial Officer and Treasurer Edward M.W. Hines, Secretary DISTRIBUTOR AQUILA DISTRIBUTORS, INC. 380 Madison Avenue, Suite 2300 New York, New York 10017 TRANSFER AND SHAREHOLDER SERVICING AGENT PFPC Inc. 101 Sabin Street Pawtucket, RI 02860 CUSTODIAN JPMORGAN CHASE BANK, N.A. 1111 Polaris Parkway Columbus, Ohio 43240 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Tait, Weller & Baker LLP 1818 Market Street, Suite 2400 Philadelphia, PA 19103 Further information is contained in the Prospectus, which must precede or accompany this report. ITEM 2. CODE OF ETHICS. (a) As of December 31, 2008 (the end of the reporting period) the Trust has adopted a code of ethics that applies to the Trust's principal executive officer(s)and principal financial officer(s) and persons performing similar functions ("Covered Officers") as defined in the Aquila Group of Funds Code of Ethics for Principal Executive and Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002, as amended; (f)(1) Pursuant to Item 10(a)(1), a copy of the Trust's Code of Ethics that applies to the Trust's principal executive officer(s) and principal financial officer(s) and persons performing similar functions is included as an exhibit to its annual report on this Form N-CSR; (f)(2) The text of the Trust's Code of Ethics that applies to the Trust's principal executive officer(s) and principal financial officer(s) and persons performing similar functions has been posted on its Internet website which can be found at the Trust's Internet address at aquilafunds.com. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1)(ii) The Board of Trustees of the Fund has determined that it does not have at least one audit committee financial expert serving on its audit committee. The Fund does not have such a person serving on the audit committee because none of the persons currently serving as Trustees happens to have the technical accounting and auditing expertise included in the definition of "audit committee financial expert" recently adopted by the Securities and Exchange Commission in connection with this Form N-CSR, and the Board has not heretofore deemed it necessary to seek such a person for election to the Board. The primary mission of the Board, which is that of oversight over the operations and affairs of the Fund, confronts the Trustees with a wide and expanding range of issues and responsibilities. The Trustees believe that, accordingly, it is essential that the Board's membership consist of persons with as extensive experience as possible in fulfilling the duties and responsibilities of mutual fund directors and audit committee members and, ideally, with extensive experience and background relating to the economic and financial sectors and securities in which the Fund invests, including exposure to the financial and accounting matters commonly encountered with respect to those sectors and securities. The Board believes that its current membership satisfies those criteria. It recognizes that it would also be helpful to have a member with the relatively focused accounting and auditing expertise reflected in the applicable definition of "audit committee financial expert," just as additional members with similarly focused technical expertise in other areas relevant to the Fund's operations and affairs would also contribute added value. However, the Board believes that the Fund is better served, and its assets better employed, by a policy of hiring experts in various the specialized area of technical accounting and auditing matters, if and as the Board identifies the need, rather than by seeking to expand its numbers by adding technical experts in the areas constituting its domain of responsibility. The Fund's Audit Committee Charter explicitly authorizes the Committee to retain such experts as it deems necessary in fulfilling its duties ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. a) Audit Fees - The aggregate fees billed for professional services rendered by the principal accountant for the audit of the Registrant's annual financial statements were $18,000 in 2007 and $16,800 in 2008. b) Audit Related Fees - There were no amounts billed for audit-related fees over the past two years. c) Tax Fees - The Registrant was billed by the principal accountant $3,000 and $3,100 in 2007 and 2008, respectively, for return preparation and tax compliance. d) All Other Fees - There were no additional fees paid for audit and non-audit services other than those disclosed in a) thorough c) above. e)(1) Currently, the audit committee of the Registrant pre-approves audit services and fees on an engagement-by-engagement basis e)(2) None of the services described in b) through d) above were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, all were pre-approved on an engagement-by-engagement basis. f) No applicable. g) There were no non-audit services fees billed by the Registrant's accountant to the Registrant's investment adviser or distributor over the past two years h) Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Included in Item 1 above ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Board of Directors of the Registrant has adopted a Nominating Committee Charter which provides that the Nominating Committee (the 'Committee') may consider and evaluate nominee candidates properly submitted by shareholders if a vacancy among the Independent Trustees of the Registrant occurs and if, based on the Board's then current size, composition and structure, the Committee determines that the vacancy should be filled. The Committee will consider candidates submitted by shareholders on the same basis as it considers and evaluates candidates recommended by other sources. A copy of the qualifications and procedures that must be met or followed by shareholders to properly submit a nominee candidate to the Committee may be obtained by submitting a request in writing to the Secretary of the Registrant. ITEM 11. CONTROLS AND PROCEDURES. (a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing of this report, the registrant's chief financial and executive officers have concluded that the disclosure controls and procedures of the registrant are appropriately designed to ensure that information required to be disclosed in the registrant's reports that are filed under the Securities Exchange Act of 1934 are accumulated and communicated to registrant's management, including its principal executive officer(s) and principal financial officer(s), to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the Securities and Exchange Commission. (b) There have been no significant changes in registrant's internal controls or in other factors that could significantly affect registrant's internal controls subsequent to the date of the most recent evaluation, including no significant deficiencies or material weaknesses that required corrective action. ITEM 12. EXHIBITS. (a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002. (a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. (b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TAX-FREE FUND OF COLORADO By: /s/ Diana P. Herrmann - ----------------------------------- President and Trustee March 4, 2009 By: /s/ Joseph P. DiMaggio - ------------------------------------- Chief Financial Officer and Treasurer March 4, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Diana P. Herrmann - ----------------------------------- Diana P. Herrmann President and Trustee March 4, 2009 By: /s/ Joseph P. DiMaggio - ------------------------------------- Joseph P. DiMaggio Chief Financial Officer and Treasurer March 4, 2009 TAX-FREE FUND OF COLORADO EXHIBIT INDEX (a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002. (a) (2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. (b) Certification of chief executive officer and chief financial officer as required by Rule 30a-2(b) of the Investment Company Act of 1940. EX-99.CERT 2 tffc306cert.txt SECTION 306 CERTIFICATION CERTIFICATIONS I, Diana P. Herrmann, certify that: 1. I have reviewed this report on Form N-CSR of Tax-Free Fund of Colorado; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 4, 2009 /s/ Diana P. Herrmann - -------------------------- Title: President and Trustee I, Joseph P. DiMaggio, certify that: 1. I have reviewed this report on Form N-CSR of Tax-Free Fund of Colorado; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 4, 2009 /s/ Joseph P. DiMaggio - ---------------------------- Title: Chief Financial Officer and Treasurer EX-99.906 CERT 3 tffc906cert.txt SECTIN 906 CERTIFICATION CERTIFICATION Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18,United States Code), each of the undersigned officers of Tax-Free Fund of Colorado, do hereby certify to such officer's knowledge, that: The report on Form N-CSR of Tax-Free Fund of Colorado for the period ended December 31, 2008, (the "Form N-CSR") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of Tax-Free Fund For Utah. Dated: March 4, 2009 /s/ Diana P. Herrmann ------------------------- President and Trustee Tax-Free Fund of Colorado Dated: March 4, 2009 /s/ Joseph P. DiMaggio ------------------------- Chief Financial Officer and Treasurer Tax-Free Fund of Colorado A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Tax-Free Fund For Utah and will be retained by Tax-Free Fund For Utah and furnished to the Securities and Exchange Commission or its staff upon request. This certification is being furnished solely pursuant to 18 U.S.C. ss. 1350 and is not being filed as part of the Report or as a separate disclosure document. EX-99.CODE ETH 4 sarbanes.txt SARBANES-OXLEY CODE OF ETHICS AQUILA GROUP OF FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS UNDER SECTION 406 OF THE SARBANES-OXLEY ACT OF 2002 I. Covered Officers/Purpose of the Code This is the code of ethics (the "Code") for the investment companies within the Aquila Group of Funds (collectively, "Funds" and each, a "Fund," each of which is detailed in Exhibit A). It applies to the Fund's Principal Executive Officer(s) and Principal Financial Officer(s) (the "Covered Officers," each of whom is listed in Exhibit B), for the purpose of promoting: *honest and ethical conduct, including the ethical handling of actual; *or apparent conflicts of interest between personal and professional relationships; *full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; *compliance with applicable laws and governmental rules and regulations; *the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and *accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest Overview. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his/her service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his/her family, receives improper personal benefits as a result of his/her position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" of the Fund. The Fund's and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Fund and the investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the adviser and the Fund. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must: *not use his/her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally to the detriment of the Fund; *not cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Fund; There are some conflict of interest situations that should always be discussed with the general counsel of the Fund ("General Counsel"), if material. Examples of these include: *service as a director on the board of any public or private company; *the receipt of any non-nominal gifts; *the receipt of any entertainment from any company with which the Fund has current or prospective business dealings unless such entertainment is business- related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; *any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; *a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. Disclosure and Compliance Each Covered Officer should familiarize himself/herself with the disclosure requirements generally applicable to the Fund; *each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Trustees and auditors, and to governmental regulators and self-regulatory organizations; each Covered Officer should, to the extent appropriate within his/her area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. Reporting and Accountability Each Covered Officer must: *upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he/she has received, read, and understands the Code; *annually thereafter affirm to the Board that he/she has complied with the requirements of the Code; *not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and *notify the Chair of the Audit Committee of the Fund promptly if he/she knows of any violation of this Code. Failure to do so is itself a violation of this Code. *file at least annually a complete and accurate Funds' Trustees and Officers Questionnaire. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers1 sought by the Chairman of the Board or the President will be considered by the Audit Committee (the "Committee"). The Funds will follow these procedures in investigating and enforcing this Code: *the General Counsel will take all appropriate action to investigate any potential violations reported to him; *if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; any matter that the General Counsel believes is a violation will be reported to the Committee; * if the Committee concurs that a violation has occurred, it will inform the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; * the Committee will be responsible for granting waivers, as appropriate; and * any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as the policies or procedures of the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment adviser's and principal underwriter's codes of ethics under Rule 17j-1 under the Investment Company Act and the adviser's more detailed policies and procedures set forth in their respective codes are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. Amendments Any amendments to this Code, other than amendments to Exhibit B, must be approved or ratified by a majority vote of the Board, including a majority of independent Trustees. VII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board and the General Counsel, and if deemed appropriate by the Board, with other Funds in the complex where the Funds share a common Covered Officer. VIII. Internal Use The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. Exhibit A Funds Covered by this Code of Ethics - ------------------------------------ Aquila Three Peaks High Income Fund Aquila Rocky Mountain Equity Fund Capital Cash Management Trust Cash Assets Trust series, consisting of Pacific Capital Cash Assets Trust Pacific Capital Tax-Free Cash Assets Trust Pacific Capital U.S. Government Cash Assets Trust Churchill Cash Reserves Trust Churchill Tax-Free Trust Hawaiian Tax-Free Trust Narragansett Insured Tax-Free Income Fund Tax-Free Fund For Utah Tax-Free Fund of Colorado Tax-Free Trust of Arizona Tax-Free Trust of Oregon Exhibit B Persons Covered by this Code of Ethics - -------------------------------------- The following officers of each Fund, and the identities of such officers as of December 31, 2008: Chairman and/or Chairman Emeritus And Founder Lacy B. Herrmann Chair, Vice Chair and/or Trustee and/or President Diana P. Herrmann Chief Financial Officer and Treasurer Joseph P. DiMaggio -----END PRIVACY-ENHANCED MESSAGE-----