-----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, K4KzFzBqAL7E7O8A44GftMpc4It9aPdb6ZXccK2hV92mNsiasXd3qPwrTM4G0ZHx jyGhenwF8GKeK5ccYXw4Kw== 0000872032-97-000006.txt : 19970912 0000872032-97-000006.hdr.sgml : 19970912 ACCESSION NUMBER: 0000872032-97-000006 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970908 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAX FREE FUND FOR UTAH CENTRAL INDEX KEY: 0000872032 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06239 FILM NUMBER: 97676403 BUSINESS ADDRESS: STREET 1: 380 MADISON AVE STREET 2: SUITE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126976666 MAIL ADDRESS: STREET 2: 380 MADISON AVE SUITE CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: PLEIADES TAX FREE FUND DATE OF NAME CHANGE: 19920514 N-30D 1 INVESTMENT ADVISER FIRST SECURITY INVESTMENT MANAGEMENT, INC. 61 South Main Street Salt Lake City, Utah 84111 ADMINISTRATOR AND FOUNDER AQUILA MANAGEMENT CORPORATION 380 Madison Avenue, Suite 2300 New York, New York 10017 BOARD OF TRUSTEES Lacy B. Herrmann, Chairman Philip E. Albrecht Gary C. Cornia William L. Ensign D. George Harris Anne J. Mills R. Thayne Robson OFFICERS Lacy B. Herrmann, President Jerry G. McGrew, Vice President Kimball L. Young, Vice President Rose F. Marotta, Chief Financial Officer Richard F. West, Treasurer Edward M.W. Hines, Secretary DISTRIBUTOR AQUILA DISTRIBUTORS, INC. 380 Madison Avenue, Suite 2300 New York, New York 10017 CUSTODIAN BANK ONE TRUST COMPANY, N.A. 100 East Broad Street Columbus, Ohio 43271 TRANSFER AND SHAREHOLDER SERVICING AGENT ADMINISTRATIVE DATA MANAGEMENT CORP. 581 Main Street Woodbridge, New Jersey 07095-1198 INDEPENDENT AUDITORS KPMG PEAT MARWICK LLP 345 Park Avenue New York, New York 10154 Further information is contained in the Prospectus, which must precede or accompany this report. ANNUAL REPORT JUNE 30, 1997 AQUILA [Logo of Aquila Group of Funds: an eagle's head] TAX-FREE FUND FOR UTAH A TAX-FREE INCOME INVESTMENT [Logo of Tax-Free Fund For Utah: a rectangle containing dessert boulders with a sun rising behind it] ONE OF THE AQUILAsm GROUP OF FUNDS [Logo of Tax-Free Fund For Utah: a rectangle containing dessert boulders with a sun rising behind it] TAX-FREE FUND FOR UTAH ANNUAL REPORT "INCREASED SAFETY IN NUMBERS" August 15, 1997 Dear Investor: A childhood lesson that is often imparted generation after generation is "don't wander off by yourself - stick with the crowd." The underlying premise is that there is "safety in numbers." The idea of increased safety in numbers is also very appropriate when discussing municipal bond funds. In fact, one of the most significant benefits gained by owning shares of a municipal bond mutual fund is that of "numbers." Participating in the ownership of many different issues through such a fund is generally less risky than purchasing individual issues. Instead of having your money ride on a handful of securities, you can spread the risk over a larger number of issues. And, you have the advantage of a skilled and knowledgeable portfolio manager selecting and continuously monitoring each security in the portfolio. But, how does the manager decide which security to purchase? After all, you need to know the crowd with whom you're about to associate. Being with a large unruly group could be far worse than being alone. KNOWING THE TERRITORY Shareholders of Tax-Free Fund For Utah have the added advantage of having a locally-based portfolio manager. First Security Investment Management, Inc., located in Salt Lake City, is well aware of the issues facing the state as a whole, as well as the nuances of many of the cities and counties. FINDING THE RIGHT MIX Unfortunately, there is no foolproof test to follow when considering an issue for purchase. Security selection is really more art than science. A portfolio manager needs to look for a security which meets certain specific criteria and which fits in with the overall mix of the portfolio and the Fund's investment objective. Among other things, First Security Investment Management, Inc. carefully examines a security's yield, quality, maturity, and whether or not its inclusion in the portfolio enhances overall diversification. Keeping in mind the Fund's objective of providing as high a level of current income as is consistent with preservation of capital, let's take a look at each of these areas. QUALITY As you know, the Fund limits its investments to only those securities in the top four credit ratings or equivalent. We have adopted this policy since we have found from experience that high quality is best in the long run. Of course, it is true that securities which possess a lower credit rating generally produce a higher yield, since investors require compensation for the additional potential risk. However, purchasing solely for yield can cause feelings of unease for a risk adverse investor. Consequently, Tax-Free Fund For Utah looks for high quality securities which should produce relatively good yields. Currently, 97.6% of the investment portfolio is in the top three credit ratings - AAA, AA, AND A. Such high quality helps preserve shareholders' capital and promote stability. MATURITY The key here is to assemble a blend of maturities which offers a reasonable level of DOUBLE TAX-FREE* return yet still avoids the problem of excessive market price volatility. As you probably are aware, short-term maturities tend to have very little price fluctuation, but generally produce a substantially lesser rate of return than longer maturity securities. Conversely, long-term maturities usually produce a higher return level, but have a much higher price volatility factor than shorter-term issues since they reflect the risks associated with potential interest rate changes over the extended life of the municipal bond. By creating a blend of maturities, the Fund attempts to provide you with a satisfactory level of return without subjecting the share price to excessive swings as interest rates move up and down. The Fund utilizes a spread of maturities for the portfolio which centers upon the relatively intermediate term average maturity of 13.8 years. In constructing the portfolio, maturities of securities in the Fund range from one year and under to over 20 years in length. However, in order to achieve a reasonably high level of stability for the Fund's share value, in good markets and bad and in up and down interest rate environments, the focus has been to keep the average of maturities relatively limited in term. DIVERSIFICATION Having a breadth of participation in the portfolio helps to spread risk and protect against any significant loss of principal in the event of unforseen problems with any particular security. Although Tax-Free Fund For Utah is classified a "non-diversified" fund under the Investment Company Act of 1940, the Fund does attempt to vary its portfolio in several ways. First, there is the use of a number of issues. At June 30, 1997, over 60 issues made up the Fund's portfolio, with no one issue representing more than 4% of the Fund's net assets. Next, there is investment among different types of municipal projects - universities, basic services, utilities, health care, pollution control, etc. - so that there is no undue concentration in any one type of municipal project. And, finally, there is variety achieved through geographic representation throughout various cities, counties, and communities within Utah. Such portfolio mixture by number of issues, by geographic distribution, and by variety of projects lends itself to a further high level of preservation and stability for your investment in the Fund. HOW IS OUR "GROUP" DOING? As you have seen, selecting investments for the Fund's portfolio is really a balancing act. On one side, you have yield and, on the other, you have risk. The Fund strives to construct a portfolio which keeps these two opposing forces on an even keel - accepting a reasonable level of risk to achieve a satisfactory return. As mentioned, the Fund strives to provide shareholders with as high a level of DOUBLE TAX-FREE income as practicable, commensurate with the degree of capital preservation we strive to achieve. Is our security selection process working well for us? We believe it is. RATE OF RETURN From July 1, 1996 through June 30, 1997, the Fund distributed to shareholders a DOUBLE TAX-FREE income return, as measured against the maximum public offering price, at the annualized rate of approximately 5.20%**. One would have to earn an annualized taxable return of 7.71% at the 28% tax bracket and the even higher return of 9.17% at the 39.6% tax bracket in order to match the Fund's DOUBLE TAX-FREE rate. In general, it would not have been possible for an investor to obtain such levels of taxable return unless additional risk was taken in the form of lesser quality and/or longer maturity securities. COMMITMENT TO CONSISTENCY Management is committed to providing shareholders with as consistent investment and overall performance results from Tax-Free Fund For Utah as are possible to achieve, considering prevailing market forces. You should be aware, however, that although there is indeed increased safety in numbers, we are not able to eliminate the fluctuations from market forces that swirl around us on a continuing basis. However, as indicated, a number of investment management techniques are used by the Fund to create a mix of securities which will help moderate these forces. OUR PLEDGE TO YOU All associated with Tax-Free Fund For Utah pledge to you our continued diligence in the operation of the Fund for your benefit. Your confidence in the Tax-Free Fund For Utah is most valued and appreciated. Sincerely, /s/ Lacy B. Herrmann Lacy B. Herrmann President and Chairman of the Board of Trustees * A portion of dividend income may be subject to Federal and state taxes. ** The performance shown represents that of Class A shares. Such performance data quoted represents past performance and is not indicative of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The Fund's average annual total return as of 6/30/97 for the past one-year period was 3.37%; and since inception was 5.66%. Returns would be less if full management fees were applied. As of 6/30/97, the Fund's 30-day SEC yield was 4.90%. MANAGEMENT DISCUSSION OF FUND PERFORMANCE The graph below illustrates the value of $10,000 invested in Class A Shares of Tax-Free Fund For Utah at inception of the Fund in July, 1992 and maintaining this investment through the Fund's latest fiscal year end, June 30, 1997, as compared with a hypothetical similar size investment in the Lehman Brothers Municipal Bond Index (the "Index") of municipal securities and the Consumer Price Index (a cost of living index), over that same period. The total return of the investment in the Fund is shown after deduction of the maximum sales charge of 4% at the time of initial investment. It also reflects deduction of the Fund's annual operating expenses and reinvestment of monthly dividends and capital gains distributions without sales charge. On the other hand, the Index does not reflect any sales charge nor operating expenses but does reflect reinvestment of interest. The performance of the Fund's other classes, first offered on May 21, 1996, may be greater or less than the Class A shares performance indicated on the graph, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in the other classes. It should also be specifically noted that the Index is nationally oriented and consisted, over the period covered by the graph, of an unmanaged mix of between 12,000 to 36,000 investment-grade long-term municipal securities of issuers throughout the United States. However, the Fund's investment portfolio consisted of a significantly lesser number of investment-grade tax-free municipal obligations, principally of Utah issuers, over the same period. The maturities, market prices, and behavior of the individual securities in the Fund's investment portfolio can be affected by local and regional factors which might well result in variances from the market action of the securities in the Index. Consequently, much of the difference in performance of the Index versus the Fund can be attributed to the lack of application of annual operating expenses and initial sales charge to the Index. Additionally, a portion of the difference in performance can be attributed to the different characteristics in the single-state market of the securities in the Fund's portfolio as compared with the national orientation of the securities in the Index. [Graphic of a line chart with the following information:] PERFORMANCE COMPARISON
Lehman Brothers Fund After Sales Cost of Municipal Bond Index Charge and Expenses Living Index 7/92 10000 9600 10000 12/92 10148 9782 10128 6/93 10869 10525 10270 12/93 11394 11008 10405 6/94 10891 10404 10533 12/94 10808 10300 10676 6/95 11851 11355 10846 12/95 12695 12234 10953 6/96 12638 12189 11145 12/96 13258 12772 11323 6/97 13684 13126 11401
[Table setup with the following information:] FUND'S AVERAGE ANNUAL TOTAL RETURN CAPTION> FOR THE PERIOD ENDED LIFE OF FUND JUNE 30, 1997 1 YEAR Since 7/24/92 INCLUDING SALES CHARGE AND EXPENSES 3.37% 5.66%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS Since its inception, the Fund has been managed to provide as stable a share value as possible consistent with producing a competitive income return to shareholders. It has not been managed for maximum total return, since one of the aims of management in structuring the portfolio of the Fund is to reduce fluctuations in the price of the Fund's shares resulting from changes in interest rates. As can be observed, however, the pattern of the Fund's results and that of the Index over the period since inception of the Fund track quite similarly, even though they are not entirely comparable in character. PORTFOLIO MANAGER'S ANALYSIS FISCAL 1997 REVIEW For the latest fiscal year - July 1, 1996 through June 30, 1997 - interest rate fluctuations were relatively minor. The benchmark 30-year U.S. Treasury yield began the period at 6.90% and ended at 6.78%. Economic growth in the United States was strong throughout the year, but the forces of inflation remained quite tame. The Federal Reserve did hike short-term interest rates in early 1997 by 0.25% in response to strong growth in the fourth quarter of 1996. However, fears of future rate hikes have dissipated as the economy has grown in a controlled fashion. The net asset value of the shares of the Fund fluctuated in a narrow range of $9.57 to $10.02 throughout the year, closing on June 30, 1997 at $9.94. The average 30-day yield remained above 5% throughout the year, providing an attractive double tax-exempt yield to investors when compared to taxable returns. FISCAL 1998 STRATEGY While values in municipal bonds were relatively stable throughout the past year, the stock market returns exploded upward, with the Standard & Poor's 500 Stock Index gaining over 32% for the 12-month period. The huge inflows to the stock market caused demand for municipal bonds by investors to remain relatively weak. During this period of weakness in demand for fixed income investments, a subtle, yet startling, decrease in bond supply occurred. Through June, 1997, the year-to-date issuance of tax-exempt issuance throughout the country was down 2.5%. However, some states have experienced an even more substantial reduction in net new supply due to favorable tax inflows into municipalities. The leading state reducing its net new issuance was Connecticut with a 48.6% decline in new paper, as measured on a year-over-year basis. Utah experienced the next largest decline in municipal security issuance, with a 44.1% fall off. This means that existing bonds in Utah will become much more attractive to investors when demand for municipal securities picks up again. Looking forward, we anticipate renewed interest in municipal bonds. Some specific reasons include: A REFOCUS ON ASSET ALLOCATION. Individual investors, in general, have allowed the fixed income component of their total asset mix to decline as the equity portion increased due to the rise of stock prices. We anticipate that significant gains in the stock market are behind us and that the relative attractiveness of bonds will increase as investors again focus on the merits of having a better balance between equity and debt investments in their individual portfolios. SUPPLY/DEMAND ISSUES. As discussed above, with falling supply, any increase in demand for municipal bonds will bid up the price of bonds, enhancing the total return enjoyed by present owners, including the Fund's shareholders. LOW INFLATION. With reported inflation running at less than a 2% rate, the real return on investments in bonds is near all-time highs. The Utah economy should continue its tenth straight year of strong performance. However, the growth rate may well subside from 6% to 4% this year. It is worth noting that Utah should still be among the top five states in the United States in terms of its rate of growth. Moreover, Utah's growth rate should remain positive and steady over the next several years as the result of expenditures for roads, hotels and infrastructure to prepare for the 2002 Olympics and other favorable business factors in the state. KPMG PEAT MARWICK LLP Certified Public Accountants INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders of Tax-Free Fund For Utah: We have audited the accompanying statement of assets and liabilities of Tax-Free Fund For Utah, including the statement of investments, as of June 30, 1997, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the four-year period then ended and for the period July 24, 1992 (commencement of operations) to June 30, 1993. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1997, 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 For Utah as of June 30, 1997, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the four-year period then ended and for the period July 24, 1992 (commencement of operations) to June 30, 1993 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP New York, New York August 8, 1997 TAX-FREE FUND FOR UTAH STATEMENT OF INVESTMENTS JUNE 30, 1997
RATING FACE MOODY'S/ AMOUNT GENERAL OBLIGATION BONDS (32.9%) S&P VALUE City and County General Obligation Bonds (4.8%) $ 125,000 Blanding City, Utah, San Juan County, Natural Gas Project G.O., Series 1994, 5.800%, 07/15/13 Baa/NR $ 126,250 290,000 Central Utah Water Conservancy District, Limited Tax G.O., Series 1993, MBIA Insured, 5.100%, 04/01/07 Aaa/AAA 291,812 235,000 Salt Lake County, Utah Service Area G.O., 5.350%, 12/15/06 A/NR 240,288 100,000 Salt Lake County, Utah G.O., 6.375%, 06/15/11 Aaa/NR 105,625 290,000 Sandy City, Utah Refunding Public Building G.O., 6.700%, 12/15/10 Aa/NR 314,650 300,000 Weber County, Utah Unlimited Tax G.O., FGIC Insured, 5.625%, 1/15/11 Aaa/AAA 306,000 1,384,625 School District General Obligation Bonds (27.6%) 535,000 Beaver County, Utah School District G.O., Series 1994, AMBAC Insured, 5.200%, 12/15/12 Aaa/AAA 528,981 510,000 Cache County, Utah School District G.O., Series A, AMBAC Insured, 5.750%, 06/15/08 Aaa/AAA 531,675 700,000 Cache County, Utah School District G.O., Series A, AMBAC Insured, 5.80%, 06/15/09 Aaa/AAA 728,000 1,000,000 Cache County, Utah School District G.O., Series A, AMBAC Insured, 5.900%, 06/15/13 Aaa/AAA 1,031,251 595,000 Carbon County, Utah School District G.O., Series 1993, MBIA Insured, 5.450%, 06/15/10 Aaa/AAA 602,438 1,000,000 Davis County, Utah School District G.O., MBIA Insured, 5.850%, 06/01/09 Aaa/AAA 1,048,750 500,000 Jordan, Utah School District G.O., 5.900%, 06/15/04 Aa3/NR 530,000 665,000 Jordan, Utah School District G.O., 6.000%, 06/15/05 Aa3/NR 709,887 235,000 Jordan, Utah School District G.O., 6.100%, 06/15/07 Aa3/NR 250,862 1,000,000 Nebo County, Utah School District G.O, FGIC Insured, 5.750%, 06/15/11 Aaa/AAA 1,030,000 770,000 Nebo County, Utah School District , FGIC Insured, 6.00%, 06/15/18 Aaa/AAA 791,175 250,000 Washington County, Utah School District G.O, FGIC Insured, 5.000%, 09/01/06 Aaa/AAA 251,875 8,034,894 Recreational Facilities General Obligation Bonds (.5%) 150,000 West Bountiful City, Utah Golf Course G.O, 6.350%, 09/01/13 Baa/NR 157,312 Total General Obligation Bonds 9,576,831 REVENUE BONDS (66.2%) Education Revenue Bonds (6.4%) 200,000 University of Utah Revenue Refunding, (Biology Research Facilities), MBIA Insured, 5.500%, 04/01/11 Aaa/AAA 204,500 190,000 Utah State Board of Regents, Salt Lake Community College, AMBAC Insured, 6.000%, 06/01/05 Aaa/AAA 200,925 300,000 Utah State Board of Regents, Student Loan, Series C, 5.450%, 05/01/05 Aaa/NR 306,375 500,000 Utah State Board of Regents, Utah State University Revenue Refunding Student Building Fees, Series 1994B, MBIA Insured, 5.750%, 12/01/07 Aaa/AAA 523,125 300,000 Utah State University Agricultural Education Facilities, MBIA Insured, 6.150%, 12/01/14 Aaa/AAA 314,625 300,000 Weber County, Utah School District, MBIA Insured, 6.000%, 06/15/07 Aaa/AAA 315,000 1,864,550 Hospital Revenue Bonds (2.1%) 250,000 Murray City, Utah Hospital Revenue, Intermountain Health Care, AMBAC Insured, 5.200%, 05/15/08 Aaa/AAA 250,938 250,000 Salt Lake City, Utah Hospital Revenue, Intermountain Health Care, 8.000%, 05/15/07 NR/AAA 263,092 100,000 Utah State Municipal Finance Corp., University of Utah Hospital, 6.750%, 05/15/04 NR/AA- 107,625 621,655 Industrial Development Revenue Bonds (1.3%) 120,000 Salt Lake County, Utah Industrial Development, Plaza 5400, 6.200%, 09/01/12 NR/AAA 123,900 250,000 Sandy City, Utah Industrial Development, H Shirl Wright Project, 6.125%, 08/01/16 NR/AAA 257,188 381,088 Lease Revenue Bonds (19.2%) 600,000 Layton City, Utah Municipal Building Authority, MBIA Insured, 5.700%, 08/15/08 Aaa/AAA 618,000 200,000 Ogden City, Utah Municipal Building Authority, Series 1992, 6.800%, 12/15/08 NR/NR* 209,250 200,000 Ogden City, Utah Municipal Building Authority, Series 1992, 7.000%, 12/15/12 NR/NR* 207,750 600,000 Salt Lake City, Utah Municipal Building Authority, Series 1993A, 5.750%, 10/15/08 A1/A+ 619,500 1,000,000 Salt Lake City, Utah Municipal Building Authority, 6.000%, 10/15/14 A1/A+ 1,022,500 1,000,000 Salt Lake County, Utah Municipal Building Authority, Series 1994A, MBIA Insured 6.050%, 10/01/08 Aaa/AAA 1,063,751 475,000 Utah Municipal Building Authority, Logan Municipal Building, Series 1993, 5.900%, 04/01/11 A/NR 483,906 685,000 Utah State Building Ownership Authority, Series A, 5.750%, 08/15/07 Aa/AA 703,838 350,000 Utah State Building Ownership Authority, 5.750%, 08/15/08 Aa/AA 358,750 315,000 West Valley City, Utah Municipal Building Authority, Series 1993, MBIA Insured 6.000%, 01/15/10 Aaa/AAA 327,206 5,614,451 Mortgage Revenue Bonds (6.4%) 255,000 Utah State Housing Finance Agency, Single Family Housing Mortgage Revenue, Series E-1, 5.850%, 07/01/13 Aa/NR 258,506 190,000 Utah State Housing Finance Agency, Single Family Housing Mortgage Revenue, Series 1994B, 6.200%, 07/01/06 A1/A+ 198,550 875,000 Utah State Housing Finance Agency, Single Family Housing Mortgage Revenue, Series E-1, 6.600%, 07/01/11 NR/AA 916,562 475,000 Utah State Housing Finance Agency, Single Family Housing Mortgage Revenue, Series 1994C, 6.350%, 07/01/11 Aa/NR 495,188 1,868,806 Pollution Control Revenue Bonds (1.3%) 350,000 Box Elder County Pollution Control Revenue, Nucor Corporation Project, 6.900%, 05/15/17 NR/AA- 378,875 Transportation Revenue Bonds (4.1%) 875,000 Salt Lake City, Utah Airport Revenue, FGIC Insured, Series B, 5.875%, 12/01/12 Aaa/AAA 903,437 285,000 Salt Lake City, Utah Airport Revenue, FGIC Insured, Series B, 5.875%, 12/01/18 Aaa/AAA 289,988 1,193,425 Water and Sewer Revenue Bonds (12.2%) 270,000 St. George, Utah Sewer Revenue, AMBAC Insured, 5.500%, 06/15/07 Aaa/AAA 276,750 300,000 St. George, Utah Water Revenue, FGIC Insured, 5.375%, 06/01/16 Aaa/AAA 291,000 500,000 Salt Lake City, Utah Water And Sewer Revenue, AMBAC Insured 5.750%, 02/01/13 Aaa/AAA 507,500 525,000 Salt Lake County, Utah Water & Sewer Revenue AMBAC Insured, 6.00%, 02/01/10 Aaa/AAA 548,625 300,000 Salt Lake County, Utah Water & Sewer Revenue AMBAC Insured, 5.100%, 10/01/08 Aaa/AAA 299,625 290,000 Salt Lake County Utah Conservancy District Revenue, Series A, AMBAC Insured, 5.350%, 10/01/18 Aaa/AAA 276,587 800,000 Timpanogos, Utah Water & Sewer Revenue, Series A, AMBAC Insured, 6.000%, 06/01/16 Aaa/AAA 832,000 200,000 Timpanogos, Utah Water & Sewer Revenue, Series A, AMBAC Insured, 5.900%, 06/01/11 Aaa/AAA 209,750 300,000 White City Water Improvement District, Utah Water Revenue, AMBAC Insured, 5.90%, 02/01/22 NR/AAA 306,000 3,547,837 Utility Revenue Bonds (13.2%) 500,000 Provo City, Utah Energy Systems Revenue, MBIA Insured, Series 1993A, 5.600%, 11/15/07 Aaa/AAA 520,000 790,000 Utah Association Municipal Power Systems Revenue, 5.250%, 12/01/09 NR/A- 782,100 350,000 Utah Association Municipal Power Systems Revenue, AMBAC Insured, 5.500%, 12/01/13 Aaa/AAA 348,250 695,000 Utah State Municipal Power Agency, Electric Systems Revenue, FGIC Insured, 5.500%, 07/01/10 Aaa/AAA 711,506 650,000 Utah State Municipal Power Agency, Electric Systems Revenue, FGIC Insured, 5.500%, 07/01/11 Aaa/AAA 663,000 875,000 Utah State Municipal Power Agency, Electric Systems Revenue, FGIC Insured, 5.250%, 07/01/18 Aaa/AAA 823,594 3,848,450 Total Revenue Bonds 19,319,137 Total Investments (cost $28,050,077**) 99.1% 28,895,968 Other assets in excess of liabilities 0.9 256,376 Net Assets 100.0% $29,152,344 * Any security not rated has been determined by the Investment Adviser to have sufficient quality to be ranked in the top four ratings if a credit rating were to be assigned by a rating service. ** Cost for Federal tax purposes is identical.
See accompanying notes to financial statements. TAX-FREE FUND FOR UTAH STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 ASSETS Investments at value (identified cost - $28,050,077) $ 28,895,968 Interest receivable 338,400 Due from Administrator for reimbursement of expenses (note 3) 132,607 Receivable for Fund shares sold 18,263 Total assets 29,385,238 LIABILITIES Cash overdraft 172,680 Distribution fees payable 14,683 Dividends payable 13,038 Adviser and Administrator fees payable 3,147 Accrued expenses 29,346 Total liabilities 232,894 NET ASSETS 29,152,344 Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $.01 per share $ 29,316 Additional paid-in capital 28,799,021 Accumulated net loss on investments (521,884) Net unrealized appreciation on investments 845,891 $ 29,152,344 CLASS A Net Assets $ 29,070,500 Capital shares outstanding 2,923,377 Net asset value and redemption price per share $ 9.94 Offering price per share (100/96 of $9.94 adjusted to nearest cent) $ 10.35 CLASS C Net Assets $ 40,997 Capital shares outstanding 4,123 Net asset value and offering price per share $ 9.94 Redemption price per share (*varies by length of time shares are held) $ * CLASS Y Net Assets $ 40,847 Capital shares outstanding 4,105 Net asset value, offering and redemption price per share $ 9.94
See accompanying notes to financial statements. TAX-FREE FUND FOR UTAH STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997 INVESTMENT INCOME: Interest income $ 1,643,817 Expenses: Investment Adviser fees (note 3) $ 67,588 Administrator fees (note 3) 79,323 Distribution and service fees (note 3) 58,865 Transfer and shareholder servicing agent fees 39,654 Shareholders' reports and proxy statements 34,363 Legal fees 30,374 Trustees' fees and expenses (note 8) 25,174 Audit and accounting fees 20,293 Custodian fees (note 7) 6,639 Registration fees and dues 6,072 Insurance 533 Miscellaneous 21,751 390,629 Investment Adviser fees waived (note 3) (49,962) Administrator fees waived (note 3) (58,760) Reimbursement of expenses by Administrator (note 3) (199,119) Expenses paid indirectly (note 7) (3,311) Net expenses 79,477 Net investment income 1,564,340 REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain from securities transactions 870 Change in unrealized appreciation on investments 636,155 Net realized and unrealized gain on investments 637,025 Net increase in net assets resulting from operations $ 2,201,365
See accompanying notes to financial statements. TAX-FREE FUND FOR UTAH STATEMENTS OF CHANGES IN NET ASSETS
Year Ended June 30, 1997 1996 OPERATIONS: Net investment income $ 1,564,340 $ 1,565,842 Net realized gain (loss) from securities transactions 870 (46,905) Change in unrealized appreciation on investments 636,155 442,737 Change in net assets from operations 2,201,365 1,961,674 DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6): Class A Shares: Net investment income (1,580,556) (1,565,842) Distributions in excess of net investment income - - Net realized gain on investments - - Class C Shares: Net investment income (670) - Distributions in excess of net investment income - - Net realized gain on investments - - Class Y Shares: Net investment income (425) - Distributions in excess of net investment income - - Net realized gain on investments - - Change in net assets from distributions (1,581,651) (1,565,842) CAPITAL SHARE TRANSACTIONS (NOTE 9): Proceeds from shares sold 3,500,104 3,729,976 Reinvested dividends and distributions 927,229 887,407 Cost of shares redeemed (4,775,558) (3,668,372) Change in net assets from capital share transactions (348,225) 949,011 Change in net assets 271,489 1,344,843 NET ASSETS: Beginning of period 28,880,855 27,536,012 End of period $ 29,152,344 $ 28,880,855
See accompanying notes to financial statements. TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION Tax-Free Fund For Utah (the "Fund"), a non-diversified, open-end investment company, was organized on December 12, 1990 as a Massachusetts business trust and commenced operations on July 24, 1992. The Fund is authorized to issue an unlimited number of shares and, since its inception to May 21, 1996, offered only one class of shares. On that date, the Fund began offering two additional classes of shares, Class C and Class Y shares. All shares outstanding prior to that date were designated as Class A shares and, as was the case since inception, are sold with a front-payment sales charge and bear an annual service fee. Class C shares are sold with a level-payment sales charge with no payment at time of purchase but level service and distribution fees from date of purchase through a period of six years thereafter. A contingent deferred sales charge of 1% is assessed to any Class C shareholder who redeems shares of this Class within one year from the date of purchase. The Class Y shares are only offered to institutions acting for an investor in a fiduciary, advisory, agency, custodian or similar capacity. They are not available to individual retail investors. Class Y shares are sold at net asset value without any sales charge, redemption fees, contingent deferred sales charge or distribution or service fees. All classes of shares represent interests in the same portfolio of investments in the Fund and are identical as to rights and privileges. They differ only with respect to the effect of sales charges, the distribution and/or service fees borne by the respective class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities of more than 60 days are valued each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services; in the case of securities for which market quotations are readily available, securities are valued at the mean of bid and asked quotations and, in the case of other securities, at fair value determined under procedures established by and under the general supervision of the Board of Trustees. Securities which mature in 60 days or less are valued at amortized cost if their term to maturity at purchase was 60 days or less, or by amortizing their unrealized appreciation or depreciation on the 61st day prior to maturity, if their term to maturity at purchase exceeded 60 days. In Fiscal 1997, the Fund began amortizing bond premium using the constant yield method. Accordingly, net unrealized appreciation and additional paid-in capital have been adjusted by equal amounts at the beginning of the year. This change had no effect on the Fund's net asset value or distribution policy and conforms to the amortization policy followed by the Fund for Federal tax purposes. b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue discount. Market discount is recognized upon disposition of the security. c) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Fund intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are charged directly to such class. e) USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 3. FEES AND RELATED PARTY TRANSACTIONS a) MANAGEMENT ARRANGEMENTS: Management affairs of the Fund are conducted through two separate management arrangements. First Security Investment Management, Inc. (the "Adviser"), serves as Investment Adviser to the Fund. In this role, under an Investment Advisory Agreement, the Adviser supervises the Fund's investments and provides various services to the Fund for which it is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.23 of 1% of the net assets of the Fund. The Fund also has an Administration Agreement with Aquila Management Corporation (the "Administrator"), the Fund's founder and sponsor. Under this Agreement, the Administrator provides all administrative services, other than those relating to the management of the Fund's investments. These include providing the office of the Fund and all related services as well as overseeing the activities of all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor and additionally maintaining the Fund's accounting books and records. For its services, the Administrator is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.27 of 1% of the net assets of the Fund. Specific details as to the nature and extent of the services provided by the Adviser and the Administrator are more fully defined in the Fund's Prospectus and Statement of Additional Information. The Adviser and the Administrator each agrees that the above fees shall be reduced, but not below zero, by an amount equal to its pro-rata portion (determined on the basis of the respective fees computed as described above) of the amount, if any, by which the total expenses of the Fund in any fiscal year, exclusive of taxes, interest and brokerage fees, shall exceed the lesser of (i) 2.5% of the first $30 million of average annual net assets of the Fund plus 2% of the next $70 million of such assets and 1.5% of its average annual net assets in excess of $100 million, or (ii) 25% of the Fund's total annual investment income. No such reduction in fees was required during the year ended June 30, 1997. For the year ended June 30, 1997, the Fund incurred fees under the Advisory Agreement and Administration Agreement of $67,588 and $79,323 respectively, of which amounts the Adviser and Administrator waived $49,962 and $58,760, respectively. Additionally, the Administrator voluntarily agreed to reimburse the Fund for other expenses during this period in the amount of $199,119. Of this amount, $66,512 was paid prior to June 30, 1997 and the balance of $132,607 was paid in July and early August 1997. b) DISTRIBUTION AND SERVICE FEES: The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Fund is authorized to make service fee payments to broker-dealers or others ("Qualified Recipients") selected by the Distributor, including, but not limited to, any principal underwriter of the Fund, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Fund's shares or servicing of shareholder accounts. The Fund makes payment of this service fee at the annual rate of 0.20% of the Fund's average net assets represented by Class A Shares. For the year ended June 30, 1997, service fees on Class A Shares amounted to $58,706, of which the Distributor received $1,749. Under another part of the Plan, the Fund is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Fund's Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Fund's net assets represented by Class C Shares and for the year ended June 30, 1997, amounted to $119, of which the Distributor received $119. In addition, under a Shareholder Services Plan, the Fund is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Fund's net assets represented by Class C Shares and for the year ended June 30, 1997, amounted to $40, of which the Distributor received $40. Specific details about the Plans are more fully defined in the Fund's Prospectus and Statement of Additional Information. Under a Distribution Agreement, Aquila Distributors, Inc. (the "Distributor") serves as the exclusive distributor of the Fund's shares. Through agreements between the Distributor and various broker-dealer firms ("dealers"), the Fund's shares are sold primarily through the facilities of these dealers having offices within Utah, with the bulk of sales commissions inuring to such dealers. For the year ended June 30, 1997, the Distributor received sales commissions in the amount of $1,637. 4. PURCHASES AND SALES OF SECURITIES During the year ended June 30, 1997, purchases of securities and proceeds from the sales of securities aggregated $1,470,576 and $1,468,804, respectively. At June 30, 1997, aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost amounted to $915,744 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $69,853, for a net unrealized appreciation of $845,891. At June 30, 1997, the Fund had a capital loss carryover of $521,884, which is available to offset future net realized gains on securities transactions to the extent provided for in the Internal Revenue Code. Of this amount, $394,329 expires on June 30, 2003; $114,226 expires on June 30, 2004; and $13,329 expires on June 30, 2005. 5. PORTFOLIO ORIENTATION Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Utah, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Utah and whatever effects these may have upon Utah issuers' ability to meet their obligations. 6. DISTRIBUTIONS The Fund declares dividends daily from net investment income and makes payments monthly in additional shares at the net asset value per share or in cash, at the shareholder's option. Net realized capital gains, if any, are distributed annually. The Fund intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Utah income taxes. However, due to differences between financial reporting and Federal income tax reporting requirements, distributions made by the Fund may not be the same as the Fund's net investment income, and/or net realized securities gains. Further, a small portion of the dividends may, under some circumstances, be subject to ordinary income taxes. Also, annual capital gains distributions, if any, are taxable. 7. EXPENSES The Fund has negotiated an expense offset agreement with its custodian wherein it receives credit toward the reduction of custodian fees whenever there are uninvested cash balances. During the year ended June 30, 1997, the Fund's custodian fees amounted to $6,639, of which $3,311 was offset by such credits. It is the general intention of the Fund to invest, to the extent practicable, some or all of cash balances in income-producing assets rather than leave cash on deposit with the custodian. 8. TRUSTEES' FEES AND EXPENSES During the fiscal year there were seven Trustees. Trustees' fees paid during the year were at the average annual rate of $1,000 for carrying out their responsibilities and attendance at regularly scheduled Board Meetings. If additional or special meetings are scheduled for the Fund, separate meeting fees are paid for each such meeting to those Trustees in attendance. The Fund also reimburses Trustees for expenses such as travel, accommodations, and meals incurred in connection with attendance at regularly scheduled or special Board Meetings and at the Annual Meeting and outreach meetings of Shareholders. For the fiscal year ended June 30, 1997, such reimbursements averaged approximately $2,700 per Trustee. One of the Trustees, who is affiliated with the Administrator, is not paid any Trustee fees. 9. CAPITAL SHARE TRANSACTIONS Transactions in Capital Shares of the Fund were as follows:
Year Ended Year Ended June 30, 1997 June 30, 1996 Shares Amount Shares Amount CLASS A SHARES: Proceeds from shares sold 346,477 $ 3,420,264 379,526 $ 3,729,776 Reinvested distributions 94,031 926,736 90,296 887,407 Cost of shares redeemed (483,708) (4,775,559) (373,822) (3,668,372) Net change (43,200) (428,559) 96,000 948,811 Period Ended June 30, 1996* Shares Amount CLASS C SHARES: Proceeds from shares sold 4,061 39,841 10 100 Reinvested distributions 52 486 - - Cost of shares redeemed - - - - Net change 4,113 40,327 10 100 Period Ended June 30, 1996* Shares Amount CLASS Y SHARES: Proceeds from shares sold 4,094 40,000 10 100 Reinvested distributions 1 7 - - Cost of shares redeemed - - - - Net change 4,095 40,007 10 100 Total transactions in Fund shares (34,992) $ (348,225) 96,020 $ 949,011 * From May 21, 1996 (date of inception) through June 30, 1996.
TAX-FREE FUND FOR UTAH FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
Class A(1) Period(2) Year Ended June 30, Ended June 1997 1996 1995 1994 30, 1993 Net Asset Value, Beginning of Period $9.74 $9.59 $9.32 $10.00 $9.60 Income from Investment Operations: Net investment income 0.52 0.54 0.55 0.55 0.50 Net gain (loss) on securities (both realized and unrealized) 0.21 0.15 0.27 (0.65) 0.40 Total from Investment Operations 0.73 0.69 0.82 (0.10) 0.90 Less Distributions (note 6): Dividends from net investment income (0.53) (0.54) (0.55) (0.55) (0.50) Distributions from capital gains - - - (0.03) - Total Distributions (0.53) (0.54) (0.55) (0.58) (0.50) Net Asset Value, End of Period $9.94 $9.74 $9.59 $9.32 $10.00 Total Return (not reflecting sales charge) (%) 7.72 7.17 9.09 (1.09) 9.67# Ratios/Supplemental Data Net Assets, End of Period ($ thousands) 29,071 28,881 27,536 26,116 12,938 Ratio of Expenses to Average Net Assets (%) 0.27 0.19 0.08 0.03 0* Ratio of Net Investment Income to Average Net Assets (%) 5.45 5.49 5.85 5.58 5.64* Portfolio Turnover Rate (%) 5.09 11.15 22.92 27.53 36.52# Net investment income per share and the ratios of income and expenses to average net assets without the Adviser's and Administrator's voluntary waiver of fees, the Administrator's voluntary expense reimbursement and the expense offset in custodian fees for uninvested cash balances would have been: Net Investment Income ($) 0.42 0.43 0.43 0.40 0.27 Ratio of Expenses to Average Net Assets (%) 1.33 1.30 1.30 1.60 2.67* Ratio of Net Investment Income to Average Net Assets (%) 4.39 4.37 4.63 4.00 2.97* (1) Designated as Class A Shares on May 21, 1996. (2) From July 24, 1992 (commencement of operations) to June 30, 1993. # Not annualized * Annualized.
See accompanying notes to financial statements. For a share outstanding throughout each period
Class C(1) Class Y(1) Year Period(2) Year Period(2) Ended Ended Ended Ended June 30, June 30, June 30, June 30, 1997 1996 1997 1996 Net Asset Value, Beginning of Period $9.74 $9.77 $9.74 $9.77 Income from Investment Operations: Net investment income 0.44 0.05 0.61 0.06 Net gain (loss) on securities (both realized and unrealized) 0.21 (0.03) 0.21 (0.03) Total from Investment Operations 0.65 0.02 0.82 0.03 Less Distributions (note 6): Dividends from net investment income (0.45) (0.05) (0.62) (0.06) Distributions from capital gains - - - - Total Distributions (0.45) (0.05) (0.62) (0.06) Net Asset Value, End of Period $9.94 $9.74 $9.94 $9.74 Total Return (not reflecting sales charge) (%) 6.80 0.20# 8.69 0.29# Ratios/Supplemental Data Net Assets, End of Period ($ thousands) 41 0.1 41 0.1 Ratio of Expenses to Average Net Assets (%) 1.07 0.14# 0.07 0.03# Ratio of Net Investment Income to Average Net Assets (%) 4.65 0.50# 5.65 0.61# Portfolio Turnover Rate (%) 5.09 11.15 5.09 11.15 Net investment income per share and the ratios of income and expenses to average net assets without the Adviser's and Administrator's voluntary waiver of fees, the Administrator's voluntary expense reimbursement and the expense offset in custodian fees for uninvested cash balances would have been: Net Investment Income ($) 0.35 0.04 0.50 0.05 Ratio of Expenses to Average Net Assets (%) 2.13 0.23# 1.13 0.11# Ratio of Net Investment Income to Average Net Assets (%) 3.59 0.42# 4.59 0.53# (1) New Class of Shares established on May 21, 1996. (2) From May 21, 1996 to June 30, 1996. # Not annualized. * Annualized.
See accompanying notes to financial statements. REPORT ON THE ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED) The Annual Meeting of Shareholders of Tax-Free Fund For Utah (the "Fund") was held on September 27, 1996.* At the meeting, the following matters were submitted to a shareholder vote and approved: (i) the election of Lacy B. Herrmann, Philip E. Albrecht, Gary C. Cornia, William L. Ensign, D. George Harris, Anne J. Mills, and R. Thayne Robson as Trustees to hold office until the next annual meeting of the Fund's shareholders or until his or her successor is duly elected (each Trustee received at least 20,677,457.03 affirmative votes (98.28%); no more than 362,875.42 votes (1.72%) were withheld for any Trustee), and (ii) the ratification of the selection of KPMG Peat Marwick LLP as the Fund's independent auditors for the fiscal year ending June 30, 1997 (votes for: 20,509,926.19 (97.48%); votes against: 105,991.32 (0.50%); abstentions: 424,414.94 (2.02%); broker non-votes: 0 (0.00%)). ______________________________ * On the record date for this meeting, the holders of 2,964,994 Class A Shares, 10 Class C Shares and 10 Class Y Shares were outstanding and entitled to vote representing a total net asset value of $28,819,945.38. The holders of shares entitled to vote representing a total net asset value of $21,040,332.45 (73.01%) were present in person or by proxy at the meeting. FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED) This information is presented in order to comply with a requirement of the Internal Revenue Code AND NO CURRENT ACTION ON THE PART OF SHAREHOLDERS IS REQUIRED. For the fiscal year ended June 30, 1997, of the total amount of dividends paid by Tax-Free Fund For Utah, 97.89% was "exempt-interest dividends" and the balance was ordinary dividend income. Prior to January 31, 1997, shareholders were mailed IRS Form 1099-DIV which contained information on the status of distributions paid for the 1996 CALENDAR YEAR. -----END PRIVACY-ENHANCED MESSAGE-----