-----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, QVv9wpoTxM40SFMqjNSFIRoWNK4DuzviRcvux1RK55MQdpJ4FGDCpfE/OOZWeFo4 5Ark++IcK5UDFscT3GJv/g== 0000872032-98-000002.txt : 19980311 0000872032-98-000002.hdr.sgml : 19980311 ACCESSION NUMBER: 0000872032-98-000002 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980310 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-30B-2 SEC ACT: SEC FILE NUMBER: 811-06239 FILM NUMBER: 98560793 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-30B-2 1 INVESTMENT ADVISER, ADMINISTRATOR AND FOUNDER AQUILA MANAGEMENT CORPORATION 380 Madison Avenue, Suite 2300 New York, New York 10017 INVESTMENT SUB-ADVISER FIRST SECURITY INVESTMENT MANAGEMENT, INC. 61 South Main Street Salt Lake City, Utah 84111 BOARD OF TRUSTEES Lacy B. Herrmann, Chairman Philip E. Albrecht Gary C. Cornia William L. Ensign D. George Harris Diana P. Herrmann Anne J. Mills R. Thayne Robson OFFICERS Lacy B. Herrmann, President Jerry G. McGrew, Senior Vice President Kimball L. Young, Vice President Rose F. Marotta, Chief Financial Officer Richard F. West, Treasurer Edward M.W. Hines, Secretary DISTRIBUTOR AQUILA DISTRIBUTORS, INC. 380 Madison Avenue, Suite 2300 New York, New York 10017 CUSTODIAN BANK ONE TRUST COMPANY, N.A. 100 East Broad Street Columbus, Ohio 43271 TRANSFER AND SHAREHOLDER SERVICING AGENT PFPC INC. 400 Bellevue Parkway Wilmington, Delaware 19809 INDEPENDENT AUDITORS KPMG PEAT MARWICK LLP 345 Park Avenue New York, New York 10154 Further information is contained in the Prospectus, which must precede or accompany this report. SEMI-ANNUAL REPORT DECEMBER 31, 1997 AQUILA [Logo of Aquila Group of Funds: an eagle's head] TAX-FREE FUND FOR UTAH A tax-free income investment [Logo of Tax-Free Fund For Utah: a rectangle containing dessert boulders with a sun rising behind it] ONE OF THE AQUILASM GROUP OF FUNDS [Logo of Tax-Free Fund For Utah: a rectangle containing dessert boulders with a sun rising behind it] TAX-FREE FUND FOR UTAH SEMI-ANNUAL REPORT "QUALITY FOSTERS PEACE OF MIND" February 20, 1998 Dear Investor: Recently, there has been a lot of news about the Far East and the problems that a number of countries in that area are experiencing. These problems have included some failures of major financial corporations in Japan, South Korea, Indonesia, Hong Kong, and various other countries. Also, there have been major deterioration changes in the currencies of these countries as they relate to U.S. dollars. It is hard to believe the magnitude of recent currency depreciation that has taken place in various countries vs. the U.S. dollar. The currency deteriorations against the U.S. dollar have ranged from 10% to well over 70% with various countries around the world. While we may have some problems in our own country, these are very substantially less than those of other countries. What has occurred as a result of the problems of these countries is a flight to quality. In comparison to various economies and currencies of the Far East, as well as other countries in the world, the U.S. economy, securities markets and currency stand out as a beacon of quality. Quality has also been one of the trademarks of Tax-Free Fund For Utah from the inception of the fund. It has been our strong belief that you can sleep much better at night by having high quality issues in the fund in which you invest. Indeed, presently, the portfolio of Tax-Free Fund For Utah consists of 68.33% of tax-exempt securities having a AAA rating, and 22.16% of securities having a AA rating. Thus, 90.49% of the Fund's overall portfolio is rated as AA or AAA. These are the two highest quality securities you can possibly own. Just as important for you to know, in the portfolio management of the fund, separate credit analysis is done by the portfolio adviser to confirm that such top-quality assessment of the individual securities is justified. In other words, we do not merely rely upon the judgment of rating agencies, but rather independently verify the credit quality of each security. Why do we structure the portfolio this way? Primarily, so that you can feel comfortable with your investment in Tax-Free Fund For Utah in terms of knowing that that portion of your savings possesses a high level of capital preservation. PATTERN OF PRICING OF SHARE VALUE When you look at the pricing of share value of Tax-Free Fund For Utah, you will note that it presents a high level of share price consistency. This is in stark contrast to the currency deterioration and volatility of currency and securities markets that is taking place around the world. The chart below shows you that consistency for every year since the Fund began. [Graphic of bar chart with the following information:] SHARE NET ASSET VALUE In Dollars 7/31/92 9.60 12/31/92 9.57 6/30/93 10.00 12/31/93 10.14 6/30/94 9.32 12/31/94 8.95 6/30/95 9.59 12/31/95 10.05 6/30/96 9.67 12/31/96 9.92 6/30/97 9.94 12/31/97 10.22 OTHER STEPS TAKEN TO PROTECT YOUR MONEY As we have pointed out in previous reports to you, we have also consistently sought to diversify the holdings of municipal bonds in the portfolio so that no one segment could hurt the overall value of your money in the remote event a problem occurred. As a result, it is worth pointing out that the portfolio of securities presently consists of 58 issues spread over a variety of categories. This diversification is illustrated in the pie chart below. [Graphic of pie chart with the following information:] PORTFOLIO DISTRIBUTION BY PROJECT Industrial Development 1.35% Higher Education 5.55% Utilities 12.22% Water and Sewer 12.68% Pollution Control 1.27% Leases 19.73% Single Family Mortgages 5.69% Transportation 7.86% School Districts 28.41% Other 5.24% We also ensure that the maturity of the portfolio is spread out over various time periods, with the average portfolio maturity being 14 years, as is indicated in the pie chart below. [Graphic of pie chart with the following information:] PORTFOLIO DISTRIBUTION BY MATURITY (in Years) 0 - 10 12.93% 11 - 15 52.06% 16 - 20 Years 20.48% Over 20 Years 14.53% Altogether then, when you consider the quality, diversification, and maturity of the portfolio, what we have consistently tried to do for you is to provide you with the means by which you can have "PEACE OF MIND" with your investment in Tax-Free Fund For Utah. WORKING IN YOUR INTEREST You can be assured that all those associated with the management of your investment will consistently work in your investment interest. We very much value you as a shareholder and appreciate the confidence you have shown in Tax-Free Fund For Utah. Sincerely, /s/ Lacy B. Herrmann Lacy B. Herrmann President and Chairman of the Board of Trustees TAX-FREE FUND FOR UTAH STATEMENT OF INVESTMENTS DECEMBER 31, 1997 (UNAUDITED)
Rating Face Moody's/ Amount General Obligation Bonds (30.5%) S&P Value City and County General Obligation Bonds (3.6%) $ 125,000 Blanding City, Utah, San Juan County, Natural Gas Project G.O., Series 1994, 5.800% 07/15/13 Baa/NR $ 129,375 225,000 Provo City Utah Housing Authority Multi-Family Revenue, 5.800%, 07/20/22 Aaa/NR 231,750 290,000 Sandy City, Utah Refunding Public Building G.O., 6.700%, 12/15/10 Aa/NR 316,100 100,000 Salt Lake City, Utah G.O., 6.375%, 06/15/11 Aaa/NR 106,375 300,000 Weber County, Utah Unlimited Tax G.O., FGIC Insured, 5.625%, 1/15/11 Aaa/AAA 313,500 1,097,100 School District General Obligation Bonds (26.4%) 535,000 Beaver County, Utah School District G.O., Series 1994, AMBAC Insured, 5.200%, 12/15/12 Aaa/AAA 547,038 510,000 Cache County, Utah School District G.O., Series A, AMBAC Insured, 5.750%, 06/15/08 Aaa/AAA 543,150 700,000 Cache County, Utah School District G.O., Series A, AMBAC Insured, 5.80%, 06/15/09 Aaa/AAA 743,750 1,000,000 Cache County, Utah School District G.O., Series A, AMBAC Insured, 5.900%, 06/15/13 Aaa/AAA 1,055,000 595,000 Carbon County, Utah School District G.O., Series 1993, MBIA Insured, 5.450%, 06/15/10 Aaa/AAA 616,569 1,000,000 Davis County, Utah School District G.O., MBIA Insured, 5.850%, 06/01/09 Aaa/AAA 1,076,250 500,000 Jordan, Utah School District G.O., 5.900%, 06/15/04 Aa/NR 538,750 665,000 Jordan, Utah School District G.O., 6.000%, 06/15/05 Aa3/NR 721,525 235,000 Jordan, Utah School District G.O., 6.100%, 06/15/07 Aa3/NR 254,387 1,000,000 Nebo County, Utah School District G.O, FGIC Insured, 5.750%, 06/15/11 Aaa/AAA 1,057,500 770,000 Nebo County, Utah School District , FGIC Insured, 6.00%, 06/15/18 Aaa/AAA 827,750 7,981,669 Recreational Facilities General Obligation Bonds (.5%) 150,000 West Bountiful City, Utah Golf Course G.O, 6.350%, 09/01/13 Baa/NR 161,062 Total General Obligation Bonds 9,239,831 REVENUE BONDS (65.5%) Education Revenue Bonds (6.4%) 275,000 Salt Lake County Utah, Westminster College Revenue 5.700%, 10/01/17 Aaa/AAA 282,562 250,000 Salt Lake County Utah, Westminster College Revenue Aaa/AAA 257,500 200,000 University of Utah Revenue Refunding, (Biology Research Facilities), MBIA Insured, 5.500%, 04/01/11 Aaa/AAA 211,250 500,000 Utah State Board of Regents, Utah State University Revenue Refunding Student Building Fees, Series 1994B, MBIA Insured, 5.750%, 12/01/07 Aaa/AAA 538,125 300,000 Utah State University Agricultural Education Facilities, MBIA Insured, 6.150%, 12/01/14 Aaa/AAA 325,125 300,000 Weber County, Utah School District, MBIA Insured, 6.000%, 06/15/07 Aaa/AAA 317,250 1,931,812 Hospital Revenue Bonds (0.9%) 250,000 Salt Lake City, Utah Hospital Revenue, Intermountain Health Care, 8.000%, 05/15/07 NR/AAA 272,812 Industrial Development Revenue Bonds (1.3%) 120,000 Salt Lake County, Utah Industrial Development, Plaza 5400, 6.200%, 09/01/12 NR/AAA 126,750 250,000 Sandy City, Utah Industrial Development, H Shirl Wright Project, 6.125%, 08/01/16 NR/AAA 265,000 391,750 Lease Revenue Bonds (19.0%) 600,000 Layton City, Utah Municipal Building Authority, MBIA Insured, 5.700%, 08/15/08 Aaa/AAA 633,750 200,000 Ogden City, Utah Municipal Building Authority, Series 1992, 6.800%, 12/15/08 NR/NR* 211,750 200,000 Ogden City, Utah Municipal Building Authority, Series 1992, 7.000%, 12/15/12 NR/NR* 210,750 600,000 Salt Lake City, Utah Municipal Building Authority, Series 1993A, 5.750%, 10/15/08 A1/A+ 639,750 1,000,000 Salt Lake City, Utah Municipal Building Authority, 6.000%, 10/15/14 A1/A+ 1,057,500 1,000,000 Salt Lake County, Utah Municipal Building Authority, Series 1994A, MBIA Insured 6.050%, 10/01/08 Aaa/AAA 1,096,250 475,000 Utah Municipal Building Authority, Logan Municipal Building, Series 1993, 5.900%, 04/01/11 A/NR 494,594 685,000 Utah State Building Ownership Authority, Series A, 5.750%, 08/15/07 Aa/AA 717,538 350,000 Utah State Building Ownership Authority, 5.750%, 08/15/08 Aa/AA 365,750 315,000 West Valley City, Utah Municipal Building Authority, Series 1993, MBIA Insured, 6.000%, 01/15/10 Aaa/AAA 335,081 5,762,713 Mortgage Revenue Bonds (5.5%) 230,000 Utah State Housing Finance Agency, Single Family Housing Mortgage Series E-1, 5.850%, 07/01/13 Aa/NR 240,350 150,000 Utah State Housing Finance Agency, Single Family Housing Mortgage Revenue, Series 1994B, 6.200%, 07/01/06 A1/A+ 159,938 710,000 Utah State Housing Finance Agency, Single Family Housing Mortgage Revenue, Series E-1, 6.600%, 07/01/11 NR/AA 762,362 475,000 Utah State Housing Finance Agency, Single Family Housing Mortgage Revenue, Series 1994C, 6.350%, 07/01/11 Aa/NR 509,438 1,672,088 Pollution Control Revenue Bonds (1.3%) 350,000 Box Elder County Pollution Control Revenue, Nucor Corporation Project, 6.900%, 05/15/17 NR/AA- 385,875 Transportation Revenue Bonds (7.5%) 875,000 Salt Lake City, Utah Airport Revenue, FGIC Insured, Series B, 5.875%, 12/01/12 Aaa/AAA 938,438 285,000 Salt Lake City, Utah Airport Revenue, FGIC Insured, Series B, 5.875%, 12/01/18 Aaa/AAA 300,675 1,000,000 Utah Transit Authority Sis Tx FSA Insured, 5.375%, 6/15/22 Aaa/AAA 1,015,000 2,254,113 Water and Sewer Revenue Bonds (12.2%) 270,000 St. George, Utah Sewer Revenue, AMBAC Insured, 5.500%, 06/15/07 Aaa/AAA 283,500 300,000 St. George, Utah Water Revenue, FGIC Insured, 5.375%, 06/01/16 Aaa/AAA 302,250 500,000 Salt Lake City, Utah Water And Sewer Revenue, AMBAC Insured, 5.750%, 02/01/13 Aaa/AAA 526,250 525,000 Salt Lake City, Utah Water And Sewer Revenue, AMBAC Insured, 6.00%, 02/01/10 Aaa/AAA 570,937 300,000 Salt Lake County, Utah Water & Sewer Revenue AMBAC Insured, 5.100%, 10/01/08 Aaa/AAA 308,250 290,000 Salt Lake County Utah Conservancy District Revenue, Series A AMBAC Insured, 5.350%, 10/01/18 Aaa/AAA 292,537 800,000 Timpanogos, Utah Water & Sewer Revenue, Series A AMBAC Insured, 6.00%, 06/01/16 Aaa/AAA 864,000 200,000 Timpanogos, Utah Water & Sewer Revenue. Series A AMBAC Insured, 5.90%, 06/01/11 Aaa/AAA 216,500 300,000 White City Water Improvement District, Utah Water Revenue AMBAC Insured, 5.90%, 02/01/22 NR/AAA 318,375 3,682,599 Utility Revenue Bonds (11.4%) 790,000 Utah Association Municipal Power Systems Revenue, 5.250%, 12/01/09 NR/A- 813,700 350,000 Utah Association Municipal Power Systems Revenue, AMBAC Insured, 5.500%, 12/01/13 Aaa/AAA 361,375 695,000 Utah State Municipal Power Agency, Electric Systems Revenue, FGIC Insured, 5.500%, 07/01/10 Aaa/AAA 728,882 650,000 Utah State Municipal Power Agency, Electric Systems Revenue, FGIC Insured, 5.500%, 07/01/11 Aaa/AAA 680,062 875,000 Utah State Municipal Power Agency, Electric Systems Revenue, FGIC Insured, 5.250%, 07/01/18 Aaa/AAA 875,000 3,459,019 Total Revenue Bonds 19,812,781 Total Investments (cost $27,441,298**) 96.0% 29,052,613 Other assets in excess of liabilities 4.0 1,218,104 Net Assets 100.0% $ 30,270,717 (*) 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 income tax purposes is identical.
See accompanying notes to financial statements. TAX-FREE FUND FOR UTAH STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1997 (UNAUDITED) ASSETS Investments at value (identified cost $27,441,298) $ 29,052,613 Cash 783,834 Interest receivable 347,121 Receivable for investment securities sold 120,000 Due from Administrator for reimbursement of expenses (note 3) 13,156 Other assets 88 Total assets 30,316,812 LIABILITIES Distribution fees payable 16,024 Dividends payable 21,321 Management fees payable 1,531 Accrued expenses 7,219 Total liabilities 46,095 NET ASSETS $ 30,270,717 Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $.01 per share $ 29,606 Additional paid-in capital 29,085,219 Accumulated net realized loss on investments (455,423) Net unrealized appreciation on investments 1,611,315 $ 30,270,717 CLASS A Net Assets $ 29,415,745 Capital shares outstanding 2,876,944 Net asset value and redemption price per share $ 10.22 Offering price per share (100/96 of $10.22 adjusted to nearest cent) $ 10.65 CLASS C Net Assets $ 854,856 Capital shares outstanding 83,674 Net asset value and offering price per share $ 10.22 Redemption price per share (*generally, a charge of 1% is imposed on the proceeds of shares redeemed during the first 12 months after purchase) $ 10.22* CLASS Y Net Assets $ 116 Capital shares outstanding 11 Net asset value, offering and redemption price per share $ 10.23 See accompanying notes to financial statements. TAX-FREE FUND FOR UTAH STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED) INVESTMENT INCOME: Interest income $ 809,705 Expenses: Management fee (note 3) $ 74,144 Distribution and service fees (note 3) 30,968 Transfer and shareholder servicing agent fees 17,000 Shareholders' reports and proxy statements 16,000 Legal fees 16,000 Trustees' fees and expenses 14,000 Audit and accounting fees 10,000 Custodian fees (note 7) 3,500 Registration fees and dues 3,000 Insurance 300 Miscellaneous 10,835 195,747 Management fee waived (note 3) (65,246) Reimbursement of expenses by Administrator (note 3) (82,111) Expenses paid indirectly (note 7) (1,300) Net expenses 47,090 Net investment income 762,615 REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain from securities transactions 66,461 Change in unrealized appreciation on investments 765,424 Net realized and unrealized gain on investments 831,885 Net increase in net assets resulting from operations $1,594,500
See accompanying notes to financial statements. TAX-FREE FUND FOR UTAH STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
Six Months Ended Year Ended Dec. 31, 1997 June 30, 1997 OPERATIONS: Net investment income $ 762,615 $ 1,564,340 Net realized gain from securities transactions 66,461 870 Change in unrealized appreciation on investments 765,424 636,155 Change in net assets from operations 1,594,500 2,201,365 DISTRIBUTIONS TO SHAREHOLDERS (note 6): Class A Shares: Net investment income (762,175) (1,580,556) Distributions in excess of net investment income - - Net realized gain on investments - - Class C Shares: Net investment income (6,499) (670) Distributions in excess of net investment income - - Net realized gain on investments - - Class Y Shares: Net investment income (313) (425) Distributions in excess of net investment income - - Net realized gain on investments - - Change in net assets from distributions (768,987) (1,581,651) CAPITAL SHARE TRANSACTIONS (note 8): Proceeds from shares sold 2,356,278 3,500,104 Reinvested dividends and distributions 452,025 927,229 Cost of shares redeemed (2,515,443) (4,775,558) Change in net assets from capital share transactions 292,860 (348,225) Change in net assets 1,118,373 271,489 NET ASSETS: Beginning of period 29,152,344 28,880,855 End of period $ 30,270,717 $ 29,152,344
See accompanying notes to financial statements. TAX-FREE FUND FOR UTAH NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION Tax-Free Fund For Utah (the "Fund"), a non-diversified, open-end investment company, was organized on December 12, 1990 as a Massachusetts business trust and commenced operations on July 24, 1992. The Fund is authorized to issue an unlimited number of shares and, since its inception to May 21, 1996, offered only one class of shares. On that date, the Fund began offering two additional classes of shares, Class C and Class Y shares. All shares outstanding prior to that date were designated as Class A shares and, as was the case since inception, are sold with a front-payment sales charge and bear an annual service fee. Class C shares are sold with a level-payment sales charge with no payment at time of purchase but level service and distribution fees from date of purchase through a period of six years thereafter. A contingent deferred sales charge of 1% is assessed to any Class C shareholder who redeems shares of this Class within one year from the date of purchase. The Class Y shares are only offered to institutions acting for an investor in a fiduciary, advisory, agency, custodian or similar capacity. They are not available to individual retail investors. Class Y shares are sold at net asset value without any sales charge, redemption fees, contingent deferred sales charge or distribution or service fees. On October 31, 1997 the Fund established Class I shares, which are offered and sold only through financial intermediaries and are not offered directly to retail customers. At December 31,1997, there were no Class I shares outstanding. All classes of shares, represent interests in the same portfolio of investments in the Fund and are identical as to rights and privileges. They differ only with respect to the effect of sales charges, the distribution and/or service fees borne by the respective class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities of more than 60 days are valued at fair value each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services; in the case of securities for which market quotations are readily available, securities are valued at the mean of bid and asked quotations and, in the case of other securities, at fair value determined under procedures established by and under the general supervision of the Board of Trustees. Securities which mature in 60 days or less are valued at amortized cost if their term to maturity at purchase was 60 days or less, or by amortizing their unrealized appreciation or depreciation on the 61st day prior to maturity, if their term to maturity at purchase exceeded 60 days. In Fiscal 1997, the Fund began amortizing bond premium using the constant yield method. Accordingly, net unrealized appreciation and additional paid-in capital have been adjusted by equal amounts at the beginning of the year. This change had no effect on the Fund's net asset value or distribution policy and conforms to the amortization policy followed by the Fund for Federal tax purposes. b) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME: Securities transactions are recorded on the trade date. Realized gains and losses from securities transactions are reported on the identified cost basis. Interest income is recorded daily on the accrual basis and is adjusted for amortization of premium and accretion of original issue discount. Market discount is recognized upon disposition of the security. c) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a regulated investment company by complying with the provisions of the Internal Revenue Code applicable to certain investment companies. The Fund intends to make distributions of income and securities profits sufficient to relieve it from all, or substantially all, Federal income and excise taxes. d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses, are allocated daily to each class of shares based on the relative net assets of each class. Class-specific expenses, which include distribution and service fees and any other items that are specifically attributed to a particular class, are charged directly to such class. e) USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 3. FEES AND RELATED PARTY TRANSACTIONS a) MANAGEMENT ARRANGEMENTS: Aquila Management Corporation (the "Manager"), the Fund's founder and sponsor, serves as the Manager for the Fund under an Advisory and Administration Agreement with the Fund. The portfolio management of the Fund has been delegated to a sub-advisor as described below. Under the Advisory and Administration Agreement, the Manager provides all administrative services to the Fund, other than those relating to the day-to-day portfolio management. The Manager's services include providing the office of the Fund and all related services as well as overseeing the activities of any sub-advisor and all the various support organizations to theFund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor and additionally maintaining the Fund's accounting books and records. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.50 of 1% on the Fund's net assets. First Security Investment Management, Inc. (the "Sub-Adviser") serves as the Investment Sub-Adviser for the Fund under a Sub-Advisory Agreement between the Manager and the Sub-Adviser. Under this agreement, the Sub-Adviser continuously provides, subject to oversight of the Manager and the Board of Trustees of the Fund, the investment program of the Fund and the composition of its portfolio, arranges for the purchases and sales of portfolio securities, and provides for daily pricing of the Fund's portfolio. For its services, the Sub-Adviser is entitled to receive a fee from the Manager which is payable monthly and computed as of the close of business each day at the annual rate of 0.23 of 1% on the Fund's net assets. On October 24,1997, the Mangement arrangements desribed above were approved by the Fund's shareholders and went into effect on October 31, 1997. From inception of the Fund to that date, Aquila Management Corporation and the First Security Investment Management Inc. had served as the Fund's Administrator and Investment Manager, respectively, pursuant to agreements with the Fund, for total fees at an annual rate of 0.50 of 1% of the Fund's net assets, the same fee as under the new arrangements. For the six months ended December 31, 1997, the Fund incurred fees for advisory and administrative services of $74,144 of which $65,246 was voluntarily waived. Additionally, the Manager voluntarily agreed to reimburse the Fund for other expenses during this period in the amount of $82,111. Of this amount, $68,955 was paid prior to December 31, 1997 and the balance of $13,156 was paid in early January, 1998. Specific details as to the nature and extent of the services provided by the Manager and the Sub-Adviser are more fully defined in the Fund's Prospectus and Statement of Additional Information. b) DISTRIBUTION AND SERVICE FEES: The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part of the Plan, with respect to Class A Shares, the Fund is authorized to make service fee payments to broker-dealers or others ("Qualified Recipients") selected by Aquila Distributors, Inc. (the "Distributor") including, but not limited to, any principal underwriter of the Fund, with which the Distributor has entered into written agreements contemplated by the Rule and which have rendered assistance in the distribution and/or retention of the Fund's shares or servicing of shareholder accounts. The Fund makes payment of this service fee at the annual rate of 0.20% of the Fund's average net assets represented by Class A Shares. For the six months ended December 31, 1997, service fees on Class A Shares amounted to $29,270, of which the Distributor received $889. Under another part of the Plan, the Fund is authorized to make payments with respect to Class C Shares to Qualified Recipients which have rendered assistance in the distribution and/or retention of the Fund's Class C shares or servicing of shareholder accounts. These payments are made at the annual rate of 0.75% of the Fund's net assets represented by Class C Shares and for the six months ended December 31, 1997, amounted to $1,274. In addition, under a Shareholder Services Plan, the Fund is authorized to make service fee payments with respect to Class C Shares to Qualified Recipients for providing personal services and/or maintenance of shareholder accounts. These payments are made at the annual rate of 0.25% of the Fund's net assets represented by Class C Shares and for the six months ended December 31, 1997, amounted to $424. The total of these payments with respect to Class C Shares amounted to $1,698, of which the Distributor received $1,054. Specific details about the Plans are more fully defined in the Fund's Prospectus and Statement of Additional Information. Under a Distribution Agreement, Aquila Distributors, Inc. serves as the exclusive distributor of the Fund's shares. Through agreements between the Distributor and various broker-dealer firms ("dealers"), the Fund's shares are sold primarily through the facilities of these dealers having offices within Utah, with the bulk of sales commissions inuring to such dealers. For the six months ended December 31, 1997, the Distributor received sales commissions of $2,549. 4. PURCHASES AND SALES OF SECURITIES During the six months ended December 31, 1997, purchases of securities and proceeds from the sales of securities aggregated $1,738,021 and $2,410,320, respectively. At December 31, 1997, aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost amounted to $1,621,017 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $9,702, for a net unrealized appreciation of $1,611,315. 5. PORTFOLIO ORIENTATION Since the Fund invests principally and may invest entirely in double tax-free municipal obligations of issuers within Utah, it is subject to possible risks associated with economic, political, or legal developments or industrial or regional matters specifically affecting Utah and whatever effects these may have upon Utah issuers' ability to meet their obligations. 6. DISTRIBUTIONS The Fund declares dividends daily from net investment income and makes payments monthly in additional shares at the net asset value per share or in cash, at the shareholder's option. Net realized capital gains, if any, are distributed annually. The Fund intends to maintain, to the maximum extent possible, the tax-exempt status of interest payments received from portfolio municipal securities in order to allow dividends paid to shareholders from net investment income to be exempt from regular Federal and State of Utah income taxes. However, due to differences between financial reporting and Federal income tax reporting requirements, distributions made by the Fund may not be the same as the Fund's net investment income, and/or net realized securities gains. Further, a small portion of the dividends may, under some circumstances, be subject to ordinary income taxes. Also, annual capital gains distributions, if any, are taxable. 7. CUSTODIAN FEES The Fund has negotiated an expense offset arrangement with its custodian wherein it receives credit toward the reduction of custodian fees whenever there are uninvested cash balances. During the six months ended December 31, 1997, the Fund's custodian fees amounted to $3,500, of which $1,300 was offset by such credits. It is the general intention of the Fund to invest, to the extent practicable, some or all of cash balances in income-producing assets rather than leave cash on deposit with the custodian. 8. CAPITAL SHARE TRANSACTIONS Transactions in Capital Shares of the Fund were as follows:
Six Months Ended Year Ended December 31, 1997 June 30, 1997 Shares Amount Shares Amount CLASS A SHARES: Proceeds from shares sold 154,580 $1,558,994 346,477 $3,420,264 Reinvested distributions 44,328 448,285 94,031 926,736 Cost of shares redeemed (245,341) (2,474,172) (483,708) (4,775,559) Net change (46,433) (466,893) (43,200) (428,559) CLASS C SHARES: Proceeds from shares sold 79,194 797,283 4,061 39,841 Reinvested distributions 368 3,738 52 486 Cost of shares redeemed (11) (111) - - Net change 79,551 800,910 4,113 40,327 CLASS Y SHARES: Proceeds from shares sold - - 4,094 40,000 Reinvested distributions - 3 1 7 Cost of shares redeemed (4,094) (41,160) - - Net change (4,094) (41,157) 4,095 40,007 Total transactions in Fund shares 29,024 $ 292,860 (34,992) $ (348,225)
TAX-FREE FUND FOR UTAH FINANCIAL HIGHLIGHTS (UNAUDITED) For a share outstanding throughout each period
Class A(1) Six Months Period(2) Ended Dec. Year ended December 31, Ended June 31, 1997 1997 1996 1995 1994 30, 1993 Net Asset Value, Beginning of Period $9.94 $9.74 $9.59 $9.32 $10.00 $9.60 Income from Investment Operations: Net investment income 0.26 0.52 0.54 0.55 0.55 0.50 Net gain (loss) on securities (both realized and unrealized) 0.28 0.21 0.15 0.27 (0.65) 0.40 Total from Investment Operations 0.54 0.73 0.69 0.82 (0.10) 0.90 Less Distributions (note 6): Dividends from net investment incom (0.26) (0.53) (0.54) (0.55) (0.55) (0.50) Distributions from capital gains - - - - (0.03) - Total Distributions (0.26) (0.53) (0.54) (0.55) (0.58) (0.50) Net Asset Value, End of Period $10.22 $9.94 $9.74 $9.59 $9.32 $10.00 Total Return (not reflecting sales charge)(%) 5.50# 7.72 7.17 9.09 (1.09) 9.67# Ratios/Supplemental Data Net Assets, End of Period ($ thousands) 29,416 29,071 28,881 27,536 26,116 12,938 Ratio of Expenses to Average Net Assets (%) 0.31* 0.27 0.19 0.08 0.03 0* Ratio of Net Investment Income to Average Net Assets (%) 5.16* 5.45 5.49 5.85 5.58 5.64* Portfolio Turnover Rate (%) 6.01# 5.09 11.15 22.92 27.53 36.52# 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 ($) 0.21 0.42 0.43 0.43 0.40 0.27 Ratio of Expenses to Average Net Assets (%) 1.31* 1.33 1.30 1.30 1.60 2.67* Ratio of Net Investment Income to Average Net Assets (%) 4.16* 4.39 4.37 4.63 4.00 2.97* (1) Designated as Class A Shares on May 21, 1996. (2) From July 24, 1992 (commencement of operations) to June 30, 1993. # Not annualized * Annualized. See accompanying notes to financial statements. For a share outstanding throughout each period
Class C(1) Class Y(1) Six Period Six Period Months Year (2) Months Year (2) Ended Ended Ended Ended Ended Ended Dec. June June Dec. June June 31, 30, 30, 31, 30, 30, 1997 1997 1996 1997 1997 1996 Net investment income per share and the ratios of income and expenses to average net assets without the Adviser's and Administrator's voluntary waiver of fees, the Administrator's voluntary expense reimbursement and the expense offset in custodian fees for uninvested cash balances would have been: Net Investment Income ($) 0.17 0.35 0.04 0.23 0.50 0.05 Ratio of Expenses to Average Net Assets(%) 2.06* 2.13 0.23# 1.12* 1.13 0.11# Ratio of Net Investment Income to Average Net Assets (%) 3.16* 3.59 0.42# 4.28* 4.59 0.53# (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 the Tax-Free Fund For Utah (the "Fund") was held on October 24, 1997*. At the meeting, the following matters were submitted to a shareholder vote and approved: (i) the election of Lacy B. Herrmann, Philip E. Albrecht, Gary C. Cornia, William L. Ensign, D. George Harris, Diana P. Herrmann, Anne J. Mills, and R. Thayne Robson, as Trustees to hold office until the next annual meeting of the Fund's shareholders or until his or her successor is duly elected (each Trustee received at least 21,944,520.045 affirmative votes (98.67%); no more than 296,602.051 votes (1.33%) were withheld for any Trustee). (ii) the ratification of the selection of KPMG Peat Marwick LLP as the Fund's independent auditors for the fiscal year ending June 30, 1998 (votes for: 21,715,133.932 (97.64%); votes against: 75,313.04 (0.34%); abstentions: 450,665.004 (2.03%); broker non-votes: 0 (0.00%)). (iii) the approval of a proposed investment Advisory and Administration Agreement with Aquila Management Corp. (votes for: 21,397,609.085 (96.20%); votes against: 156,811.171 (0.71%); abstentions: 658,871.839 (2.96%); broker non-votes: 27,819.88 (0.13%)), and (iv) the approval of a proposed Sub-Advisory Agreement with First Security Investment Management, Inc. (votes for: 21,433,524.965 (96.37%); votes against: 89,968.571 (0.40%); abstentions: 689,798.559 (3.10%); broker non-votes: 27,819.88 (0.13%)). * On the record date for the Annual Meeting, the holders of 2,919,276.47 Class A Shares, 4,137.71 Class C Shares, and 4,105.31 Class Y Shares were outstanding and entitled to vote representing a total net asset value of $29,626,538.291. The holders of shares entitled to vote representing a total net asset value of $22,241,122.096 (75.07%) were present in person or by proxy at the meeting. -----END PRIVACY-ENHANCED MESSAGE-----