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<SEC-DOCUMENT>0000812006-96-000010.txt : 19960923
<SEC-HEADER>0000812006-96-000010.hdr.sgml : 19960923
ACCESSION NUMBER:		0000812006-96-000010
CONFORMED SUBMISSION TYPE:	N-30B-2
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	19960630
FILED AS OF DATE:		19960905
SROS:			NONE

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CHURCHILL TAX FREE TRUST
		CENTRAL INDEX KEY:			0000812006
		STANDARD INDUSTRIAL CLASSIFICATION:	
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-30B-2
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-05086
		FILM NUMBER:		96625829

	BUSINESS ADDRESS:	
		STREET 1:		380 MADISON AVE STE 2300
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10017
		BUSINESS PHONE:		2126976666

	MAIL ADDRESS:	
		STREET 2:		380 MADISON AVE SUITE 2300
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10017

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	CHURCHILL TAX FREE FUND OF KENTUCKY
		DATE OF NAME CHANGE:	19880911
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-30B-2
<SEQUENCE>1
<TEXT>


SEMI-ANNUAL
REPORT
JUNE 30, 1996


AQUILA
CHURCHILL
TAX-FREE FUND OF
KENTUCKY

A TAX-FREE INCOME INVESTMENT

[Logo of Churchill Tax-Free Trust of Kentucky--Standing pegasus/horse with
wings within a circle]

One of the
AQUILAsm Group of Funds

<PAGE>

[Logo of Churchill Tax-Free Trust of Kentucky--Standing pegasus/horse with
wings within a circle]

                    CHURCHILL TAX-FREE FUND OF KENTUCKY
                            SEMI-ANNUAL REPORT

                     "FLUCTUATIONS, YET HIGH STABILITY"

                                                            August 20, 1996

<TABLE>
<CAPTION>
                               6/30/96          12/31/95          6/30/95
<S>                           <C>              <C>               <C>
SHARE NET ASSET VALUE           $10.43            $10.71           $10.42
DISTRIBUTION YIELD              5.37%*            5.52%*           5.68%*
</TABLE>

Dear Investor:

     We live in a world that is ever changing.

     As the above table illustrates, the price of the Fund's shares can and
does move up and down over time.  Also, the rate of triple tax-free income
return distributed to shareholders can and will change.  Movements in these
two key areas reflect the changes in market conditions that occurred over
the time period of this past year.

     Yet, while changes have occurred, looking at these numbers in a broader
perspective, there has tended to be a relatively high level of stability to
the performance results.  Indeed, these results compare favorably to what
occurred in the municipal securities market itself during this period.

MARKET FORCES

     As indicated, the changes in share price and income return are
influenced considerably by market forces.  Market forces are governed by
several main factors in the area of fixed-income securities.  This area
encompasses the tax-free municipal securities in which the Fund invests.

     Key among these factors is action taken by the Federal Reserve Board. 
This Federal government organization has the power to raise and lower
interest rates in key areas which, in turn, can have an effect on all types
of fixed-income securities.  The Fed can also control the supply of money in
our financial system - increasing or decreasing the amount of dollars in
circulation.  This, in turn, can affect the market.

     The other key factor influencing market action is the psychology of
investors. By psychology of investors, we mean the level of confidence that
investors as a whole have toward what is happening in our country's overall
financial affairs.  We now live in a world that is not only ever changing,
but also one that is very global in nature. Consequently, the psychology
factor within market activity is influenced not only by the confidence level,
or lack thereof, which investors in the United States have, but also by the
confidence level that investors all around the world have toward the
handling of major financial affairs in our country.


* Indicates trailing 12 month yield distributed to shareholders as measured
  against share maximum public offering price.

<PAGE>
 
     Altogether, then, what happens to the share price and distribution
return of the Fund is very much driven by market forces.  This is an
important factor which shareholders in the Fund must appreciate and come to
understand.  And, this is the case whether investors own municipal
securities individually, or whether they do so through the portfolio of such
municipal securities as the Fund provides to shareholders.

THE VALUE THE FUND PROVIDES

     While accepting the fact that market forces can and do have an effect
upon the Fund's performance, it must also be recognized that Churchill
Tax-Free Fund of Kentucky brings to bear very specific factors to dampen the
extremes of such market forces.

     Most significant of these factors is the professional investment
management team of the Fund's Investment Adviser, Banc One Investment
Advisors Corporation. Under the guidance of the Fund's management and the
Trustees, the Investment Adviser oversees, on a continuing basis the
investments of the Fund.  And, in doing so, they moderate forces that can or
might cause anxieties with investors.  A very special element that the
professional investment management team brings to bear is the implementation
of the Fund's investment approach.

QUALITY FACTOR

     A key moderation factor in containing damage from market forces is
quality - quality of the municipal issues within the Fund's investment
portfolio.  Quality of issues is a very protective factor when it comes to
capital preservation.

     That is why the Fund has chosen to invest in only those municipal
securities within the TOP FOUR CREDIT RATINGS, or equivalent.

     It is noteworthy that at the end of the June 30, 1996 report period,
92.1% of the Fund's holdings carried a credit rating of A OR BETTER - the
top three ratings.

     Moreover, at this report date, 46.1% of the Fund's investments were
rated AA OR AAA.

DIVERSIFICATION FACTOR

     Another very important factor in moderating market forces is
diversification among portfolio holdings.

     At June 30, 1996, the Fund had 165 SEPARATE ISSUES within the investment
portfolio, representing many different municipal projects within numerous
communities throughout Kentucky.

MATURITY FACTOR

      Through having a variety of different maturities among the securities
in the Fund's portfolio, it is possible to avoid extremes in volatility that
can come about with market fluctuations.  As you are aware, short maturity
securities possess little fluctuation in price, but pay low yields.  On the
other hand, long maturity securities give higher yields, but possess
considerable price volatility due to the uncertainties involved over the time
between the present and the specified maturity date.  The Fund seeks an
average intermediate maturity within the investment portfolio.  Currently, at
June 30, 1996, the average maturity was 14.74 YEARS, so as to provide an
adequate income return, yet only moderate volatility in share price.

INCOME RETURN

     As the table above illustrates, the trailing 12-month yield distributed
to shareholders, as measured against average maximum public offering price,
was running at the rate of 5.37% at June 30, 1996. 

     This is somewhat lower than it was six months and a year earlier.
However, it reflects the declining level of general market return of
municipal securities over this period.

     Despite the modest decline in yield to shareholders, it must be
remembered that this income amount is the TRIPLE TAX-FREE return that
shareholders received from the Fund.

     It is worth noting from the below graph that one would have had to earn
a substantially higher income return from a TAXABLE investment in order to
match the TRIPLE TAX-FREE amount distributed by the Fund.

     And you will note, if one were in the 28% Federal income tax bracket, a
TAXABLE return of 7.93% would have to be achieved to match the 5.37% TRIPLE
TAX-FREE return of the Fund.  In the highest Federal income tax bracket of
39.6%, the equivalent return would have had to have been 9.46%.  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
or longer maturity securities, or both such elements.

[Graphic of Bar chart with the following information:]


          CHURCHILL TAX-FREE FUND OF KENTUCKY'S TRIPLE TAX-FREE
       DISTRIBUTION RATE AS COMPARED TO THE TAXABLE EQUIVALENT RATE
          AN INVESTOR WOULD HAVE TO EARN AT VARIOUS TAX BRACKETS
<TABLE>
<CAPTION>
Tax Bracket      Taxable Equivalent Rate     Double Tax-Free Equivalent Rate
<S>              <C>                         <C>
28%              7.93%                       5.37%
31%              8.28%                       5.37%
36%              8.93%                       5.37%
39.6%            9.46%                       5.37%
</TABLE>
<PAGE>

COMMITMENT TO CONSISTENCY

     Management is committed to providing shareholders with as consistent
results from Churchill Tax-Free Fund of Kentucky as are possible to achieve,
considering prevailing market forces.

     You should be aware that we are not able to eliminate completely the
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 moderate market forces.

YOUR CONFIDENCE APPRECIATED

     We again wish to emphasize that your confidence in Churchill Tax-Free
Fund of Kentucky is greatly appreciated.  You can be assured that management
will do everything in its power to merit your continued trust.

                                                   Sincerely,
                                                   /s/ Lacy B. Herrmann
                                                   Lacy B. Herrmann
                                                   President and Chairman
                                                     of the Board of Trustees
<PAGE>

                    CHURCHILL TAX-FREE FUND OF KENTUCKY
                         STATEMENT OF INVESTMENTS
                         JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
                                                       RATINGS
   FACE                                                MOODY'S/
  AMOUNT           REVENUE BONDS (98.7%)               S&P         VALUE
<C>              <S>                                 <C>       <C>
                   State Agencies (27.3%)

                   Kentucky Higher Education Student
                    Loan Corporaton
                    Insured Student Loan Revenue,
  $ 4,125,000       6.400%, 12/01/99                    A/NR      $ 4,279,687
      980,000       6.500%, 06/01/00                    A/NR        1,021,650
    1,490,000       6.500%, 06/01/02                    A/NR        1,583,125
    2,955,000       6.800%, 06/01/03                    A/NR        3,161,850
      615,000       6.550%, 06/01/99                    Aa-/A1        638,831
    1,915,000       7.100%, 12/01/11                    Aa-/AA      2,046,656
                   Kentucky Infrastructure Authority
                    Revenue,
    1,000,000       7.625%, 08/01/03                    NR/A        1,098,750
    3,195,000       7.100%, 08/01/97                    A/A         3,296,601
      200,000       7.500%, 02/01/09                    NR/AAA        218,500
    1,445,000       7.500%, 02/01/99                    NR/AAA      1,578,662
      555,000       7.200%, 06/01/11                    A/A           604,950
    1,110,000       6.375%, 06/01/14                    A/A         1,164,112
                   Kentucky Local Correctional
                    Facilities Construction
                    Authority Revenue,
    4,925,000       5.500%, 11/01/14                    Aaa/AAA     4,746,469
                   Kentucky State Properties and
                    Buildings Commission Revenue,
    1,375,000       7.900%, 11/01/97                    A/A+        1,436,875
      500,000       8.400%, 11/01/97                    Aaa/AAA       537,500
    1,130,000       7.100%, 12/01/97                    A/A         1,172,375
      250,000       7.600%, 08/01/98                    NR/AAA        271,562
    1,460,000       7.300%, 12/01/99                    A/A         1,574,975
      250,000       7.600%, 08/01/98                    NR/AAA        271,563
      400,000       7.350%, 12/01/99                    Aaa/AAA       442,500
      365,000       7.000%, 02/01/06                    Aaa/AAA       403,325
    4,510,000       6.625%, 10/01/07                    A/A+        4,944,088
      300,000       8.000%, 08/01/98                    NR/AAA        328,125
      750,000       7.375%, 12/01/99                    Aaa/AAA       830,625
    1,000,000       6.500%, 08/01/01                    Aaa/AAA     1,091,250
                   Kreda Economic Development
                    Revenue,
    3,110,000       7.250%, 06/01/17                    NR/AA       3,253,838
                   Mount Sterling Kentucky Lease
                    Revenue,
    1,920,000       6.150%, 03/01/13                    Aa/NR       1,944,000
    7,000,000       6.200%, 03/01/18                    Aa/NR       7,043,750
                   Pendleton County Kentucky
                    Multi-County Lease Revenue,
      500,000       7.300%, 03/01/02                    NR/A          528,750
      570,000       7.550%, 03/01/10                    NR/A          604,200
    4,500,000       6.500%, 03/01/19                    NR/A        4,623,750
    3,000,000       6.400%, 03/01/19                    NR/A        3,165,000
                   Puerto Rico Public Buildings
                    Authority,
    1,000,000       6.875%, 07/01/12                    Aaa/AAA     1,121,250

                                                                   61,029,144

                   County Agencies (5.0%)

                   Clark County Kentucky Industrial
                    Buildings Revenue (Southern Wood
                    Project),
      565,000       6.000%, 12/01/00                    NR/NR*        560,762
      250,000       7.000%, 12/01/08                    NR/NR*        250,937
                   Clark County Kentucky Public
                    Properties Corp. Revenue,
    1,120,000       6.700%, 06/01/16                    A/NR        1,174,600
                   Franklin County Kentucky Public
                    Projects Corp. Revenue,
      350,000       5.500%, 1/01/24                     NR/A-         342,125
                   Jefferson County Kentucky Economic
                    Development Corp. Lease Revenue,
    2,000,000       7.625%, 07/01/08                    A1/NR       2,069,440
      250,000       7.750%, 07/01/16                    A1/NR         258,818
                   Kenton County Kentucky Public
                    Properties Corp. Revenue,
      400,000       7.000%, 10/01/03                    NR/NR*        436,000
                   Lincoln County Kentucky Public
                    Properties Corp.,
      430,000       6.500%, 09/01/96                    NR/NR*        435,912
                   Louisville and Jefferson County
                    Kentucky, Series B,
      120,000       5.650%, 07/01/03                    NR/NR*        120,062
      200,000       6.625%, 07/01/15                    NR/NR*        191,500
      250,000       6.650%, 07/01/19                    NR/NR*        241,250
                   Madison County Kentucky Capital
                    Project Corp. Revenue,
      650,000       7.800%, 04/01/09                    NR/NR*        715,813
                   Muhlenberg County Kentucky
                    Industrial Development Revenue,
    1,500,000       7.000%, 09/01/01                    NR/A        1,625,625
                   Munfordville Kentucky Industrial
                    Development Bond,
    2,500,000       7.000%, 06/01/19                    NR/A        2,659,375
                   Woodford County Kentucky Public
                    Properties Corp. Revenue,
      100,000       8.200%, 11/01/17                    A/NR          108,125

                                                                   11,190,344

                   City/Municipal Obligations (5.4%)

                   Covington Kentucky Municipal
                    Properties Corp. Revenue,
      400,000       7.950%, 08/01/04                    Baa1/NR       440,000
      250,000       7.375%, 08/01/11                    Baa1/NR       272,188
                   Hickman Kentucky Industrial
                    Building Revenue (HIS, Kentucky,
                    Inc. Project),
    1,665,000       6.950%, 08/01/09                    NR/NR*      1,708,706
                   Jeffersontown Kentucky Public
                    Project Corp. Revenue,
      500,000       5.750%, 11/01/15                    A/NR          488,125
                   Kentucky League Cities Funding
                    Trust COP,
    1,715,000       6.200%, 08/01/17                    NR/A-       1,757,875
                   Louisville Kentucky Public
                    Properties Corp,
    4,090,000       6.700%, 12/01/20                    A/A-        4,335,400
                   Nicholasville, Kentucky Industrial
                    Development Revenue (Johnson
                    Control),
    3,000,000       8.000%, 09/01/04                    A2/A        3,105,330

                                                                   12,107,624

                   Utilities (5.5%)

                   Ashland Kentucky Sewer & Solid
                    Waste Revenue (Ashland, Inc.),
    3,200,000       7.125%, 02/01/22                    Baa1/NR     3,364,000
                   Boone County Kentucky Public
                    Properties Revenue,
      500,000       5.150%, 12/01/14                    A/A-          456,875
                   Campbell & Kenton Counties
                    Kentucky Sanitation District
                    No. 1 Sanitation Revenue,
      220,000       7.300%, 08/15/00                    Aa/A+         228,525
      200,000       7.700%, 08/15/04                    Aa/A+         210,250
                   Glasgow Kentucky Electric Plant
                    Board Revenue,
      280,000       7.600%, 12/01/09                    NR/BBB        301,350
                   Henderson Kentucky Electric Light
                    and Power Revenue,
    1,100,000       5.700%, 03/01/03                    NR/A        1,101,595
                   Lebanon Kentucky Waterworks
                    Revenue,
      250,000       7.500%, 04/01/16                    NR/NR*        267,500
                   Louisville and Jefferson County
                    Kentucky Metropolitian Sewer
                    District Revenue,
    3,000,000       5.300%, 05/15/19                    Aaa/AAA     2,835,000
    1,230,000       5.500%, 05/15/23                    Aaa/AAA     1,166,963
    1,500,000       6.500%, 05/15/24                    Aaa/AAA     1,597,500
                   Muhlenberg County Kentucky Water
                    District, Waterworks Revenue,
      100,000       5.500%, 01/01/12                    Aaa/AAA        98,125
      110,000       5.500%, 01/01/13                    Aaa/AAA       107,387
      115,000       5.600%, 01/01/14                    Aaa/AAA       112,700
                   Richmond Kentucky Water Gas and
                    Sewer Revenue,
      200,000       7.300%, 07/01/05                    Aaa/AAA       213,750
      200,000       7.300%, 07/01/06                    Aaa/AAA       213,750

                                                                   12,275,270

                   Pollution Control Revenue (12.0%)

                   Ashland Kentucky Pollution Control
                    Revenue,
    1,770,000       7.375%, 07/01/09                    A3/NR       1,889,475
    3,000,000       6.650%, 08/01/09                    Baa1/NR     3,153,750
                   Ashland Kentucky Solid Waste
                    Revenue (Ashland Oil),
      500,000       7.200%, 10/01/20                    Baa1/BBB      523,125
                   Boone County Kentucky Pollution
                    Control Revenue,
      735,000       5.500%, 01/01/24                    Aaa/AAA       694,575
                   Carroll County Kentucky Pollution
                    Control Revenue,
    3,500,000       7.450%, 09/15/16                    Aa2/NR      3,941,875
                   Carroll County Kentucky Pollution
                    Control Revenue,
    1,910,000       6.250%, 02/01/18                    Aa2/AA-     1,948,200
                   Jefferson County Kentucky
                    Pollution Control Revenue,
    2,200,000       5.450%, 10/15/20                    Aa2/AA      2,057,000
    2,600,000       5.900%, 04/15/23                    Aa2/AA      2,567,500
    1,000,000       7.750%, 02/01/19                    Aa2/AA      1,065,000
    5,000,000       5.625%, 08/15/19                    Aa2/AA      4,793,750
                   Wickliffe Kentucky Pollution
                    Control,
    4,100,000       6.200%, 04/01/07                    A1/A        4,106,191

                                                                   26,740,441

                   Transportation (11.7%)

                   Kenton County Kentucky Airport
                    Board Airport Revenue,
    1,500,000       6.300%, 03/01/15                    Aaa/AAA     1,535,625
    3,955,000       8.750%, 03/01/15                    A/A         4,131,947
                   Kentucky Interlocal School
                    Transportation Authority,
      150,000       5.100%, 03/01/05                    A/A           147,375
                   Kentucky State Turnpike Authority
                    Economic Development Road Revenue,
    1,000,000       5.625%, 07/01/15                    A/A           987,500
      500,000       8.250%, 07/01/07                    Aaa/AAA       530,635
      100,000       6.000%, 07/01/09                    Aaa/AAA       100,085
      500,000       7.000%, 05/15/99                    Aaa/AAA       533,750
    1,035,000       7.250%, 05/15/10                    Aaa/AAA     1,139,794
                   Kentucky State Turnpike Authority
                    Resource Recovery Road Revenue,
      500,000       7.400%, 07/01/97                    A/A+          514,630
    2,105,000       7.600%, 07/01/98                    A/A+        2,209,513
    3,875,000       7.750%, 07/01/99                    A/A+        4,071,036
      320,000       8.000%, 07/01/03                    A/A+          337,603
                   Kentucky State Turnpike Authority
                    Toll Road Revenue,
    3,570,000       8.500%, 07/01/04                    A/A         3,716,049
                   Louisville Kentucky Airport Lease
                    Revenue,
      750,000       7.850%, 02/01/09                    A/A-          819,375
                   Puerto Rico Commonwealth Highway
                    & Transportation Authority Highway
                    Revenue,
    4,000,000       6.625%, 07/01/12                    Baa1/A      4,410,000
                   Puerto Rico Commonwealth Highway
                    Authority Highway Revenue,
    1,000,000       6.750%, 07/01/05                    Baa1/A      1,092,500

                                                                   26,277,417

                   Hospitals (10.8%)

                   Floyd County Kentucky Hospital
                    Revenue,
      280,000       7.500%, 08/01/10                    NR/AAA        306,250
      510,000       5.500%, 09/01/14                    NR/AAA        487,687
                   Hopkins County Kentucky Hospital
                    Revenue,
    1,000,000       6.625%, 11/15/11                    Aaa/AAA     1,067,500
                   Jefferson County Kentucky Health
                    Facilities Revenue (Jewish
                    Hospital),
    1,000,000       6.550%, 05/01/22                    Aaa/AAA     1,050,000
                   Jefferson County Kentucky Hospital
                    Revenue,
      510,000       7.750%, 10/01/97                    Aaa/AAA       543,150
                   Kentucky Development Finance
                    Authority Hospital Revenue,
      895,000       7.625%, 09/01/11                    Aaa/AAA       958,769
      235,000       7.200%, 10/01/99                    A/A           250,569
    2,570,000       7.300%, 10/01/03                    A/A         2,756,325
      810,000       7.500%, 10/01/12                    A/A           859,612
      400,000       7.250%, 11/01/06                    A1/A+         427,500
      400,000       7.200%, 09/01/15                    Aaa/AAA       439,000
      750,000       7.000%, 09/01/06                    NR/NR*        834,375
                   Kentucky Development Finance
                    Authority Revenue,
    3,000,000       6.500%, 11/01/07                    A1/A+       3,161,250
    1,250,000       6.250%, 11/01/13                    A1/A+       1,264,063
    2,150,000       6.750%, 11/01/12                    A1/A+       2,289,750
      500,000       6.000%, 11/01/01                    Aaa/AAA       526,875
                   Kentucky Development Finance
                    Authority Kings Daughters Medical
                    Center,
    1,000,000       6.125%, 02/01/12                    Aaa/AAA     1,026,250
                   Kentucky Development Finance
                    Authority Hospital Revenue,
    3,000,000       5.900%, 12/01/15                    Aaa/AAA     3,007,500
    2,590,000       5.000%, 08/15/15                    Aaa/AAA     2,334,238
                   Louisville Kentucky Hospital
                    Revenue,
      450,000       7.300%, 01/01/14                    NR/AAA        466,587

                                                                   24,057,250

                   Housing (10.9%)

                   Greater Kentucky Housing
                    Assistance Corp. Multi-Family
                    Housing Revenue,
      500,000       7.000%, 07/01/11                    NR/AA+        524,375
      320,000       6.300%, 07/01/15                    Aaa/AAA       325,600
      275,000       6.400%, 07/01/23                    NR/AA+        280,156
                   Jefferson County Kentucky
                    Multi-Family Revenue,
    1,500,000       5.750%, 06/01/23                    NR/AA       1,520,625
                   Kentucky Housing Corporation
                    Housing Revenue,
      255,000       7.750%, 01/01/07                    Aaa/AAA       269,025
      835,000       7.600%, 01/01/07                    Aaa/AAA       877,794
      340,000       5.350%, 07/01/07                    Aaa/AAA       330,225
    1,000,000       6.500%, 01/01/07                    Aaa/AAA     1,041,250
       95,000       7.875%, 01/01/08                    Aaa/AAA        99,156
      630,000       7.250%, 01/01/09                    Aaa/AAA       661,500
      980,000       7.125%, 01/01/10                    Aaa/AAA     1,027,775
       30,000       6.625%, 01/01/11                    Aaa/AAA        30,187
    4,975,000       6.600%, 07/01/11                    Aaa/AAA     5,136,688
      200,000       5.400%, 07/01/14                    Aaa/AAA       185,750
    1,700,000       6.400%, 01/01/17                    Aaa/AAA     1,727,625
    1,450,000       5.800%, 01/01/19                    Aaa/AAA     1,408,312
      630,000       7.900%, 01/01/21                    Aaa/AAA       663,863
      400,000       7.800%, 01/01/21                    Aaa/AAA       419,000
      185,000       8.100%, 01/01/22                    Aaa/AAA       195,638
    3,185,000       7.450%, 01/01/23                    Aaa/AAA     3,268,606
    1,345,000       6.800%, 01/01/24                    Aaa/AAA     1,376,944
      500,000       6.375%, 07/01/28                    Aaa/AAA       505,000
                   Martin County Kentucky Housing
                    Revenue,
    2,400,000       6.250%, 07/01/23                    Aa/AA       2,391,000

                                                                   24,266,094

                   Universities (1.6%)

                   Berea Kentucky College General
                    Obligation Subject to AMT,
    2,400,000       5.900%, 05/01/13                    Aa1/NR      2,412,000
                   Eastern Kentucky University
      585,000       5.375%, 05/01/04                    A/A           588,054
                   Western Kentucky University
                    Revenue,
      325,000       7.100%, 12/01/99                    Baa/BBB+      348,562
      275,000       7.100%, 12/01/01                    Aaa/AAA       305,594

                                                                    3,654,210

                   Schools (8.5%)
                   Boone County Kentucky School
                    District Finance Corp. School
                    Building Revenue,
    2,250,000       6.125%, 12/01/17                    A/A         2,289,375
    1,750,000       6.750%, 09/01/09                    A/A         1,872,500
                   Butler County Kentucky School
                    Building Revenue,
      270,000       7.200%, 05/01/07                    A/A           299,025
      290,000       7.200%, 05/01/08                    A/A           321,175
                   Campbell County Kentucky School
                    Building Revenue,
    1,000,000       5.100%, 02/01/14                    A/NR          932,500
                   Grayson County Kentucky School
                    Building Revenue,
    1,940,000       6.000%, 01/01/15                    A/NR        1,966,675
                   Harlan County Kentucky School
                    District Corp. School Building
                    Revenue,
      205,000       7.400%, 12/01/06                    A/A           226,269
      200,000       7.250%, 09/01/09                    NR/A          216,500
                   Jefferson County Kentucky School
                    District Finance Corp. School
                    Building Revenue,
      370,000       6.200%, 01/01/06                    Aaa/AAA       395,438
      210,000       6.750%, 08/01/09                    Aaa/AAA       225,488
      500,000       5.875%, 01/01/11                    A-1/A+        508,125
                   Kenton County Kentucky School
                    District Finance Corp. School
                    Building Revenue,
      500,000       6.900%, 12/01/05                    NR/NR*        549,375
      600,000       7.000%, 12/01/07                    NR/NR*        661,500
                   Lexington-Fayette Urban County
                    Government School Building
                    Revenue,
      255,000       7.700%, 11/01/04                    A-1/A+        274,444
      180,000       7.700%, 11/01/05                    A-1/A+        193,725
      250,000       7.000%, 06/01/06                    A-1/A+        275,000
      400,000       7.000%, 06/01/08                    A-1/A+        440,000
      370,000       7.000%, 06/01/09                    A-1/A+        407,000
                   Nelson County Kentucky School
                    Building Revenue,
    1,820,000       5.750%, 04/01/15                    A/NR        1,804,075
                   Pike County Kentucky School
                    District Finance Corp. School
                    Building Revenue,
      505,000       6.900%, 12/01/05                    NR/A          546,662
      720,000       7.000%, 12/01/09                    NR/A          778,500
                   Todd County Kentucky School
                    Building Revenue,
      980,000       6.300%, 10/01/14                    NR/A        1,019,200
                   Scott County Kentucky School
                    Building Revenue,
    2,750,000       5.900%, 06/01/18                    NR/A        2,746,562

                                                                   18,949,113
  
                   Total Investments - 98.7% (Cost
                     $215,585,707**)                              220,546,907
                   Other assets in excess of
                     liabilitites - 1.3%                            2,937,295

                   Net Assets - 100%                            $ 223,484,202

<FN>
*  Any security not rated must be determined by the Investment Adviser 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.
</FN>
<FN>
** Cost for Federal tax purposes is $213,513,486.
</FN>
</TABLE>
              See accompanying notes to financial statements.
<PAGE>

                 CHURCHILL TAX-FREE FUND OF KENTUCKY
                 STATEMENT OF ASSETS AND LIABILITIES
                     JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S>                                                         <C>
ASSETS
Investments at value (identified cost $215,585,707)             $ 220,546,907
Interest receivable                                                 4,303,663
Receivable for Fund shares sold                                       210,712
    Total assets                                                  225,061,282

LIABILITIES
Cash overdraft                                                      1,117,044
Dividends payable                                                     137,978
Accrued expenses                                                       97,013
Adviser and Administrator fees payable                                 86,118
Distribution fees payable                                              83,440
Payable for Fund shares redeemed                                       55,487
Total liabilities                                                   1,577,080

NET ASSETS                                                      $ 223,484,202

Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares,
  par value $.01 per share                                          $ 214,178
Additional paid-in capital                                        219,279,416
Accumulated net realized loss on investments                        (970,592)
Net unrealized appreciation on investments                          4,961,200
                                                                $ 223,484,202

CLASS A
  Net Assets                                                    $ 218,717,530
  Capital shares outstanding                                       20,961,194
  Net asset value and redemption price per share                      $ 10.43
  Offering price per share (100/96 of $10.43 adjusted to
    nearest cent)                                                     $ 10.86

CLASS C
  Net Assets                                                          $ 1,117
  Capital shares outstanding                                              107
  Net asset value and offering price per share                        $ 10.43
  Redemption price per share (*varies by length of time
    shares are held)                                                      $ *

CLASS Y
  Net Assets                                                      $ 4,765,555
  Capital shares outstanding                                          456,511
  Net asset value, offering and redemption price per share            $ 10.44
</TABLE>

           See accompanying notes to financial statements.
<PAGE>

                   CHURCHILL TAX-FREE FUND OF KENTUCKY
                        STATEMENT OF OPERATIONS
             FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<S>                                           <C>             <C>
INVESTMENT INCOME:
  Interest income                                                 $ 7,157,135

EXPENSES:
  Investment Adviser fees (note B)                  $ 157,525
  Administrator fees (note B)                         292,547
  Distribution fees (note B)                          169,390
  Transfer and shareholder servicing agent fees        86,500
  Trustees' fees and expenses                          40,000
  Legal fees                                           37,000
  Shareholders' reports and proxy statements           25,000
  Custodian fees (note F)                              18,505
  Audit and accounting fees                            16,000
  Registration fees and dues                            8,500
  Insurance                                             2,300
  Miscellaneous                                        22,794
                                                      876,061

  Expenses paid indirectly (note F)                  (11,700)
    Net expenses                                                      864,361
    Net investment income                                           6,292,774

REALIZED AND UNREALIZED GAIN (LOSS) ON
  INVESTMENTS:
  Net realized loss from securities
    transactions                                    (231,702)
  Change in unrealized appreciation on
    investments                                   (5,753,798)

  Net realized and unrealized gain (loss) on
    investments                                                   (5,985,500)
  Net increase in net assets resulting from
    operations                                                      $ 307,274
</TABLE>
                See accompanying notes to financial statements.
<PAGE>

                   CHURCHILL TAX-FREE FUND OF KENTUCKY
                   STATEMENTS OF CHANGES IN NET ASSETS
                               (UNAUDITED)
<TABLE>
<CAPTION>
                                         SIX MONTHS ENDED   YEAR ENDED
                                         JUNE 30, 1996      DECEMBER 31, 1995
<S>                                      <C>                <C>
OPERATIONS:
  Net investment income                    $ 6,292,774         $ 13,733,799
  Net realized loss from securities
    transactions                             (231,702)            (423,661)
  Change in unrealized appreciation
    (depreciation) on investments          (5,753,798)           17,432,689
  Change in net assets from operations         307,274           30,742,827

DISTRIBUTIONS TO SHAREHOLDERS (NOTE E):
  Class A Shares:
  Net investment income                    (6,262,787)         (13,727,664)
  Net realized gain on investments              _                    _

  Class C Shares:
  Net investment income                         _                    _
  Net realized gain on investments              _                    _

  Class Y Shares:
  Net investment income                      (29,987)                _
  Net realized gain on investments              _                    _
  Change in net assets from
    distributions                         (6,292,774)         (13,727,664)

CAPITAL SHARE TRANSACTIONS (NOTE G):
  Proceeds from shares sold                15,111,611           17,964,446
  Reinvested dividends and
    distributions                           3,554,043            7,773,545
  Cost of shares redeemed                (19,466,295)         (45,139,255)
  Change in net assets from capital
    share transactions                      (800,641)         (19,401,264)

  Change in net assets                    (6,786,141)          (2,386,101)

NET ASSETS:
  Beginning of period                     230,270,343          232,656,444
  End of period                         $ 223,484,202        $ 230,270,343
</TABLE>
              See accompanying notes to financial statements.
<PAGE>


                  CHURCHILL TAX-FREE FUND OF KENTUCKY
                     NOTES TO FINANCIAL STATEMENTS
                               (UNAUDITED)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    Churchill Tax-Free Fund of Kentucky (the "Fund"), a non-diversified,
open-end investment company, was organized in March, 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 1, 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 a service fee. Class C shares are sold with no front-payment sales
charge but are assessed a contingent deferred sales charge if redeemed within
one year from the date of purchase and a level-payment charge for service and
distribution fees from date of purchase through six years thereafter. Class Y
shares are offered only to institutions acting for investors in a fiduciary,
advisory, agency, custodial or similar capacity, are not offered directly to
retail customers, and are sold at net asset value with no sales charge, no
redemption fee, no contingent deferred sales charge and no service or
distribution fees. 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.

    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.

    (1)   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.

    (2)   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 premiums and accretion of
          discounts.

    (3)   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.

    (4)   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.

    (5)   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.

NOTE B - MANAGEMENT ARRANGEMENTS AND FEES AND OTHER TRANSACTIONS WITH
AFFILIATES:

    Management affairs of the Fund are conducted through two separate
management arrangements.

    Banc One Investment Advisors Corporation (the "Adviser") became Adviser
to the Fund, effective September 11, 1995. 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 0.14 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 0.26 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. The payment of the above fees at the
end of any month will be reduced or postponed so that at no time will there
be any accrued but unpaid liability under this expense limitation. No such
reduction in fees was required during the six months ended June 30, 1996.

    For the six months ended June 30, 1996, the Fund incurred fees under the
Advisory Agreement and Administration Agreement of $157,525 and $292,547,
respectively.
<PAGE>

    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 Kentucky, with the bulk of sales
commissions inuring to such dealers. For the six months ended June 30, 1996,
the Distributor received sales commissions in the amount of $13,239.

    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 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 ("Qualified
Recipients"). The Fund makes payment of this service fee at the annual rate
of 0.15% of the Fund's average net assets represented by Class A Shares. For
the six months ended June 30, 1996, service fees on Class A Shares amounted
to $169,390, of which the Distributor received $1,898.

    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. There
were no payments made during the period April 1, 1996 through June 30, 1996.

    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. There were no payments made during
the period April 1, 1996 through June 30, 1996.

    Specific details about the Plans are more  fully defined in the Fund's
Prospectus and Statement of Additional Information.

NOTE C - PURCHASES AND SALES OF SECURITIES:

    During the six months ended June 30, 1996, purchases of securities and
proceeds from the sales of securities aggregated $12,336,803 and $14,558,190,
respectively.

    At June 30, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $8,100,915 and aggregate gross unrealized depreciation for all securities
in which there is an excess of tax cost over market value amounted to
$1,067,494, for a net unrealized appreciation of $7,033,421. At June 30,
1996, the Fund has a capital loss carryover of approximately $578,976 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,
$538,426 expires at December 31, 2002 and the balance of $40,550 expires at
December 31, 2003. To the extent that this loss is used to offset future
realized capital gains, it is probable the gains so offset will not be
distributed.
<PAGE>

NOTE D - PORTFOLIO ORIENTATION:

    Since the Fund invests principally and may invest entirely in triple
tax-free municipal obligations of issuers within Kentucky, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Kentucky and whatever
effects these may have upon Kentucky issuers' ability to meet their
obligations.

NOTE E - 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 Kentucky
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. For certain shareholders,
some dividends may, under some circumstances, be subject to the alternative
minimum tax. Also, annual capital gains distributions, if any, are taxable.

NOTE F - CUSTODIAN FEES:

    The Fund has negotiated an expense offset arrangement with its custodian,
Bank One Trust Company, N.A., an affiliate of the Adviser, wherein it
receives credit toward the reduction of custodian fees whenever there are
uninvested cash balances. During the six months ended June 30, 1996, the
Fund's custodian fees amounted to $18,505, of which $11,700 was offset by
such credits. The Fund could have invested its cash balances in an
income-producing asset if it had not agreed to a reduction in fees under the
expense offset arrangement with the custodian.
<PAGE>

NOTE G - CAPITAL SHARE TRANSACTIONS:

Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
                                 Six Months Ended          Year Ended
                                  June 30, 1996          December 31, 1995
                                Shares      Amount       Shares     Amount
<S>                         <C>        <C>          <C>           <C>
CLASS A SHARES:            
  Proceeds from shares sold     981,647  $10,337,146   1,723,240   $17,964,446
  Reinvested dividends and
    distributions               338,110    3,552,934     743,680     7,773,545
  Cost of shares redeemed   (1,486,941) (15,592,966) (4,315,370)  (45,139,255)
  Exchanged into Class Y
    Shares                    (369,589)  (3,858,514)       _           _

    Net change                (536,773) $(5,561,400) (1,848,450) $(19,401,264)

<CAPTION>
                                    Period Ended
                                   June 30, 1996*
                                 Shares      Amount
<S>                             <C>        <C>            
CLASS C SHARES:
  Proceeds from shares sold         107      $ 1,103
  Reinvested dividends and
    distributions                    _          _
  Cost of shares redeemed            _          _

    Net change                      107      $ 1,103

<CAPTION>
                                    Period Ended
                                    June 30, 1996*
                                  Shares      Amount
<S>                           <C>        <C>
CLASS Y SHARES:
  Proceeds from shares sold      88,246    $ 914,848
  Reinvested dividends and
    distributions                   107        1,109
  Exchanged from Class A
    Shares                      369,589    3,858,514
  Cost of shares redeemed       (1,431)     (14,815)

    Net Change                  456,511   $4,759,656

                             <C>         <C>        <C>         <C>
Total transactions in
    Fund shares                (80,155)   $(800,641) (1,848,450) $(19,401,264)

<FN>
* From April 1, 1996 (date of inception) through June 30, 1996.
</FN>
</TABLE>
<PAGE>

                    CHURCHILL TAX-FREE FUND OF KENTUCKY
                           FINANCIAL HIGHLIGHTS
                               (UNAUDITED)

For a share outstanding throughout each period
<TABLE>
<CAPTION>
                               Six                  
               Class  Class    Months                Class A(1)
               C(2)   Y(2)     Ended
               Period Ended    June 30,         Year Ended December 31
               June 30, 1996   1996      1995   1994   1993    1992    1991
               -------------   ------   ------------------------------------
<S>           <C>     <C>     <C>      <C>     <C>     <C>     <C>     <C>
Net Asset Value,
 Beginning of
 Period         $10.47  $10.47  $10.71   $9.97  $10.93  $10.49  $10.39  $10.00

Income from
Investment
Operations:

Net investment
 income           0.16    0.15    0.30    0.60    0.60    0.62    0.66    0.66

Net gain (loss)
 on securities 
 (both realized
 and unrealized)(0.04)  (0.03)  (0.28)    0.74  (0.96)    0.47    0.19    0.41

Total from
 Investment
 Operations       0.12    0.12    0.02    1.34  (0.36)    1.09    0.85    1.07

Less
Distributions:

Dividends from
 net investment
 income         (0.16)  (0.15)  (0.30)  (0.60)  (0.60)  (0.62)  (0.66)  (0.66)

Distributions
 from capital
 gains             -       -       -       -       -    (0.03)  (0.09)  (0.02)

Total
 Distributions  (0.16)  (0.15)  (0.30)  (0.60)  (0.60)  (0.65)  (0.75)  (0.68)

Net Asset Value,
 End of Period  $10.43  $10.44  $10.43  $10.71   $9.97  $10.93  $10.49  $10.39

Total Return 
 (not reflecting
 sales charge)
 (%)             1.15#   1.19#   0.16#   13.75  (3.31)   10.50    8.48   10.97

Ratios /
 Supplemental
 Data

Net Assets,
 End of Period
 ($ thousands)       1   4,766 218,718 230,270 232,656 258,632 192,600 114,798

Ratio of Expenses
 to Average Net
 Assets (%)         -    0.61*   0.77*    0.79    0.72    0.59    0.42    0.27

Ratio of Net
 Investment
 Income to
 Average Net
 Assets (%)      5.19*   5.95*   5.60*    5.75    5.81    5.67    6.21    6.53

Portfolio Turn-
 over Rate (%)   5.52#   5.52#   5.52#   17.09   35.25   31.29   50.33   16.69

<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary waiver
of fees, the Administrator's voluntary expense reimbursement and the expense
offset in custodian fees for uninvested cash balances would have been:
<S>           <C>      <C>      <C>     <C>     <C>    <C>     <C>      <C>
Net Investment
 Income ($)      0.16    0.15     0.30    0.60    0.60   0.60     0.63    0.60

Ratio of
 Expenses to
 Average Net
 Assets (%)     1.63*   0.62*    0.78*    0.80    0.73   0.73     0.68    0.84

Ratio of Net
 Investment
 Income to
 Average Net
 Assets (%)     3.56*   5.94*    5.59*    5.74    5.80   5.52     5.95    5.96

<FN>
(1) Designated as Class A Shares on April 1, 1996.
</FN>

<FN>
(2) New Class of Shares established on April 1, 1996.
</FN>

<FN>
 #  Not annualized
</FN>

<FN>
 *  Annualized.
</FN>
</TABLE>

Note: Effective September 11, 1995, Banc One Investment Advisors Corporation
became the Fund's Investment Adviser replacing PNC Bank, Kentucky, Inc.

                 See accompanying notes to financial statements.
<PAGE>

REPORT ON THE ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS (UNAUDITED)

      The Annual Meeting of Shareholders of Churchill Tax-Free Fund of
Kentucky (the "Fund") was held on April 26, 1996.*  At the meeting, the
following matters were submitted to a shareholder vote and approved:

    (i)   the election of Lacy B. Herrmann, Thomas A. Christopher, Douglas
          Dean, Diana P. Herrmann, Ann R. Leven, Theodore T. Mason, Anne J.
          Mills, William J. Nightingale, and James R. Ramsey 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 14,374,826  affirmative votes (98.57%);
          no more than 208,789 votes were withheld for any Trustee (1.43%)),
          and

    (ii)  the ratification of the selection of KPMG Peat Marwick LLP as
          the Fund's independent auditors for the fiscal year ending December
          31, 1996 (votes for: 13,979,337 (95.86%); votes against: 38,526
          (0.26%); abstentions: 561,770 (3.85%); broker non-votes: 3,982
          (0.03%)).

      Special Meetings of the Fund's Class C and Class Y Shareholders were
held on March 29, 1996 and April 4, 1996, respectively. **At the Special
Meeting of Class C Shareholders of the Fund, the Class C Shareholders voted
on and unanimously approved amendments to the Fund's Distribution Plan
affecting the interests of the Class C Shareholders of the Fund.  At the
Special Meeting of Class Y Shareholders of the Fund, the Class Y Shareholders
voted on and unanimously approved amendments to the Fund's Distribution Plan
affecting the interests of the Class Y Shareholders of the Fund.

___________

* On the record date for this meeting, 21,620,751 shares of the Fund were
outstanding and entitled to vote. The holders of 14,583,615 shares (67.45%)
entitled to vote were present in person or by proxy at the meeting.

** On the record dates for the Special Meetings, the total net asset values
of the Class C and Class Y Shares of the Fund outstanding and entitled to
vote were $100 and $100, respectively.  The holders of all Class C and Class
Y Shares entitled to vote were present in person at the meetings.

<PAGE>
INVESTMENT ADVISER
BANC ONE INVESTMENT ADVISORS CORPORATION
416 West Jefferson Street
Louisville, Kentucky 40202

ADMINISTRATOR AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017

BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Thomas A. Christopher
Douglas Dean
Diana P. Herrmann
Ann R. Leven
Theodore T. Mason
Anne J. Mills
William J. Nightingale
James R. Ramsey

OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Senior Vice President
L. Michele Crutcher, 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.


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