-----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, UC6Px9jkVdu0s8Olxj5sBNtqHbaxTau9hucYrnAwUIu0OmkkI0D7o1WUg+4zRbAV hLu+pSJMryr1IbF/uopJGw== 0000812006-01-500012.txt : 20010823 0000812006-01-500012.hdr.sgml : 20010823 ACCESSION NUMBER: 0000812006-01-500012 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010822 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHURCHILL TAX FREE TRUST CENTRAL INDEX KEY: 0000812006 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 136864349 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05086 FILM NUMBER: 1720802 BUSINESS ADDRESS: STREET 1: 380 MADISON AVE STREET 2: SUITE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126976666 MAIL ADDRESS: STREET 1: 380 MADISON AVENUE STREET 2: SUITE 2300 CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: CHURCHILL TAX FREE FUND OF KENTUCKY DATE OF NAME CHANGE: 19880911 N-30D 1 ctffksemi2001.txt CTFFKY 6/30/01 SEMI-ANNUAL REPORT MANAGER 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 Carroll F. Knicely Theodore T. Mason Anne J. Mills William J. Nightingale James R. Ramsey OFFICERS Diana P. Herrmann, President Thomas S. Albright, Senior Vice President and Portfolio Manager Jerry G. McGrew, Senior Vice President Teresa M. Blair, Vice President Jason T. McGrew, Assistant Vice President Rose F. Marotta, Chief Financial Officer Joseph P. DiMaggio, 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 LLP 757 Third Avenue New York, New York 10017 Further information is contained in the Prospectus, which must precede or accompany this report. SEMI-ANNUAL REPORT JUNE 30, 2001 CHURCHILL TAX-FREE FUND OF KENTUCKY A TAX-FREE INCOME INVESTMENT [Logo of the Churchill Tax-Free Fund of Kentucky: a standing pegasus in a circle] [Logo of the Aquila Group of Funds: an eagle's head] ONE OF THE AQUILASM GROUP OF FUNDS [Logo of the Churchill Tax-Free Fund of Kentucky: a standing pegasus in a circle] SERVING KENTUCKY INVESTORS FOR OVER A DECADE CHURCHILL TAX-FREE FUND OF KENTUCKY SEMI-ANNUAL REPORT "THE MANY BENEFITS OF MUNICIPAL BOND FUND INVESTING" August 15, 2001 Dear Fellow Shareholder: We have found over the years that it never hurts to reinforce for shareholders the fundamentals of Churchill Tax-Free Fund of Kentucky and the reasons for investing in the Fund. Therefore, this Semi-Annual Report letter will provide you with a brief synopsis of the benefits of investing in the Fund. CAPITAL PRESERVATION In general, a primary reason for investing in a municipal bond fund, such as Churchill Tax-Free Fund of Kentucky, is capital preservation. In simple terms, Churchill Tax-Free Fund of Kentucky is managed to help you keep the capital that you have. Therefore, the Fund's share price does not experience the dramatic highs and lows that can be witnessed by other types of investments, such as common stock funds. As the following chart illustrates, Churchill Tax-Free Fund of Kentucky's objective of achieving a relatively stable share price, or net asset value, has been highly successful.* Since inception, the share price of the Fund has experienced relatively little volatility. This allows shareholders to "SLEEP WELL AT NIGHT," without worrying that their investment of today in the Fund could be substantially less tomorrow. [Graphic of a bar chart with the following information:] SHARE NET ASSET VALUE 5/21/87 $9.60 12/31/87 $9.26 12/31/88 $9.53 12/31/89 $10.05 12/31/90 $10.00 12/31/91 $10.39 12/31/92 $10.50 12/31/93 $10.93 12/31/94 $9.97 12/31/95 $10.71 12/31/96 $10.55 12/31/97 $10.81 12/31/98 $10.81 12/31/99 $10.09 12/31/00 $10.40 6/30/01 $10.38 TAX-FREE INCOME Obviously, there is substantially more to investing in the Fund than retaining the value of your capital. If there was only retention of your capital value, a piggy bank could serve as just an appropriate means. Another substantial benefit that you gain from an investment in Churchill Tax-Free Fund of Kentucky is that of obtaining monthly income that is TRIPLE TAX-FREE.** The Fund pays you TAX-FREE DIVIDENDS - month in and month out. These dividends can be used by you to help you pay your living expenses, or they can be reinvested in additional shares of the Fund, thereby gaining for you the benefits of compounding. It is important for you to fully recognize just what TAX-FREE DIVIDENDS mean to you. As the chart below illustrates, a 5% TAX-FREE RETURN on your investment can equate to a taxable return of 8.5%, depending on your personal tax bracket.*** [Graphic of a bar chart with the following information:] Tax-Free Yield Taxable Equivalent Yield 4% 6.8% 5% 8.5% 6% 10% HIGH-QUALITY, CONTROLLED MATURITY, AND DIVERSIFICATION How does Churchill Tax-Free Fund of Kentucky strive to ensure that its objective of capital preservation and steady tax-free income is accomplished? This is achieved through very distinct management techniques utilized with construction of the Fund's portfolio. As you probably know, municipal securities have various credit ratings. These ratings attempt to measure the safety that the securities represent. With Churchill Tax-Free Fund of Kentucky, we specifically limit the credit ratings to those within the TOP FOUR categories - AAA, AA, A, AND BAA. We further ensure that, in general, the majority of securities in the Fund's portfolio are within the TOP TWO credit grades - AAA AND AA. Through active management of the Fund's portfolio, we very carefully monitor the quality characteristics of each investment. In this way, we intentionally strive to avoid "surprises" from any of the Fund's securities. Another factor that we feel is important is maturity level in the construction of the overall characteristics of the municipal bonds in the portfolio. As we have explained to you in the past, long-term bonds tend to produce a higher return than short-term bonds. However, such longer maturity bonds also experience a higher degree of volatility in their price. Therefore, we have structured the average maturity level of Churchill Tax-Free Fund of Kentucky to be at a somewhat intermediate level. This level is produced by choosing a "laddered" approach to the selection of bonds in terms of their maturity. We include both short-term and long-term bonds in the portfolio, so that the overall average of these maturities run at an intermediate level. In this way, we can capture a substantial amount of income available from the bonds, but avoid any undue level of volatility. The charts below illustrate the Fund's June 30, 2001 portfolio broken down by quality and maturity. [Graphic of a pie chart with the following information:] PORTFOLIO DISTRIBUTION BY QUALITY AAA 64.24% AA 18.56% A 16.14% Below A and Not Rated 1.06% [Graphic of a pie chart with the following information:] PORTFOLIO DISTRIBUTION BY MATURITY 0 - 5 Years 16.9% 6 - 10 Years 9.79% 11 - 20 Years 52.69% 21 - 25 Years 11.14% Over 25 Years 9.48% The other factor we tend to emphasize is diversification of the individual municipal bonds. We want to have a number of bonds in the Fund's portfolio representing various locations in the Commonwealth and various kinds of projects. In this way, we can assure ourselves that no one project, or area of the Commonwealth, can have any significant adverse influence upon your investment in the Fund. ENHANCING KENTUCKY'S QUALITY OF LIFE But, just as important for all shareholders in the Fund is the fact that we are spreading the investments in the Fund around in such a way that enhances the quality of life of all shareholders as well as helping the economic development of the Commonwealth. As we are sure you are aware, the economy of Kentucky is growing at a dynamic rate. As this growth takes place, new and additional municipal projects are needed for the benefit of the citizens of Kentucky and its various communities. These projects include schools, highways, recreational facilities, and a whole array of useful public purpose facilities. These projects contribute to the economic development of Kentucky and provide a high quality of life for its citizens. Highlighted below are just a few of the projects that your investment in Churchill Tax-Free Fund of Kentucky has helped to bring to fruition.**** [Photo: SCOTT COUNTY SCHOOL DISTRICT] [Photo: UNIVERSITY OF KENTUCKY LIBRARY] [Photo: KENTUCKY TURNPIKE AUTHORITY] [Photo: WARREN COUNTY JUDICIAL CENTER] DEDICATED MANAGEMENT TEAM Everyone associated with Churchill Tax-Free Fund of Kentucky is dedicated to providing you with the best possible investment through your shares of the Fund. We do this not only through the points we have detailed above, but also through frequent contact with you, and our other shareholders. We work diligently to keep you informed of current happenings in the investment world - in simple, easy-to-understand language. Unlike many fund groups, we actively encourage and offer you the opportunity to voice your opinions and concerns. And, we listen and respond to your ideas. We sincerely believe that Churchill Tax-Free Fund of Kentucky is " AN INVESTMENT YOU AND KENTUCKY CAN COUNT ON." We well recognize that you have entrusted your hard-earned dollars to our care. It is a responsibility which we take very seriously. Rest assured that we will continue to do our utmost to merit your confidence. Sincerely, Diana P. Herrmann Lacy B. Herrmann President Chairman of the Board of Trustees * The above chart illustrates the record of Net Asset Value since the Fund's inception. Past performance does not guarantee future stability. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. ** For certain investors, some dividends may be subject to Federal and state taxes, including the Alternative Minimum Tax (AMT). *** This chart assumes a 36% Federal and 6% State tax rate and is for illustrative purposes only. As you are aware, new tax brackets have been put into place through passage of the Federal Tax Act enacted this year. This new change, which went into effect on July 1, 2001, will have a minimal effect upon the overall illustration. The difference between a taxable investment and a tax-free investment remains valid regardless of your particular tax bracket. Results shown are not indicative of past or future performance of any investment offered by Aquila. **** Since the portfolio is subject to change, the Fund may not necessarily currently own securities in these specific projects. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF INVESTMENTS JUNE 30, 2001 (UNAUDITED)
RATING FACE MOODY'S/ AMOUNT GENERAL OBLIGATION BONDS (0.4%) S&P VALUE - ----------- -------------------------------------------------------------------- -------- ------------- Lexington-Fayette Urban County Government, Unlimited Tax $ 275,000 5.150%, 12/01/17............................................ Aa2/AA+ $ 276,375 Warren County Kentucky Judicial Unlimited Tax General Obligation 345,000 5.100%, 09/01/17, AMBAC Insured............................. Aaa/NR 348,019 265,000 5.150%, 09/01/18, AMBAC Insured............................. Aaa/NR 266,988 ------------- Total General Obligation Bonds...................... 891,382 ------------- REVENUE BONDS (98.7%) -------------------------------------------------------------------- STATE AGENCIES (19.4%) -------------------------------------------------------------------- Kentucky Area Development 145,000 5.600%, 06/01/28, LOC Fifth Third Bank...................... NR/AA 146,813 Kentucky Higher Education Student Loan Corporation Insured Student Loan Revenue 1,475,000 6.500%, 06/01/02............................................ Aaa/AA- 1,519,383 2,950,000 6.800%, 06/01/03............................................ Aaa/AA- 3,082,750 1,915,000 7.100%, 12/01/11............................................ Aaa/AA- 1,967,394 Kentucky Infrastructure Authority Revenue 555,000 7.200%, 06/01/11............................................ Aa3/AA 573,409 635,000 5.250%, 06/01/12............................................ Aa3/AA 658,812 875,000 6.500%, 06/01/12............................................ Aa3/AA 909,352 1,110,000 6.375%, 06/01/14, Pre-Refunded.............................. Aa3/AA 1,240,425 1,500,000 5.375%, 02/01/18............................................ Aa3/AA 1,509,375 Kentucky Local Correctional Facilities Construction Authority Revenue 6,355,000 5.500%, 11/01/14, FSA Insured............................... Aaa/AAA 6,585,369 Kentucky Rural Economic Development Authority 3,110,000 7.250%, 06/01/17, LOC Bank One.............................. NR/A+ 3,240,962 Kentucky State Property and Buildings Commission Revenue 3,000,000 6.250%, 09/01/07, MBIA Insured.............................. Aaa/AAA 3,371,250 4,510,000 6.625%, 10/01/07, Pre-Refunded.............................. NR/AAA 4,641,692 220,000 6.000%, 09/01/08............................................ Aa3/AA- 245,025 500,000 5.500%, 11/01/09, AMBAC Insured............................. Aaa/AAA 533,750 400,000 5.000%, 09/01/13............................................ Aa3/AA- 404,000 400,000 5.250%, 10/01/14............................................ Aa3/AA- 413,000 1,500,000 5.375%, 08/01/16, FSA Insured............................... Aaa/AAA 1,554,375 1,735,000 5.250%, 10/01/17............................................ Aa3/AA- 1,756,688 6,000,000 5.250%, 10/01/18............................................ Aa3/AA- 6,075,000 1,000,000 5.000%, 08/01/19............................................ Aa3/AA- 990,000 1,375,000 5.000%, 10/01/19, #68....................................... Aa3/AA- 1,356,094 ------------- 42,774,918 ------------- COUNTY AGENCIES (11.9%) -------------------------------------------------------------------- Floyd County Public Property, Courthouse Revenue 510,000 5.500%, 09/01/14............................................ NR/A+ 530,400 Jefferson County Kentucky Capital Projects 1,000,000 5.200%, 06/01/08, MBIA Insured.............................. Aaa/AAA 1,065,000 570,000 5.250%, 06/01/13, MBIA Insured.............................. Aaa/AAA 591,375 420,000 5.250%, 06/01/14, MBIA Insured.............................. Aaa/AAA 433,650 3,370,000 5.375%, 06/01/18, MBIA Insured.............................. Aaa/AAA 3,450,037 1,640,000 5.375%, 06/01/22, MBIA Insured.............................. Aaa/AAA 1,658,450 5,900,000 5.500%, 06/01/28, MBIA Insured.............................. Aaa/AAA 5,988,500 Pendleton County Kentucky Multi-County Lease Revenue 4,500,000 6.500%, 03/01/19............................................ NR/A 4,685,625 3,000,000 6.400%, 03/01/19............................................ NR/A 3,442,500 Warren County Kentucky Justice Center Revenue 1,580,000 5.250%, 9/01/17 MBIA Insured................................ Aaa/AAA 1,607,650 2,875,000 5.350%, 09/01/29, MBIA Insured.............................. Aaa/AAA 2,896,563 ------------- 26,349,750 ------------- CITY/MUNICIPAL OBLIGATIONS (8.8%) -------------------------------------------------------------------- Jeffersontown Kentucky Public Project Corp. Revenue 500,000 5.750%, 11/01/15............................................ A3/NR 523,125 Kentucky League Cities Funding Trust Certificates of Participation 700,000 5.900%, 08/01/16, (Owensboro)............................... NR/A 728,875 1,715,000 6.200%, 08/01/17, (Covington)............................... NR/A+ 1,798,606 Louisville Kentucky Public Properties Corp. 4,090,000 6.700%, 12/01/20, Pre-Refunded.............................. A/A- 4,381,413 Mount Sterling Kentucky Lease Revenue 1,920,000 6.150%, 03/01/13............................................ Aa3/NR 2,008,800 7,000,000 6.200%, 03/01/18............................................ Aa3/NR 7,306,250 Munfordville Kentucky Industrial Development Revenue 2,500,000 7.000%, 06/01/19, LOC Bank One.............................. NR/A+ 2,659,375 ------------- 19,406,444 ------------- HOSPITALS (7.4%) -------------------------------------------------------------------- Hopkins County Kentucky Hospital Revenue 1,000,000 6.625%, 11/15/11, MBIA Insured.............................. Aaa/AAA 1,029,080 Jefferson County Kentucky Health Facilities Revenue 1,500,000 5.650%, 01/01/17, AMBAC Insured............................. Aaa/AAA 1,556,250 1,150,000 6.550%, 05/01/22, AMBAC Insured............................. Aaa/AAA 1,192,136 Kentucky Development Finance Authority Hospital Revenue 3,000,000 6.500%, 11/01/07, Pre-Refunded.............................. A1/A+ 3,095,610 2,150,000 6.750%, 11/01/12, Pre-Refunded.............................. A1/A+ 2,220,219 1,375,000 6.125%, 02/01/12, FSA Insured............................... Aaa/AAA 1,440,312 2,590,000 5.000%, 08/15/15, MBIA Insured.............................. Aaa/AAA 2,554,387 3,000,000 5.900%, 12/01/15, FGIC Insured.............................. Aaa/AAA 3,138,750 ------------- 16,226,744 ------------- HOUSING (14.3%) -------------------------------------------------------------------- Greater Kentucky Housing Assistance Corp. Multi-Family Housing Revenue 320,000 6.300%, 07/01/15, MBIA Insured.............................. Aaa/NR 332,800 2,025,000 6.050%, 07/01/22, MBIA Insured.............................. Aaa/AAA 2,031,622 275,000 6.400%, 07/01/23, MBIA Insured.............................. Aaa/NR 285,656 Jefferson County Kentucky Multi-Family Revenue, (Taylorsville Road Project) 1,530,000 5.750%, 06/01/23............................................ NR/AA 1,551,741 Kentucky Housing Corp. Housing Revenue 350,000 6.500%, 01/01/07............................................ Aaa/AAA 361,812 145,000 7.250%, 01/01/09............................................ Aaa/AAA 145,732 980,000 7.125%, 01/01/10............................................ Aaa/AAA 1,006,597 4,975,000 6.600%, 07/01/11............................................ Aaa/AAA 5,143,155 1,445,000 5.400%, 07/01/14............................................ Aaa/AAA 1,475,706 1,050,000 6.250%, 07/01/15............................................ Aaa/AAA 1,092,000 315,000 6.100%, 07/01/16............................................ Aaa/AAA 328,781 1,145,000 6.400%, 01/01/17............................................ Aaa/AAA 1,196,525 500,000 5.550%, 07/01/18............................................ Aaa/AAA 503,750 1,465,000 5.800%, 01/01/19............................................ Aaa/AAA 1,494,300 2,000,000 5.600%, 07/01/20............................................ Aaa/AAA 2,012,500 60,000 7.900%, 01/01/21............................................ Aaa/AAA 60,704 905,000 7.450%, 01/01/23............................................ Aaa/AAA 926,901 6,495,000 6.300%, 01/01/28............................................ Aaa/AAA 6,706,087 2,300,000 6.375%, 07/01/28............................................ Aaa/AAA 2,389,125 2,430,000 6.250%, 07/01/28............................................ Aaa/AAA 2,515,050 ------------- 31,560,544 ------------- POLLUTION CONTROL REVENUE (8.1%) -------------------------------------------------------------------- Boone County Kentucky Pollution Control, (DPL- Dayton Power & Light) 4,000,000 6.500%, 11/15/22............................................ A2/BBB+ 4,130,000 Carroll County Kentucky Pollution Control Revenue, (Powergen-formerly LGE Energy) 4,500,000 7.450%, 09/15/16............................................ A1/A- 4,713,750 2,910,000 6.250%, 02/01/18............................................ A1/A- 2,975,475 Jefferson County Kentucky Pollution Control Revenue, (Powergen-formerly LGE Energy) 3,800,000 5.900%, 04/15/23............................................ A1/A- 3,852,250 Wickliffe Kentucky Pollution Control, (Westvaco) 2,305,000 6.200%, 04/01/07............................................ Baa1/BBB+ 2,309,610 ------------- 17,981,085 ------------- SCHOOLS (11.4%) -------------------------------------------------------------------- Boone County Kentucky School District Finance Corp. School Building Revenue 1,750,000 6.750%, 09/01/09, Pre-Refunded.............................. Aa3/A 1,813,088 2,250,000 6.125%, 12/01/17, Pre-Refunded.............................. Aa3/NR 2,390,625 2,295,000 5.700%, 05/01/18............................................ Aa3/NR 2,369,588 1,000,000 5.375%, 08/01/20............................................ AAA/NR 1,021,250 Boyd County Kentucky School District Finance Corp. 1,025,000 5.000%, 10/01/15............................................ AA3/NR 1,032,688 575,000 5.375%, 10/01/17............................................ Aa3/NR 585,781 Christian County Kentucky School District Finance Corp. 500,000 5.000%, 06/01/09............................................ Aa3/NR 523,750 Fayette County School Building Revenue 1,780,000 5.700%, 12/01/16............................................ Aa3/AA- 1,869,000 Floyd County Kentucky School Building Revenue 250,000 5.000%, 12/01/09............................................ Aa3/NR 262,500 Grayson County Kentucky School Building Revenue 1,940,000 6.000%, 01/01/15............................................ Aa3/NR 2,056,400 Jefferson County Kentucky School District Finance Corp. School Building Revenue 455,000 6.200%, 01/01/06, MBIA Insured.............................. Aaa/AAA 475,630 165,000 6.200%, 01/01/06, MBIA Insured, Pre-refunded................ Aaa/AAA 173,895 500,000 5.875%, 01/01/11, Pre-refunded.............................. Aa3/AA- 529,375 695,000 5.125%, 11/01/14, FSA Insured............................... Aaa/AAA 710,637 Lexington-Fayette Urban County Government Project U.K. Library 725,000 5.000%, 11/01/15, MBIA Insured.............................. Aaa/AAA 730,438 Lexington-Fayette Urban County Government Project, Transylvania University 1,250,000 5.125%, 08/01/18, MBIA Insured.............................. Aaa/AAA 1,256,250 Meade County Kentucky School District Finance Corp. 400,000 5.700%, 07/01/15............................................ Aa3/NR 422,500 500,000 6.000%, 07/01/16............................................ Aa3/NR 533,750 Middlesboro Kentucky Independent School District Finance Corp. 100,000 6.100%, 08/01/16............................................ Aa3/NR 107,250 Nelson County Kentucky School Building Revenue 1,820,000 5.750%, 04/01/15............................................ Aa3/NR 1,908,725 Scott County Kentucky School Building Revenue 2,750,000 5.900%, 06/01/18............................................ Aa3/NR 2,887,500 Taylor County Kentucky School Building Revenue 280,000 6.000%, 08/01/16............................................ Aa3/NR 299,250 Todd County Kentucky School Building Revenue 980,000 6.300%, 10/01/14, Pre-Refunded.............................. Aa3/A 1,081,675 ------------- 25,041,545 ------------- TRANSPORTATION (9.1%) -------------------------------------------------------------------- Kenton County Kentucky Airport Board Airport Revenue 5,240,000 6.300%, 03/01/15, FSA Insured............................... Aaa/AAA 5,355,227 Kentucky Interlocal School Transportation Authority 150,000 5.100%, 03/01/05............................................ Aa3/A+ 157,313 145,000 5.400%, 06/01/17............................................ NR/A+ 146,707 600,000 6.000%, 12/01/20............................................ NR/A+ 610,416 300,000 5.800%, 12/01/20............................................ NR/A+ 304,977 400,000 5.650%, 12/01/20............................................ NR/A+ 405,368 350,000 5.600%, 12/01/20............................................ NR/A+ 354,543 Kentucky State Turnpike Auth. Econ. Dev. & Resource Recovery Road Revenue 120,000 8.500%, 07/01/06............................................ Aa3/A+ 144,150 1,000,000 6.500%, 07/01/08, AMBAC Insured............................. Aaa/AAA 1,145,000 3,490,000 5.500%, 07/01/11, AMBAC Insured............................. Aaa/AAA 3,712,488 1,010,000 5.500%, 07/01/11, AMBAC Insured, Pre-refunded............... Aaa/AAA 1,052,925 1,000,000 5.625%, 07/01/12, FSA Insured............................... Aaa/AAA 1,083,750 200,000 5.625%, 07/01/13, FSA Insured............................... Aaa/AAA 215,000 500,000 5.625%, 07/01/14, FSA Insured............................... Aaa/AAA 533,750 2,740,000 5.625%, 07/01/15, AMBAC Insured............................. Aaa/AAA 2,990,025 940,000 5.625%, 07/01/15, AMBAC Insured, Pre-refunded............... Aaa/AAA 978,775 450,000 5.250%, 07/01/15, FSA Insured............................... Aaa/AAA 462,375 440,000 5.100%, 07/01/18, FSA Insured............................... Aaa/AAA 441,100 ------------- 20,093,889 ------------- UTILITIES (8.3%) -------------------------------------------------------------------- Hardin County, Kentucky Water District 1,000,000 5.900%, 01/01/25, MBIA Insured.............................. Aaa/AAA 1,046,250 Kenton County Kentucky Water District Water/Sewer Revenue 1,000,000 6.000%, 02/01/17, FGIC Insured.............................. Aaa/AAA 1,046,900 Louisville and Jefferson County Kentucky Metropolitan Sewer District Revenue 1,000,000 5.000%, 05/15/12, MBIA Insured.............................. Aaa/AAA 1,031,250 2,000,000 5.300%, 05/15/19, MBIA Insured.............................. Aaa/AAA 2,017,500 4,070,000 5.500%, 05/15/23, MBIA Insured.............................. Aaa/AAA 4,105,613 1,525,000 6.500%, 05/15/24, MBIA Insured, Pre-Refunded................ Aaa/AAA 1,700,375 Louisville Kentucky Waterworks Brd. Water Revenue 2,300,000 5.25%, 11/15/18, FSA Insured................................ Aaa/AAA 2,334,500 5,000,000 5.25%, 11/15/22, FSA Insured................................ Aaa/AAA 5,006,250 ------------- 18,288,638 ------------- Total Revenue Bonds................................. 217,723,557 ------------- Total Investments (cost $211,385,579)....................... 99.1% 218,614,939 Other assets less liabilities............................... 0.9 1,944,821 ------- ------------- Net Assets.................................................. 100.0% $ 220,559,760 ======= =============
* Any security not rated has been determined by the Investment Sub-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. PORTFOLIO ABBREVIATIONS: AMBAC - American Municipal Bond Assurance Corp. FGIC - Financial Guaranty Insurance Co. FSA - Financial Security Assurance LOC - Letter of Credit MBIA - Municipal Bond Investors Assurance Corp. See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2001 (UNAUDITED) ASSETS Investments at value (cost $211,385,579) ............................................... $ 218,614,939 Cash ................................................................................... 382,473 Interest receivable .................................................................... 3,426,681 Receivable for investment securities sold .............................................. 930,000 Receivable for Fund shares sold ........................................................ 95,667 Other assets ........................................................................... 576 ------------- Total assets ........................................................................... 223,450,336 ------------- LIABILITIES Payable for investment securities purchased ............................................ 2,365,123 Dividends payable ...................................................................... 212,142 Payable for Fund shares redeemed ....................................................... 130,560 Distribution fees payable .............................................................. 79,072 Management fee payable ................................................................. 30,120 Accrued expenses ....................................................................... 73,559 ------------- Total liabilities ...................................................................... 2,890,576 ------------- NET ASSETS ................................................................................. $ 220,559,760 ============= Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $.01 per share ..... $ 212,566 Additional paid-in capital ............................................................. 215,385,822 Net unrealized appreciation on investments (note 4) .................................... 7,229,360 Undistributed net investment income .................................................... 276,804 Accumulated net realized loss on investments ........................................... (2,544,792) ------------- $ 220,559,760 ============= CLASS A Net Assets ............................................................................. $ 198,008,140 ============= Capital shares outstanding ............................................................. 19,084,074 ============= Net asset value and redemption price per share ......................................... $ 10.38 ============= Offering price per share (100/96 of $10.38 adjusted to nearest cent) ................... $ 10.81 ============= CLASS C Net Assets ............................................................................. $ 2,526,128 ============= Capital shares outstanding ............................................................. 243,580 ============= Net asset value and offering price per share ........................................... $ 10.37 ============= Redemption price per share (*a charge of 1% is imposed on the redemption proceeds of the shares, or on the original price, whichever is lower, if redeemed during the first 12 months after purchase) .............................. $ 10.37* ============= CLASS Y Net Assets ............................................................................. $ 20,025,492 ============= Capital shares outstanding ............................................................. 1,928,982 ============= Net asset value, offering and redemption price per share ............................... $ 10.38 =============
See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED) INVESTMENT INCOME: Interest income ........................................ $ 6,128,325 Expenses: Management fee (note 3) ................................ $ 432,711 Distribution and service fees (note 3) ................. 157,811 Transfer and shareholder servicing agent fees .......... 64,593 Trustees' fees and expenses ............................ 43,917 Legal fees ............................................. 29,589 Shareholders' reports and proxy statements ............. 18,129 Custodian fees ......................................... 11,201 Audit and accounting fees .............................. 10,418 Registration fees and dues ............................. 6,101 Insurance .............................................. 5,961 Miscellaneous .......................................... 13,488 ----------- Total expenses ......................................... 793,919 Expenses paid indirectly (note 7) ...................... (23,921) Net expenses ........................................... 769,998 ----------- Net investment income .................................. 5,358,327 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain from securities transactions ......... 314,449 Change in unrealized appreciation on investments ....... (791,827) ----------- Net realized and unrealized loss on investments ........ (477,378) ----------- Net increase in net assets resulting from operations ... $ 4,880,949 ===========
See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2001 YEAR ENDED (UNAUDITED) DECEMBER 31, 2000 ----------------- ----------------- OPERATIONS: Net investment income ................................... $ 5,358,327 $ 10,987,482 Net realized gain (loss) from securities transactions ... 314,449 (781,368) Change in unrealized appreciation on investments ........ (791,827) 7,189,790 ------------- ------------- Change in net assets from operations ................ 4,880,949 17,395,904 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6): Class A Shares: Net investment income ................................... (4,824,010) (10,185,665) Class C Shares: Net investment income ................................... (43,132) (74,848) Class Y Shares: Net investment income ................................... (456,892) (726,760) ------------- ------------- Change in net assets from distributions ............. (5,324,034) (10,987,273) ------------- ------------- CAPITAL SHARE TRANSACTIONS (NOTE 8): Proceeds from shares sold ............................... 13,424,580 17,013,756 Reinvested dividends and distributions .................. 2,548,636 5,146,876 Cost of shares redeemed ................................. (9,466,428) (35,192,869) ------------- ------------- Change in net assets from capital share transactions .... 6,506,788 (13,032,237) ------------- ------------- Change in net assets .................................... 6,063,703 (6,623,606) NET ASSETS: Beginning of period ..................................... 214,496,057 221,119,663 ------------- ------------- End of period ........................................... $ 220,559,760 $ 214,496,057 ============= =============
See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION 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 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 and are not offered directly to retail investors. Class Y shares are sold at net asset value without any sales charge, redemption fees, contingent deferred sales charge or distribution or service fees. On April 30, 1998 the Fund established Class I shares, which are offered and sold only through financial intermediaries and are not offered directly to retail investors. At June 30, 2001 there were no Class I shares outstanding. All classes of shares represent interests in the same portfolio of investments and are identical as to rights and privileges but differ with respect to the effect of sales charges, the distribution and/or service fees borne by each class, expenses specific to each class, voting rights on matters affecting a single class and the exchange privileges of each class. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America for investment companies. a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities of more than 60 days are valued at fair value each business day based upon information provided by a nationally prominent independent pricing service and periodically verified through other pricing services. In the case of securities for which market quotations are readily available, securities are valued 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. 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. f) NEW ACCOUNTING PRONOUNCEMENT: In November 2000, the AICPA issued a revised audit and accounting guide, AUDITS OF INVESTMENT COMPANIES, which is effective for fiscal years beginning after December 15, 2000. The revised Guide requires the Fund to amortize premium and all discounts on all fixed-income securities. The Fund elected to adopt this requirement effective January 1, 2001. This change does not affect the Fund's net asset value, but does change the classification of certain amounts in the statement of operations. For the six month period ending June 30, 2001, interest income increased by $30,393, net realized loss on investments increased by $6,276, and the change in net unrealized appreciation of investments decreased by $24,117. In addition, the Fund recorded an adjustment to increase the cost of securities and increase accumulated undistributed net investment income by $242,302 to reflect the cumulative effect of this change up to the date of adoption. 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. Under the Advisory and Administration Agreement, the Manager provides all administrative services to the Fund. The Manager's services include providing the office of the Fund and all related services as well as overseeing the activities of 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 0.40 of 1% on the Fund's net assets. Specific details as to the nature and extent of the services provided by the Manager 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 ("Qualified Recipients") or others 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 0.15% of the Fund's average net assets represented by Class A Shares. For the six months ended June 30, 2001, service fees on Class A Shares amounted to $147,119 of which the Distributor received $4,403. 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 six months ended June 30, 2001, amounted to $8,019. 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 June 30, 2001, amounted to $2,673. The total of these payments with respect to Class C Shares amounted to $10,692 of which the Distributor received $6,155. Specific details about the Plans are more fully defined in the Fund's Prospectus and Statement of Additional Information. Under a Distribution Agreement, the Distributor serves as the exclusive distributor of the Fund's shares. Through agreements between the Distributor and various 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, 2001, total commissions on sales of Class A Shares amounted to $149,089 of which the Distributor received $16,109. 4. PURCHASES AND SALES OF SECURITIES During the six months ended June 30, 2001, purchases of securities and proceeds from the sales of securities aggregated $32,845,240 and $22,530,854, respectively. At June 30, 2001, aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost of $211,119,160 amounted to $7,635,451 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $139,672 for a net unrealized appreciation of $7,495,779. At December 31, 2000, the Fund has a capital loss carryover of $2,843,012, $1,820,125 of which expires on December 31, 2007 and $1,022,887 will expire on December 31, 2008. This carryover is available to offset future net realized gains on securities transactions to the extent provided for in the Internal Revenue Code. To the extent that this loss carryover is used to offset future realized capital gains, it is probable the gains so offset will not be distributed. 5. 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. 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, in cash, or in a combination of both, at the shareholder's option. Net realized capital gains, if any, are distributed annually and are taxable. An additional distribution of gain may be made to the extent necessary to avoid payment of Federal taxes by the Fund. 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 statement reporting and Federal income tax reporting requirements, distributions made by the Fund may not be the same as the Fund's net investment income, and/or net realized securities gains. Further, a small portion of the dividends may, under some circumstances, be subject to taxes at ordinary income and/or capital gain rates. For certain shareholders, some dividends may, under some circumstances, be subject to the alternative minimum tax. 7. EXPENSES The Fund has negotiated an expense offset arrangement with its custodian wherein it receives credit toward the reduction of custodian fees and other Fund expenses whenever there are uninvested cash balances. The Statement of Operations reflects the total expenses before any offset, the amount of offset and the net expenses. 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. 8. CAPITAL SHARE TRANSACTIONS Transactions in Capital Shares of the Fund were as follows:
SIX MONTHS ENDED JUNE 30, 2001 YEAR ENDED (UNAUDITED) DECEMBER 31, 2000 ------------------------ --------------------------- SHARES AMOUNT SHARES AMOUNT -------- ------------ ----------- ------------ CLASS A SHARES: Proceeds from shares sold ..... 741,074 $ 7,711,326 1,168,767 $ 11,883,473 Reinvested distributions ...... 232,352 2,413,537 494,084 5,024,587 Cost of shares redeemed ....... (828,843) (8,612,368) (3,126,047) (31,768,609) -------- ------------ ----------- ------------ Net change ................. 144,583 1,512,495 (1,463,196) (14,860,549) -------- ------------ ----------- ------------ CLASS C SHARES: Proceeds from shares sold ..... 84,771 879,818 51,545 526,418 Reinvested distributions ...... 2,832 29,402 5,081 51,674 Cost of shares redeemed ....... (23,156) (240,926) (69,042) (695,723) -------- ------------ ----------- ------------ Net change ................. 64,447 668,294 (12,416) (117,631) -------- ------------ ----------- ------------ CLASS Y SHARES: Proceeds from shares sold ..... 464,193 4,833,436 451,349 4,603,865 Reinvested distributions ...... 10,183 105,697 6,883 70,615 Cost of shares redeemed ....... (59,025) (613,134) (266,623) (2,728,537) -------- ------------ ----------- ------------ Net change ................. 415,351 4,325,999 191,609 1,945,943 -------- ------------ ----------- ------------ Total transactions in Fund shares ........................ 624,381 $ 6,506,788 (1,284,003) $(13,032,237) ======== ============ =========== ============
CHURCHILL TAX-FREE FUND OF KENTUCKY FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A ----------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 06/30/01 ---------------------------------------------------- (UNAUDITED) 2000 1999 1998 1997 1996 ----------- -------- -------- -------- -------- -------- Net asset value, beginning of period ............................ $10.40 $10.09 $10.81 $10.81 $10.55 $10.71 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income ........................................ 0.25 0.52 0.52 0.53 0.55 0.55 Net gain (loss) on securities (both realized and unrealized) . (0.02) 0.31 (0.68) 0.01 0.27 (0.12) -------- -------- -------- -------- -------- -------- Total from investment operations ............................. 0.23 0.83 (0.16) 0.54 0.82 0.43 -------- -------- -------- -------- -------- -------- Less distributions (note 6): Dividends from net investment income ......................... (0.25) (0.52) (0.53) (0.53) (0.55) (0.59) Distributions from capital gains ............................. - - (0.03) (0.01) (0.01) - -------- -------- -------- -------- -------- -------- Total distributions .......................................... (0.25) (0.52) (0.56) (0.54) (0.56) (0.59) -------- -------- -------- -------- -------- -------- Net asset value, end of period .................................. $10.38 $10.40 $10.09 $10.81 $10.81 $10.55 ======== ======== ======== ======== ======== ======== Total return (not reflecting sales charge) ...................... 2.28%+ 8.45% (1.51)% 5.13% 8.08% 4.17% Ratios/supplemental data Net assets, end of period (in thousands) ..................... $198,008 $196,890 $205,842 $229,667 $226,477 $222,889 Ratio of expenses to average net assets ...................... 0.74%* 0.74% 0.72% 0.73% 0.73% 0.75% Ratio of net investment income to average net assets ......... 4.93%* 5.10% 4.95% 4.89% 5.19% 5.22% Portfolio turnover rate ...................................... 10.42%+ 6.61% 6.35% 12.79% 22.39% 8.94% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets ...................... 0.72%* 0.73% 0.71% 0.72% 0.72% 0.74% Without the adoption of the change in amortization method discussed in note 2f, new accounting pronouncement, these amounts would have been: Net investment income ........................................ $ 0.25 Net realized and unrealized loss.............................. $(0.02) Ratio of net investment income to average net assets ......... 4.90%*
+ Not annualized. * Annualized. Note: Effective September 11, 1995, Banc One Investment Advisors Corporation became the Fund's Investment Adviser replacing PNC Bank, Kentucky, Inc. and effective on May 1, 1998, pursuant to new management arrangements, was appointed as the Fund's Investment Sub-Adviser. On July 1, 2000, Aquila Management Corporation was appointed as the Fund's Investment adviser. See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C ------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD 6/30/01 --------------------------------------- ENDED (UNAUDITED) 2000 1999 1998 1997 12/31/96(1) ----------- ------ ------- ------ ------ ----------- Net asset value, beginning of period ............. $10.39 $10.08 $10.81 $10.81 $10.55 $10.47 -------- ------ ------ ------ ------ ------- Income (loss) from investment operations: Net investment income ........................ 0.21 0.43 0.43 0.44 0.46 0.37 Net gain (loss) on securities (both realized and unrealized) ................... (0.02) 0.31 (0.69) 0.01 0.27 0.11 -------- ------ ------ ------ ------ ------- Total from investment operations ............. 0.19 0.74 (0.26) 0.45 0.73 0.48 -------- ------ ------ ------ ------ ------- Less distributions (note 6): Dividends from net investment income ......... (0.21) (0.43) (0.44) (0.44) (0.46) (0.40) Distributions from capital gains ............. - - (0.03) (0.01) (0.01) - -------- ------ ------ ------ ------ ------- Total distributions .......................... (0.21) (0.43) (0.47) (0.45) (0.47) (0.40) -------- ------ ------ ------ ------ ------- Net asset value, end of period ................... $10.37 $10.39 $10.08 $10.81 $10.81 $10.55 ======== ====== ====== ====== ====== ======= Total return (not reflecting sales charge) ....... 1.85%+ 7.54% (2.45)% 4.24% 7.16% 4.72%+ Ratios/supplemental data Net assets, end of period (in thousands) ..... $2,526 $1,861 $1,932 $949 $845 $433 Ratio of expenses to average net assets ...... 1.58%* 1.59% 1.56% 1.59% 1.57% 1.56%* Ratio of net investment income to average net assets ...................... 4.04%* 4.24% 4.09% 4.04% 4.30% 4.34%* Portfolio turnover rate ...................... 10.42%+ 6.61% 6.35% 12.79% 22.39% 8.94% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets ...... 1.56%* 1.58% 1.55% 1.57% 1.56% 1.55%* Without the adoption of the change in amortization method discussed in note 2f, new accounting pronouncement, these amounts would have been: Net investment income ........................ $0.20 Net realized and unrealized loss ............. $(0.01) Ratio of net investment income to average net assets ...................... 4.01%*
(1) For the period April 1, 1996 (commencement of operations) through December 31, 1996. + Not annualized. * Annualized.
CLASS Y ------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, PERIOD 6/30/01 --------------------------------------- ENDED (UNAUDITED) 2000 1999 1998 1997 12/31/96(1) ----------- ------ ------ ------ ------ ----------- Net asset value, beginning of period ............. $10.40 $10.09 $10.82 $10.82 $10.55 $10.47 -------- ------ ------ ------ ------ ------- Income (loss) from investment operations: Net investment income ........................ 0.26 0.53 0.53 0.54 0.56 0.43 Net gain (loss) on securities (both realized and unrealized) ................... (0.02) 0.32 (0.69) 0.02 0.29 0.11 -------- ------ ------ ------ ------ ------- Total from investment operations ............. 0.24 0.85 (0.16) 0.56 0.85 0.54 -------- ------ ------ ------ ------ ------- Less distributions (note 6): Dividends from net investment income ......... (0.26) (0.54) (0.54) (0.55) (0.57) (0.46) Distributions from capital gains ............. - - (0.03) (0.01) (0.01) - -------- ------ ------ ------ ------ ------- Total distributions .......................... (0.26) (0.54) (0.57) (0.56) (0.58) (0.46) -------- ------ ------ ------ ------ ------- Net asset value, end of period ................... $10.38 $10.40 $10.09 $10.82 $10.82 $10.55 ======== ====== ====== ====== ====== ======= Total return (not reflecting sales charge) ....... 2.35%+ 8.62% (1.46)% 5.26% 8.34% 5.24%+ Ratios/supplemental data Net assets, end of period (in thousands) ..... $20,025 $15,745 $13,346 $14,335 $8,957 $5,823 Ratio of expenses to average net assets ...... 0.59%* 0.59% 0.57% 0.58% 0.57% 0.58%* Ratio of net investment income to average net assets ...................... 5.07%* 5.25% 5.09% 5.03% 5.31% 5.41%* Portfolio turnover rate ...................... 10.42%+ 6.61% 6.35% 12.79% 22.39% 8.94% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets ...... 0.56%* 0.58% 0.56% 0.57% 0.56% 0.56%* Without the adoption of the change in amortization method discussed in note 2f, new accounting pronouncement, these amounts would have been: Net investment income ........................ $0.26 Net realized and unrealized loss ............. $(0.02) Ratio of net investment income to average net assets ...................... 5.04%*
(1) For the period April 1, 1996 (commencement of operations) through December 31, 1996. + Not annualized. * Annualized. Note: Effective September 11, 1995, Banc One Investment Advisors Corporation became the Fund's Investment Adviser replacing PNC Bank, Kentucky, Inc. and effective on May 1, 1998, pursuant to new management arrangements, was appointed as the Fund's Investment Sub-Adviser. On July 1, 2000, Aquila Management Corporation was appointed as the Fund's Investment adviser. See accompanying notes to financial statements. SHAREHOLDER MEETING RESULTS (UNAUDITED) The Annual Meeting of Shareholders of Churchill Tax-Free Fund of Kentucky (the "Fund") was held on April 24, 2001. The holders of shares representing 75% of the total net asset value of the shares entitled to vote were present in person or by proxy. At the meeting, the following matters were voted upon and approved by the shareholders (the resulting votes for each matter are presented below). 1. To elect Trustees. Number of Votes: TRUSTEE FOR WITHHELD Lacy B. Herrmann 15,531,787 121,533 Thomas A. Christopher 15,597,509 55,811 Douglas Dean 15,597,541 55,779 Diana P. Herrmann 15,537,439 115,881 Carroll F. Knicely 15,527,579 125,741 Theodore T. Mason 15,596,267 57,053 Anne J. Mills 15,598,244 55,076 William J. Nightingale 15,591,618 81,702 James R. Ramsey 15,549,450 103,870 2. To ratify the selection of KPMG LLP as the Fund's independent auditors. Number of Votes: FOR AGAINST ABSTAIN 15,476,118 70,327 106,875 -----END PRIVACY-ENHANCED MESSAGE-----