-----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, FLcBYxt/BxFeXy+oCunlPGtcb0funILPCMeQ5MQUZc0x5935NRSHKcijv2/wtn7O kHAuTn8z0aqhX7NgXycSOA== 0000812006-02-000015.txt : 20020826 0000812006-02-000015.hdr.sgml : 20020826 20020826095758 ACCESSION NUMBER: 0000812006-02-000015 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020826 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHURCHILL TAX FREE TRUST CENTRAL INDEX KEY: 0000812006 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: 02747602 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 ctffk62002.txt CHURCHILL TAX-FREE FUND OF KENTUCKY SEMI-ANNUAL REPORT 6/30/2002 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 Jason T. McGrew, 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. 1111 Polaris Parkway Columbus, Ohio 43240 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, 2002 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 15 YEARS CHURCHILL TAX-FREE FUND OF KENTUCKY SEMI-ANNUAL REPORT "POSITIVE RETURNS" August 21, 2002 Dear Fellow Shareholder: Lately, it is difficult to go through even a single day without hearing some unsettling news - the stock market is down again, a new terror alert is issued, etc., etc. In fact, in most people's viewpoint, it is pretty "ugly" out there in terms of the securities markets. By contrast, we are pleased to provide you with some good news in the form of this latest Semi-Annual Report for Churchill Tax-Free Fund of Kentucky. Your investment in the Fund continues to provide you and all other shareholders with a POSITIVE RETURN. * Every month you receive a dividend either through a cash payment or a statement of reinvestment. This distributed return has been positive each month and is TRIPLE TAX-FREE to you and all of the Fund's shareholders. Considering all the negative returns that are a product of the securities markets these days, that's pretty good. When you equate this TRIPLE TAX-FREE return to a taxable return, using the 28% tax bracket, it would be equivalent to a 7% return on your money. * Additionally, although the share price of the Fund can and will vary depending upon market conditions, we strive to manage your investment to keep fluctuations relatively moderate. During the latest report period from January 1, 2002 to June 30, 2002, the share price actually increased from $10.31 to $10.47. This share price increase may seem to be relatively modest in nature. However, considering the world out there, it is indeed pleasant to get any INCREASE in price in addition to the POSITIVE RETURN of the dividends. * The Fund has continued to be a source of good over this report period through the municipal bond holdings in its portfolio. The municipal bonds in the Fund have helped communities throughout the entire Commonwealth of Kentucky to build and renovate a variety of public purpose projects. The roads, schools, hospitals, airports, and other projects that have been financed by the Fund have benefited all shareholders, as well as the entire citizenry of the Commonwealth of Kentucky. THE FUND'S STRATEGY How have we been able to produce these results during a time when many other funds and organizations are struggling? We believe it comes down to the Fund's strategy of providing a portfolio of quality, intermediate maturity securities, and diversification. We have always taken the approach of having the Fund comprised of high-quality securities. In fact, the Fund's prospectus specifically limits the portfolio manager to investing in investment grade bonds or equivalent, those which are within the top four credit ratings - AAA, AA, A and BBB. In practice, 85% of the portfolio is invested in the top two categories - AAA AND AA. Historically, these higher quality bonds have experienced fewer problems and lesser fluctuation than those outside of our investment universe. We believe that having a portfolio which is intermediate in its maturity tends to moderate the fluctuation in share price for the Fund. We, therefore, strive to structure the Fund's portfolio so that some of the bonds have maturities of 1 year, while others have maturities of 20 - 25 years, but the overall average is 15 years. This helps us to keep the value of your investment stable. Moreover, it ensures that the capital of your investment is basically there when you need it. Furthermore, the investments of your Fund are geographically spread over a diverse group of projects. As of June 30, 2002, Churchill Tax-Free Fund of Kentucky had approximately 155 securities in its portfolio. These were spread over the entire Commonwealth and thus were not overly concentrated. This approach has two benefits. One is avoiding any adverse effect to the share value in the remote event that any particular bond had a problem. Second, it helps build and renovate the various kinds of municipal projects that help citizens throughout the Commonwealth. APPRECIATION Management of the Fund will continue to strive to do the kind of things that will provide you and other shareholders with the satisfaction that your investment is producing a POSITIVE RETURN for you, while providing you with a high level of confidence. We continue to value the support you have placed in the Fund through your investment. Sincerely, /s/ Diana P. Herrmann /s/ Lacy B. Herrmann - ----------------------- ---------------------- Diana P. Herrmann Lacy B. Herrmann President Chairman of the Board of Trustees For certain investors, some dividends may be subject to Federal and state taxes, including the Alternative Minimum Tax (AMT). 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. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF INVESTMENTS JUNE 30, 2002 (UNAUDITED)
RATING FACE MOODY'S/ AMOUNT GENERAL OBLIGATION BONDS (0.4%) S&P VALUE - ------------ -------------------------------------------------------- --------- ------------- Lexington-Fayette Urban County Government Project Unlimited Tax $ 340,000 5.150%, 12/01/17 .................................... Aa2/AA+ $ 353,175 Warren County Kentucky Judicial Unlimited Tax 345,000 5.100%, 09/01/17 AMBAC Insured ...................... Aaa/NR 358,369 265,000 5.150%, 09/01/18 AMBAC Insured ...................... Aaa/NR 274,606 ------------- Total General Obligation Bonds ................... 986,150 ------------- REVENUE BONDS (100.2%) -------------------------------------------------------- STATE AGENCIES (26.8%) -------------------------------------------------------- Kentucky Higher Education Student Loan Corporation Insured Student Loan 875,000 6.800%, 06/01/03 .................................... Aaa/AA- 904,470 1,915,000 7.100%, 12/01/11 .................................... Aaa/AA- 1,962,454 Kentucky Infrastructure Authority 555,000 7.200%, 06/01/11 .................................... Aa3/AA- 569,047 875,000 6.500%, 06/01/12 .................................... Aa3/AA- 907,471 1,000,000 5.250%, 06/01/12 .................................... Aa3/AA- 1,082,500 635,000 5.250%, 06/01/12 .................................... Aa3/AA- 671,512 2,740,000 5.250%, 06/01/14 .................................... Aa3/AA- 2,918,100 1,110,000 6.375%, 06/01/14 Pre-Refunded ....................... Aaa/AAA 1,255,688 1,500,000 5.375%, 02/01/18 .................................... NR/A 1,524,375 Kentucky Local Correctional Facilities Construction Authority 6,355,000 5.500%, 11/01/14 FSA Insured ........................ Aaa/AAA 6,776,019 Kentucky Rural Economic Development Authority 3,110,000 7.250%, 06/01/17 LOC: Bank One ...................... NR/A+ 3,192,508 Kentucky State Property and Buildings Commission 3,000,000 6.250%, 09/01/07 MBIA Insured ....................... Aaa/AAA 3,442,500 220,000 6.000%, 09/01/08 .................................... Aa3/AA- 249,425 500,000 5.500%, 11/01/09 AMBAC Insured ...................... Aaa/AAA 537,500 400,000 5.000%, 09/01/13 .................................... Aa3/AA- 410,000 4,000,000 5.375%, 02/01/14 FSA Insured ........................ Aaa/AAA 4,330,000 400,000 5.250%, 10/01/14 .................................... Aa3/AA- 424,500 Kentucky State Property and Buildings Commission (continued) $ 450,000 5.125%, 09/01/15 .................................... Aa3/AA- $ 470,813 6,500,000 5.375%, 08/01/16 FSA Insured ........................ Aaa/AAA 6,922,500 3,905,000 5.125%, 09/01/16 .................................... Aa3/AA- 4,056,319 1,735,000 5.250%, 10/01/17 .................................... Aa3/AA- 1,813,075 1,140,000 5.000%, 08/01/17 FSA Insured ........................ Aaa/AAA 1,171,350 7,155,000 5.125%, 09/01/17 .................................... Aa3/AA- 7,369,650 500,000 5.500%, 11/01/17 FSA Insured ....................... Aaa/AAA 538,125 165,000 5.375%, 02/01/18 FSA Insured ....................... Aaa/AAA 173,869 2,950,000 5.125%, 09/01/18 .................................... Aa3/AA- 3,020,062 6,000,000 5.250%, 10/01/18 .................................... Aa3/AA- 6,225,000 1,000,000 5.000%, 08/01/19 FSA Insured ........................ Aaa/AAA 1,017,500 1,000,000 5.375%, 10/01/19 MBIA Insured ....................... Aaa/AAA 1,046,250 1,625,000 5.000%, 10/01/19 .................................... Aa3/AA- 1,639,219 360,000 5.000%, 10/01/19 MBIA Insured ....................... Aaa/AAA 366,300 570,000 5.150%, 11/01/19 FSA Insured ........................ Aaa/AAA 589,950 160,000 5.000%, 10/01/20 MBIA Insured ....................... Aaa/AAA 161,600 205,000 5.150%, 02/01/22 FSA Insured ........................ Aaa/AAA 207,562 ------------- 67,947,213 ------------- COUNTY AGENCIES (10.8%) -------------------------------------------------------- Floyd County Public Property Courthouse 510,000 5.500%, 09/01/14 .................................... NR/A+ 538,050 Jefferson County Kentucky Capital Projects 1,000,000 5.200%, 06/01/08 MBIA Insured ....................... Aaa/AAA 1,095,000 430,000 5.200%, 06/01/12 MBIA Insured ....................... Aaa/AAA 459,025 570,000 5.250%, 06/01/13 MBIA Insured ....................... Aaa/AAA 606,338 470,000 5.250%, 06/01/14 MBIA Insured ....................... Aaa/AAA 495,850 3,370,000 5.375%, 06/01/18 MBIA Insured ....................... Aaa/AAA 3,509,013 1,640,000 5.375%, 06/01/22 MBIA Insured ....................... Aaa/AAA 1,674,850 5,900,000 5.500%, 06/01/28 MBIA Insured ....................... Aaa/AAA 6,091,750 Pendleton County Kentucky Multi-County Lease Revenue 4,500,000 6.500%, 03/01/19 .................................... NR/A 4,636,035 3,000,000 6.400%, 03/01/19 .................................... NR/A 3,555,000 Warren County Kentucky Justice Center $ 1,580,000 5.250%, 09/01/17 MBIA Insured ....................... Aaa/AAA $ 1,647,150 2,875,000 5.350%, 09/01/29 MBIA Insured ....................... Aaa/AAA 2,928,906 ------------- 27,236,967 ------------- CITY/MUNICIPAL OBLIGATIONS (7.7%) -------------------------------------------------------- Jeffersontown Kentucky Public Project Corp. 500,000 5.750%, 11/01/15 .................................... Aa3/NR 531,250 Kentucky League Cities Funding Trust Certificates of Participation (Covington) 1,715,000 6.200%, 08/01/17 .................................... NR/A+ 1,794,319 Kentucky League Cities Funding Trust Certificates of Participation (Owensboro) 700,000 5.900%, 08/01/16 .................................... NR/A 731,500 Louisville Kentucky Public Properties Corp. 4,090,000 6.700%, 12/01/20 Pre-Refunded ....................... Aaa/AAA 4,259,817 Mount Sterling Kentucky Lease Revenue 2,020,000 6.150%, 03/01/13 .................................... Aa3/NR 2,112,536 7,000,000 6.200%, 03/01/18 .................................... Aa3/NR 7,322,910 Munfordville Kentucky Industrial Development 2,500,000 7.000%, 06/01/19 LOC: Bank One ...................... NR/A+ 2,631,250 ------------- 19,383,582 ------------- HOSPITALS (6.4%) -------------------------------------------------------- Hopkins County Kentucky Hospital Revenue 1,000,000 6.625%, 11/15/11 MBIA Insured ....................... Aaa/AAA 1,023,730 Jefferson County Kentucky Health Facilities Revenue 240,000 5.000%, 10/01/12 MBIA Insured ...................... Aaa/AAA 251,100 1,500,000 5.650%, 01/01/17 AMBAC Insured ...................... Aaa/AAA 1,584,375 2,580,000 5.125%, 10/01/17 AMBAC Insured ...................... Aaa/AAA 2,670,300 2,000,000 5.250%, 05/01/17 .................................... NR/A 2,007,500 1,200,000 6.550%, 05/01/22 AMBAC Insured ...................... Aaa/AAA 1,229,172 Kentucky Development Finance Authority Hospital Revenue 1,375,000 6.125%, 02/01/12 FSA Insured ....................... Aaa/AAA 1,432,695 2,790,000 5.000%, 08/15/15 MBIA Insured ....................... Aaa/AAA 2,828,362 3,000,000 5.900%, 12/01/15 FGIC Insured ....................... Aaa/AAA 3,168,750 ------------- 16,195,984 ------------- HOUSING (11.4%) -------------------------------------------------------- Greater Kentucky Housing Assistance Corp. Multi- Family Housing Revenue $ 320,000 6.300%, 07/01/15 MBIA Insured ....................... Aaa/AAA $ 330,333 2,025,000 6.050%, 07/01/22 MBIA Insured ....................... Aaa/AAA 2,028,604 275,000 6.400%, 07/01/23 MBIA Insured ....................... Aaa/AAA 283,437 Kentucky Housing Corp. Housing Revenue 2,475,000 6.600%, 07/01/11 .................................... Aaa/AAA 2,524,500 1,635,000 5.400%, 07/01/14 .................................... Aaa/AAA 1,671,787 1,150,000 6.250%, 07/01/15 .................................... Aaa/AAA 1,193,125 315,000 6.100%, 07/01/16 .................................... Aaa/AAA 327,994 865,000 6.400%, 01/01/17 .................................... Aaa/AAA 899,600 365,000 5.550%, 07/01/18 .................................... Aaa/AAA 370,475 1,565,000 5.800%, 01/01/19 .................................... Aaa/AAA 1,594,344 2,000,000 5.600%, 07/01/20 .................................... Aaa/AAA 2,027,500 1,000,000 5.350%, 01/01/21 .................................... Aaa/AAA 1,002,500 6,075,000 5.450%, 07/01/22 .................................... Aaa/AAA 6,143,344 245,000 5.200%, 07/01/22 .................................... Aaa/AAA 248,063 275,000 5.375%, 07/01/27 .................................... Aaa/AAA 278,094 4,940,000 6.300%, 01/01/28 .................................... Aaa/AAA 5,088,200 810,000 6.375%, 07/01/28 .................................... Aaa/AAA 835,312 2,210,000 6.250%, 07/01/28 .................................... Aaa/AAA 2,273,537 ------------- 29,120,749 ------------- POLLUTION CONTROL REVENUE (5.1%) -------------------------------------------------------- Boone County Kentucky Pollution Control (Dayton Power & Light) 4,000,000 6.500%, 11/15/22 .................................... A2/BBB+ 4,096,560 Carroll County Kentucky Pollution Control (E.ON AG -LGE Energy) 4,500,000 7.450%, 09/15/16 .................................... A1/NR 4,622,760 Jefferson County Kentucky Pollution Control (E.ON AG -LGE Energy) 3,800,000 5.900%, 04/15/23 .................................... A1/A- 3,871,250 Trimble County Kentucky Pollution Control (E.ON AG -LGE Energy) $ 440,000 6.550%, 11/01/20 .................................... A1/A- $ 449,984 ------------- 13,040,554 ------------- SCHOOLS (12.8%) -------------------------------------------------------- Beechwood, Kentucky Independent School District 180,000 5.650%, 03/01/2020 .................................. Aa3/NR 190,350 Boone County Kentucky School District Finance Corp. School Building 660,000 5.000%, 06/01/15 .................................... Aa3/NR 685,575 125,000 5.250%, 08/01/15 .................................... Aa3/NR 132,812 285,000 5.700%, 02/01/16 .................................... Aa3/NR 311,362 2,295,000 5.700%, 05/01/18 .................................... Aa3/NR 2,386,777 1,000,000 5.375%, 08/01/20 FSA Insured ........................ AAA/NR 1,040,000 Boyd County Kentucky School District Finance Corp. 1,025,000 5.000%, 10/01/15 .................................... AA3/NR 1,060,875 575,000 5.375%, 10/01/17 .................................... Aa3/NR 601,594 Campbell County Kentucky School District 350,000 5.100%, 02/01/12 .................................... Aa3/NR 361,375 Christian County Kentucky School District Finance Corp. 500,000 5.000%, 06/01/09 .................................... Aa3/NR 536,875 Fayette County School Building 1,780,000 5.700%, 12/01/16 .................................... Aa3/AA- 1,906,825 Floyd County Kentucky School Building 250,000 5.000%, 12/01/09 .................................... Aa3/NR 270,938 Grayson County Kentucky School Building Revenue 1,940,000 6.000%, 01/01/15 .................................... Aa3/NR 2,063,675 Jefferson County Kentucky School District Finance Corp. School Building 500,000 5.875%, 01/01/11 Pre-refunded ....................... Aaa/AAA 520,660 1,295,000 5.300%, 07/01/12 MBIA Insured ....................... Aaa/AAA 1,362,987 695,000 5.125%, 11/01/14 FSA Insured ........................ Aaa/AAA 725,406 465,000 5.300%, 07/01/15 MBIA Insured ....................... Aaa/AAA 483,019 3,195,000 5.125%, 02/01/16 MBIA Insured ....................... Aaa/AAA 3,290,850 250,000 5.250%, 07/01/16 FSA Insured ........................ Aaa/AAA 263,125 Kenton County, Kentucky School District $ 1,760,000 5.375%, 03/01/15 .................................... NR/A+ $ 1,876,600 685,000 5.000%, 04/01/16 .................................... Aa3/NR 707,263 605,000 5.000%, 04/01/19 .................................... Aa3/NR 611,050 Lexington-Fayette Urban County Government Project Transylvania University 1,250,000 5.125%, 08/01/18 MBIA Insured ....................... Aaa/AAA 1,285,937 Lexington-Fayette Urban County Government Project U.K. Library 725,000 5.000%, 11/01/15 MBIA Insured ....................... Aaa/AAA 754,000 Meade County Kentucky School District Finance Corp. 400,000 5.700%, 07/01/15 .................................... Aa3/NR 428,000 500,000 6.000%, 07/01/16 .................................... Aa3/NR 540,000 Middlesboro Kentucky Independent School District Finance Corp. 100,000 6.100%, 08/01/16 .................................... Aa3/NR 108,750 Nelson County Kentucky School Building 1,820,000 5.750%, 04/01/15 .................................... Aa3/NR 1,956,500 Scott County Kentucky School Building 2,750,000 5.900%, 06/01/18 Pre-Refunded ....................... Aaa/AAA 3,073,125 Taylor County Kentucky School Building 280,000 6.000%, 08/01/16 .................................... Aa3/NR 302,400 Todd County Kentucky School Building 980,000 6.300%, 10/01/14 Pre-Refunded ....................... Aaa/AAA 1,090,250 University of Kentucky Revenue 1,335,000 5.000%, 05/01/16 FGIC Insured ....................... Aaa/AAA 1,376,719 ------------- 32,305,674 ------------- TRANSPORTATION (6.7%) -------------------------------------------------------- Kenton Kentucky Airport Board 800,000 5.000%, 03/01/08 MBIA Insured ....................... Aaa/AAA 848,000 500,000 5.625%, 03/01/13 MBIA Insured ....................... Aaa/AAA 539,375 750,000 5.625%, 03/01/14 MBIA Insured ....................... Aaa/AAA 806,250 Kentucky Interlocal School Transportation Authority $ 150,000 5.100%, 03/01/05 .................................... Aa3/A+ $ 159,750 145,000 5.400%, 06/01/17 .................................... NR/A+ 146,827 600,000 6.000%, 12/01/20 .................................... NR/A+ 608,724 300,000 5.800%, 12/01/20 .................................... NR/A+ 304,344 400,000 5.650%, 12/01/20 .................................... NR/A+ 405,172 350,000 5.600%, 12/01/20 .................................... NR/A+ 354,483 Kentucky State Turnpike Auth. Econ. Dev. & Resource Recovery Road Revenue 120,000 8.500%, 07/01/06 .................................... Aa3/A+ 144,900 1,000,000 6.500%, 07/01/08 AMBAC Insured ...................... Aaa/AAA 1,166,250 2,240,000 5.500%, 07/01/11 AMBAC Insured, Pre-refunded ........ Aaa/AAA 2,372,250 1,010,000 5.500%, 07/01/11 AMBAC Insured, Pre-refunded ........ Aaa/AAA 1,063,924 1,000,000 5.625%, 07/01/12 FSA Insured ........................ Aaa/AAA 1,116,250 200,000 5.625%, 07/01/13 FSA Insured ........................ Aaa/AAA 221,750 500,000 5.625%, 07/01/14 FSA Insured ........................ Aaa/AAA 548,750 2,760,000 5.625%, 07/01/15 AMBAC Insured ...................... Aaa/AAA 3,060,150 940,000 5.625%, 07/01/15 AMBAC Insured, Pre-refunded ........ Aaa/AAA 989,350 450,000 5.250%, 07/01/15 FSA Insured ........................ Aaa/AAA 476,437 440,000 5.100%, 07/01/18 FSA Insured Aaa/AAA 452,650 Louisville-Jefferson Co. Regional Airport 1,000,000 5.750%, 07/01/15 FSA Insured ....................... Aaa/AAA 1,081,250 ------------- 16,866,836 ------------- UTILITIES (12.5%) -------------------------------------------------------- Hardin County, Kentucky Water District 1,000,000 5.900%, 01/01/25 MBIA Insured ....................... Aaa/AAA 1,056,250 Kenton County Kentucky Water District Water/Sewer 1,000,000 6.000%, 02/01/17 FGIC Insured ....................... Aaa/AAA 1,033,040 Louisville and Jefferson County Kentucky Metropolitan Sewer District 1,000,000 5.000%, 05/15/12 MBIA Insured ....................... Aaa/AAA 1,057,500 2,565,000 5.375%, 05/15/17 MBIA Insured ....................... Aaa/AAA 2,728,519 3,125,000 5.300%, 05/15/19 MBIA Insured ....................... Aaa/AAA 3,171,875 1,410,000 5.400%, 05/15/22 FGIC Insured ....................... Aaa/AAA 1,434,675 Louisville and Jefferson County Kentucky Metropolitan Sewer District (continued) $ 4,095,000 5.500%, 05/15/23 MBIA Insured ....................... Aaa/AAA $ 4,182,019 1,525,000 6.500%, 05/15/24 MBIA Insured, Pre-Refunded ......... Aaa/AAA 1,713,719 120,000 6.250%, 05/15/26 MBIA Insured ....................... Aaa/AAA 134,100 Louisville Kentucky Waterworks Board Water 1,000,000 5.250%, 11/15/16 FSA Insured ........................ Aaa/AAA 1,050,000 2,335,000 5.250%, 11/15/18 FSA Insured ........................ Aaa/AAA 2,425,481 6,600,000 5.250%, 11/15/22 FSA Insured ........................ Aaa/AAA 6,723,750 2,415,000 5.250%, 11/15/24 FSA Insured ........................ Aaa/AAA 2,442,169 Northern Kentucky Water District 945,000 5.000%, 02/01/27 FGIC Insured ....................... Aaa/NR 932,006 Owensboro-Davies County Water District 600,000 5.000%, 01/01/13 AMBAC Insured ...................... Aaa/AAA 635,250 Owensboro, Kentucky Electric and Power 1,000,000 5.000%, 01/01/20 FSA Insured ........................ Aaa/AAA 1,010,000 ------------- 31,730,353 ------------- Total Revenue Bonds .............................. 253,827,912 ------------- Total Investments (cost $245,911,978*) ................. 100.6% 254,814,062 Other assets less liabilities .......................... (0.6) (1,584,268) ------ ------------- Net Assets ............................................. 100.0% $ 253,229,794 ====== ============= * See note 4.
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, 2002 (UNAUDITED) ASSETS Investments at value (cost $245,911,978) .......................................................... $ 254,814,062 Cash .............................................................................................. 365,646 Interest receivable ............................................................................... 3,799,764 Receivable for investment securities sold ......................................................... 1,005,000 Receivable for Fund shares sold ................................................................... 372,261 Other assets ...................................................................................... 12,506 ------------- Total assets ...................................................................................... 260,369,239 ------------- LIABILITIES Payable for investment securities purchased ....................................................... 6,248,709 Payable for Fund shares redeemed .................................................................. 428,047 Dividends payable ................................................................................. 319,541 Distribution fees payable ......................................................................... 81,636 Management fee payable ............................................................................ 36,993 Accrued expenses .................................................................................. 24,519 ------------- Total liabilities ................................................................................. 7,139,445 ------------- NET ASSETS ........................................................................................... $ 253,229,794 ============= Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $.01 per share ................ $ 241,819 Additional paid-in capital ........................................................................ 245,831,549 Net unrealized appreciation on investments (note 4) ............................................... 8,902,084 Undistributed net investment income ............................................................... 317,886 Accumulated net realized loss on investments ...................................................... (2,063,544) ------------- $ 253,229,794 ============= CLASS A Net Assets ........................................................................................ $ 213,961,871 ============= Capital shares outstanding ........................................................................ 20,433,419 ============= Net asset value and redemption price per share .................................................... $ 10.47 ============= Offering price per share (100/96 of $10.47 adjusted to nearest cent) .............................. $ 10.91 ============= CLASS C Net Assets ........................................................................................ $ 4,075,183 ============= Capital shares outstanding ........................................................................ 389,365 ============= Net asset value and offering price per share ...................................................... $ 10.47 ============= 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) ..................................................... $ 10.47* ============= CLASS I Net Assets ........................................................................................ $ 2,013,173 ============= Capital shares outstanding ........................................................................ 192,319 ============= Net asset value offering and redemption price per share ........................................... $ 10.47 ============= CLASS Y Net Assets ........................................................................................ $ 33,179,567 ============= Capital shares outstanding ........................................................................ 3,166,759 ============= Net asset value and redemption price per share .................................................... $ 10.48 =============
See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) INVESTMENT INCOME: Interest income ................................................. $ 6,458,195 Expenses: Management fee (note 3) ......................................... $ 479,934 Distribution and service fees (note 3) .......................... 172,813 Transfer and shareholder servicing agent fees ................... 60,022 Trustees' fees and expenses ..................................... 41,335 Legal fees ...................................................... 26,711 Shareholders' reports and proxy statements ...................... 21,696 Audit and accounting fees ....................................... 13,514 Custodian fees .................................................. 11,475 Registration fees and dues ...................................... 7,296 Insurance ....................................................... 1,147 Miscellaneous ................................................... 13,651 ----------- Total expenses .................................................. 849,594 Expenses paid indirectly (note 7) ............................... (11,572) ----------- Net expenses .................................................... 838,022 ------------ Net investment income ........................................... 5,620,173 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from securities transactions ........... 109,924 Change in unrealized appreciation on investments ................ 3,610,734 ----------- Net realized and unrealized gain (loss) on investments .......... 3,720,658 ------------ Net change in net assets resulting from operations .............. $ 9,340,831 ============
See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2002 YEAR ENDED (UNAUDITED) DECEMBER 31, 2001 ---------------- ----------------- OPERATIONS: Net investment income ........................................ $ 5,620,173 $ 10,828,727 Net realized gain (loss) from securities transactions ........ 109,924 685,773 Change in unrealized appreciation on investments ............. 3,610,734 (2,726,957) ------------- ------------- Change in net assets from operations ...................... 9,340,831 8,787,543 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 6): Class A Shares: Net investment income ........................................ (4,761,195) (9,652,185) Class C Shares: Net investment income ........................................ (67,290) (102,324) Class I Shares: Net investment income ........................................ (39,958) (19,875) Class Y Shares: Net investment income ........................................ (726,616) (1,006,963) ------------- ------------- Change in net assets from distributions ................... (5,595,059) (10,781,347) ------------- ------------- CAPITAL SHARE TRANSACTIONS (NOTE 8): Proceeds from shares sold .................................... 24,150,415 32,406,399 Reinvested dividends and distributions ....................... 2,710,143 5,076,827 Cost of shares redeemed ...................................... (9,346,477) (18,015,538) ------------- ------------- Change in net assets from capital share transactions ......... 17,514,081 19,467,688 ------------- ------------- Change in net assets ......................................... 21,259,853 17,473,884 NET ASSETS: Beginning of period .......................................... 231,969,941 214,496,057 ------------- ------------- End of period ................................................ $ 253,229,794 $ 231,969,941 ============= =============
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. Class C Shares together with a pro-rata portion of all Class C Shares acquired through reinvestment of dividends and other distributions paid in additional Class C Shares, automatically convert to Class A Shares after 6 years. The Class Y shares are only offered to institutions acting for an investor in a fiduciary, advisory, agency, custodian or similar capacity and are not offered directly to retail investors. Class Y shares are sold at net asset value without any sales charge, redemption fees, contingent deferred sales charge or distribution or service fees. On April 30, 1998, the Fund established Class I shares, which are offered and sold only through financial intermediaries and are not offered directly to retail investors. 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 and market discount. 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. 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 the Fund such as the shareholder servicing agent, custodian, legal counsel, auditors and distributor and additionally maintaining the Fund's accounting books and records. For its services, the Manager is entitled to receive a fee which is payable monthly and computed as of the close of business each day at the annual rate of 0.40 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, 2002, service fees on Class A Shares amounted to $153,301 of which the Distributor received $4,458. 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, 2002, amounted to $13,307. 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, 2002, amounted to $4,435. The total of these payments with respect to Class C Shares amounted to $17,742 of which the Distributor received $2,166. Under another part of the Plan, the Fund is authorized to make payments with respect to Class I Shares to Qualified Recipients. Class I Permitted Payments may not exceed, for any fiscal year of the Fund, a rate set from time to time by the Board of Trustees (currently 0.10%) but not more than 0.25% of the average annual net assets represented by the Class I Shares. In addition, Class I has a Shareholder Services Plan under which it may pay service fees (currently 0.15%) but not more than 0.25% of the average annual net assets represented by Class I Shares. That is, the total payments under both plans will not exceed 0.50% of such net assets. For the period ended June 30, 2002, these payments were made at the average annual rate of 0.35% of such net assets and amounted to $3,098 of which $1,770 related to the Plan and $1,328 related to the Shareholder Services Plan. 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, 2002, total commissions on sales of Class A Shares amounted to $215,041 of which the Distributor received $18,454. c) OTHER RELATED PARTY TRANSACTIONS: For the six months ended June 30, 2002, the Fund accrued legal fees of $26,711 of which $26,557 were allocable to Hollyer Brady Smith & Hines LLP, counsel to the Fund for legal services in conjunction with the Fund's ongoing operations. The Secretary of the Fund is a Partner of Hollyer Brady Smith & Hines LLP. 4. PURCHASES AND SALES OF SECURITIES During the six months ended June 30, 2002, purchases of securities and proceeds from the sales of securities aggregated $41,672,227 and $20,090,218, respectively. At June 30, 2002, aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost of $245,613,989 amounted to $9,268,162 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $68,089 for a net unrealized appreciation of $9,200,073. At December 31, 2001, the Fund has a capital loss carryover of $2,173,468, $1,150,581 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 will 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, 2002 YEAR ENDED (UNAUDITED) DECEMBER 31, 2001 -------------------------------- --------------------------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ CLASS A SHARES: Proceeds from shares sold ........ 1,329,314 $ 13,843,116 1,607,327 $ 16,756,957 Reinvested distributions ......... 229,929 2,392,708 454,646 4,732,061 Cost of shares redeemed .......... (678,598) (7,065,431) (1,448,690) (15,081,445) ---------- ------------ ---------- ------------ Net change .................... 880,645 9,170,393 613,283 6,407,573 ---------- ------------ ---------- ------------ CLASS C SHARES: Proceeds from shares sold ........ 86,565 900,851 214,928 2,244,008 Reinvested distributions ......... 4,295 44,682 6,792 70,675 Cost of shares redeemed .......... (26,986) (280,038) (75,362) (783,618) ---------- ------------ ---------- ------------ Net change .................... 63,874 665,495 146,358 1,531,065 ---------- ------------ ---------- ------------ CLASS I SHARES: Proceeds from shares sold ........ 56,147 582,580 136,639 1,430,892 Reinvested distributions ......... 2,778 28,858 1,704 17,758 Cost of shares redeemed .......... (4,949) (51,668) -- -- ---------- ------------ ---------- ------------ Net change .................... 53,976 559,770 138,343* 1,448,650* ---------- ------------ ---------- ------------ CLASS Y SHARES: Proceeds from shares sold ........ 851,077 8,823,868 1,148,200 11,974,542 Reinvested distributions ......... 23,459 243,895 24,640 256,333 Cost of shares redeemed .......... (187,780) (1,949,340) (206,468) (2,150,475) ---------- ------------ ---------- ------------ Net change .................... 686,756 7,118,423 966,372 10,080,400 ---------- ------------ ---------- ------------ Total transactions in Fund shares ........................... 1,685,251 $ 17,514,081 1,864,356 $ 19,467,688 ========== ============ ========== ============
* For the period August 6, 2001 to December 31, 2001. CHURCHILL TAX-FREE FUND OF KENTUCKY FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A ------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 06/30/02 ------------------------------------------------------------ (UNAUDITED) 2001 2000 1999 1998 1997 ----------- -------- -------- -------- -------- -------- Net asset value, beginning of period ............ $10.31 $10.40 $10.09 $10.81 $10.81 $10.55 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income+ ....................... 0.24 0.50 0.52 0.52 0.53 0.55 Net gain (loss) on securities (both realized and unrealized) .................. 0.16 (0.09) 0.31 (0.68) 0.01 0.27 -------- -------- -------- -------- -------- -------- Total from investment operations ............. 0.40 0.41 0.83 (0.16) 0.54 0.82 -------- -------- -------- -------- -------- -------- Less distributions (note 6): Dividends from net investment income ......... (0.24) (0.50) (0.52) (0.53) (0.53) (0.55) Distributions from capital gains ............. - - - (0.03) (0.01) (0.01) -------- -------- -------- -------- -------- -------- Total distributions .......................... (0.24) (0.50) (0.52) (0.56) (0.54) (0.56) -------- -------- -------- -------- -------- -------- Net asset value, end of period .................. $10.47 $10.31 $10.40 $10.09 $10.81 $10.81 ======== ======== ======== ======== ======== ======== Total return (not reflecting sales charge) ...... 3.92%++ 4.02% 8.45% (1.51)% 5.13% 8.08% Ratios/supplemental data Net assets, end of period (in thousands) ..... $213,962 $201,604 $196,890 $205,842 $229,667 $226,477 Ratio of expenses to average net assets ...... 0.71%* 0.72% 0.74% 0.72% 0.73% 0.73% Ratio of net investment income to average net assets ........................ 4.67%* 4.82% 5.10% 4.95% 4.89% 5.19% Portfolio turnover rate ...................... 8.36%++ 21.44% 6.61% 6.35% 12.79% 22.39% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets ...... 0.70%* 0.70% 0.73% 0.71% 0.72% 0.72%
CLASS I ------------------------- SIX MONTHS ENDED PERIOD 06/30/02 ENDED (UNAUDITED) 12/31/01(1) ----------- ----------- Net asset value, beginning of period ............ $10.31 $10.44 ------ ------ Income (loss) from investment operations: Net investment income+ ....................... 0.25 0.19 Net gain (loss) on securities (both realized and unrealized) .................. 0.14 (0.13) ------ ------ Total from investment operations ............. 0.39 0.06 ------ ------ Less distributions (note 6): Dividends from net investment income ......... (0.23) (0.19) Distributions from capital gains ............. - - ------ ------ Total distributions .......................... (0.23) (0.19) ------ ------ Net asset value, end of period .................. $10.47 $10.31 ====== ====== Total return (not reflecting sales charge) ...... 3.85%++ 0.58%++ Ratios/supplemental data Net assets, end of period (in thousands) ..... $2,013 $1,426 Ratio of expenses to average net assets ...... 0.85%* 0.85%* Ratio of net investment income to average net assets ........................ 4.51%* 4.53%* Portfolio turnover rate ...................... 8.36%++ 21.44%++ The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets ...... 0.84%* 0.84%*
- ---------- (1) For the period August 6, 2001 to December 31, 2001. + Per share amounts have been calculated using the monthly average shares method. ++ 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, 06/30/02 ------------------------------------------------------ (UNAUDITED) 2001 2000 1999 1998 1997 ------------ ------ ------ ------ ------ ------ Net asset value, beginning of period ................ $10.31 $10.39 $10.08 $10.81 $10.81 $10.55 ------ ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income+ ........................... 0.19 0.41 0.43 0.43 0.44 0.46 Net gain (loss) on securities (both realized and unrealized) ...................... 0.17 (0.08) 0.31 (0.69) 0.01 0.27 ------ ------ ------ ------ ------ ------ Total from investment operations ................. 0.36 0.33 0.74 (0.26) 0.45 0.73 ------ ------ ------ ------ ------ ------ Less distributions (note 6): Dividends from net investment income ............. (0.20) (0.41) (0.43) (0.44) (0.44) (0.46) Distributions from capital gains ................. - - - (0.03) (0.01) (0.01) ------ ------ ------ ------ ------ ------ Total distributions .............................. (0.20) (0.41) (0.43) (0.47) (0.45) (0.47) ------ ------ ------ ------ ------ ------ Net asset value, end of period ...................... $10.47 $10.31 $10.39 $10.08 $10.81 $10.81 ====== ====== ====== ====== ====== ====== Total return (not reflecting sales charge)........... 3.48%++ 3.24% 7.54% (2.45)% 4.24% 7.16% Ratios/supplemental data Net assets, end of period (in thousands) ................................ $4,075 $3,355 $1,861 $1,932 $ 949 $ 845 Ratio of expenses to average net assets .................................... 1.56%* 1.56% 1.59% 1.56% 1.59% 1.57% Ratio of net investment income to average net assets ......................... 3.80%* 3.92% 4.24% 4.09% 4.04% 4.30% Portfolio turnover rate ............................. 8.36%++ 21.44% 6.61% 6.35% 12.79% 22.39% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets .................................... 1.55%* 1.55% 1.58% 1.55% 1.57% 1.56%
CLASS Y ---------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 06/30/02 ---------------------------------------------------------- (UNAUDITED) 2001 2000 1999 1998 1997 ----------- ------- ------- ------- ------- ------ Net asset value, beginning of period ................ $10.32 $10.40 $10.09 $10.82 $10.82 $10.55 ------- ------- ------- ------- ------- ------ Income (loss) from investment operations: Net investment income+ ........................... 0.25 0.51 0.53 0.53 0.54 0.56 Net gain (loss) on securities (both realized and unrealized) ...................... 0.16 (0.07) 0.32 (0.69) 0.02 0.29 ------- ------- ------- ------- ------- ------ Total from investment operations ................. 0.41 0.44 0.85 (0.16) 0.56 0.85 ------- ------- ------- ------- ------- ------ Less distributions (note 6): Dividends from net investment income ............. (0.25) (0.52) (0.54) (0.54) (0.55) (0.57) Distributions from capital gains ................. - - - (0.03) (0.01) (0.01) ------- ------- ------- ------- ------- ------ Total distributions .............................. (0.25) (0.52) (0.54) (0.57) (0.56) (0.58) ------- ------- ------- ------- ------- ------ Net asset value, end of period ...................... $10.48 $10.32 $10.40 $10.09 $10.82 $10.82 ======= ======= ======= ======= ======= ====== Total return (not reflecting sales charge) .......... 3.99%++ 4.28% 8.62% (1.46)% 5.26% 8.34% Ratios/supplemental data Net assets, end of period (in thousands) ................................ $33,180 $25,585 $15,745 $13,346 $14,335 $8,957 Ratio of expenses to average net assets .................................... 0.56%* 0.57% 0.59% 0.57% 0.58% 0.57% Ratio of net investment income to average net assets ......................... 4.82%* 4.94% 5.25% 5.09% 5.03% 5.31% Portfolio turnover rate ............................ 8.36%++ 21.44% 6.61% 6.35% 12.79% 22.39% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets .................................... 0.55%* 0.55% 0.58% 0.56% 0.57% 0.56%
- ---------- + Per share amounts have been calculated using the monthly average shares method. ++ 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 26, 2002. The holders of shares representing 69% 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 15,442,688 180,131 Thomas A. Christopher 15,480,484 142,335 Douglas Dean 15,480,484 142,335 Diana P. Herrmann 15,447,734 175,085 F. Knicely 15,473,523 149,296 Theodore T. Mason 15,480,484 142,335 Anne J. Mills 15,480,484 142,335 William J. Nightingale 15,473,523 149,296 James R. Ramsey 15,480,484 142,335 2. To ratify the selection of KPMG LLP as the Fund's independent auditors. Number of Votes: FOR AGAINST ABSTAIN --- ------- ------- 15,457,441 28,497 136,882 -----END PRIVACY-ENHANCED MESSAGE-----