N-CSR 1 ctftncsr604.txt CHURCHILL TAX-FREE TRUST 6/30/04 NCSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-5086 Churchill Tax-Free Trust (Exact name of Registrant as specified in charter) 380 Madison Avenue New York, New York 10017 (Address of principal executive offices) (Zip code) Joseph P. DiMaggio 380 Madison Avenue New York, New York 10017 (Name and address of agent for service) Registrant's telephone number, including area code: (212) 697-6666 Date of fiscal year end: 12/31 Date of reporting period: 6/30/04 FORM N-CSR ITEM 1. REPORTS TO STOCKHOLDERS. SEMI-ANNUAL REPORT JUNE 30, 2004 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](R) [Logo of the Aquila Group of Funds: an eagle's head] ONE OF THE AQUILA(SM) GROUP OF FUNDS [Logo of the Aquila Group of Funds: an eagle's head] AQUILA(SM) SERVING KENTUCKY INVESTORS GROUP OF FUNDS FOR OVER 15 YEARS CHURCHILL TAX-FREE FUND OF KENTUCKY 380 MADISON AVENUE, SUITE 2300 O NEW YORK, NY 10017 800-437-1020 O 212-697-6666 [Logo of the Churchill Tax-Free Fund of Kentucky: a standing pegasus in a circle](R) SEMI-ANNUAL REPORT CHURCHILL TAX-FREE FUND OF KENTUCKY SCHEDULE OF INVESTMENTS JUNE 30, 2004 (UNAUDITED)
RATING FACE MOODY'S/ AMOUNT GENERAL OBLIGATION BONDS (1.3%) S&P VALUE ----------- ------------------------------------------------------- -------- ----------- Bowling Green, Kentucky $ 200,000 5.300%, 06/01/18.................................... Aa3/NR $ 212,736 Lexington-Fayette Urban County, Kentucky Government Project Unlimited Tax 125,000 5.000%, 12/01/15.................................... Aa2/AA+ 131,014 340,000 5.150%, 12/01/17.................................... Aa2/AA+ 357,041 Louisville, Kentucky Unlimited Tax 2,205,000 5.000%, 10/01/21 FGIC Insured....................... Aaa/AAA 2,264,756 Warren County, Kentucky Judicial Unlimited Tax 345,000 5.100%, 09/01/17 AMBAC Insured...................... Aaa/NR 363,306 365,000 5.150%, 09/01/18 AMBAC Insured...................... Aaa/NR 383,564 ----------- Total General Obligation Bonds.................... 3,712,417 ----------- REVENUE BONDS (97.5%) STATE AGENCIES (38.3%) Kentucky Area Development District Financing 500,000 5.000%, 12/01/23 LOC Wachovia Bank.................. NR/AA 503,545 Kentucky Infrastructure Authority 1,000,000 5.250%, 06/01/12.................................... Aa3/A+ 1,083,490 635,000 5.250%, 06/01/12.................................... Aa3/A+ 678,961 2,740,000 5.250%, 06/01/14.................................... Aa3/A+ 2,944,705 1,500,000 5.375%, 02/01/18 (pre-refunded)..................... NR/A- 1,519,305 100,000 5.000%, 06/01/18.................................... Aa3/A+ 102,994 Kentucky Local Correctional Facilities Construction Authority 6,355,000 5.500%, 11/01/14 FSA Insured........................ Aaa/AAA 6,563,253 Kentucky State Property and Buildings Commission 3,000,000 6.250%, 09/01/07 MBIA Insured....................... Aaa/AAA 3,323,520 220,000 6.000%, 09/01/08.................................... Aa3/A+ 244,761 500,000 5.500%, 11/01/09 AMBAC Insured...................... Aaa/AAA 531,650 4,000,000 5.375%, 02/01/14 FSA Insured (pre-refunded)......... Aaa/AAA 4,435,920 400,000 5.250%, 10/01/14 (pre-refunded)..................... Aa3/A+ 429,612 3,250,000 5.625%, 09/01/15 (pre-refunded)..................... Aa3/A+ 3,654,040 460,000 5.125%, 09/01/15 (pre-refunded)..................... Aa3/A+ 504,500 1,000,000 5.000%, 11/01/15 AMBAC Insured...................... Aaa/AAA 1,062,700 100,000 5.375%, 05/01/16 MBIA Insured (pre-refunded)........ Aaa/AAA 110,351 6,500,000 5.375%, 08/01/16 FSA Insured........................ Aaa/AAA 7,130,955 3,905,000 5.125%, 09/01/16 (pre-refunded)..................... Aa3/A+ 4,282,770 Kentucky State Property and Buildings Commission (continued) $ 5,000,000 5.250%, 10/01/16.................................... Aa3/A+ $ 5,317,000 1,100,000 5.000%, 11/01/16 AMBAC Insured...................... Aaa/AAA 1,164,614 1,265,000 5.250%, 08/01/17 MBIA Insured (pre-refunded)........ Aaa/AAA 1,398,445 1,250,000 5.000%, 08/01/17 FSA Insured (pre-refunded)......... Aaa/AAA 1,365,675 975,000 5.000%, 08/01/17 FSA Insured........................ Aaa/AAA 1,014,995 8,155,000 5.125%, 09/01/17 (pre-refunded)..................... Aa3/A+ 8,943,915 200,000 5.375%, 10/01/17 MBIA Insured (pre-refunded)........ Aaa/AAA 223,642 4,735,000 5.250%, 10/01/17.................................... Aa3/A+ 5,006,694 1,250,000 5.500%, 11/01/17 FSA Insured........................ Aaa/AAA 1,370,388 1,000,000 5.000%, 11/01/17 AMBAC Insured...................... Aaa/AAA 1,051,650 165,000 5.375%, 02/01/18 FSA Insured (pre-refunded)......... Aaa/AAA 182,982 3,030,000 5.000%, 08/01/18 FSA Insured (pre-refunded)......... Aaa/AAA 3,310,396 3,950,000 5.125%, 09/01/18 (pre-refunded)..................... Aa3/A+ 4,320,668 6,000,000 5.250%, 10/01/18.................................... Aa3/A+ 6,315,540 3,000,000 5.000%, 10/01/18 AMBAC Insured...................... Aaa/AAA 3,198,570 1,000,000 5.500%, 11/01/18 FSA Insured........................ Aaa/AAA 1,094,100 155,000 5.100%, 11/01/18 FSA Insured........................ Aaa/AAA 162,480 145,000 5.100%, 11/01/18 (pre-refunded)..................... Aa3/A+ 157,705 1,500,000 5.000%, 11/01/18 AMBAC Insured...................... Aaa/AAA 1,568,115 2,000,000 5.250%, 05/01/19 MBIA Insured....................... Aaa/AAA 2,176,680 1,040,000 5.000%, 08/01/19 FSA Insured (pre-refunded)......... Aaa/AAA 1,136,242 4,000,000 5.375%, 10/01/19 MBIA Insured (pre-refunded)........ Aaa/AAA 4,472,840 1,925,000 5.000%, 10/01/19.................................... Aa3/A+ 1,971,277 360,000 5.000%, 10/01/19 MBIA Insured....................... Aaa/AAA 371,887 705,000 5.150%, 11/01/19 FSA Insured........................ Aaa/AAA 738,459 3,000,000 5.000%, 11/01/19 FSA Insured........................ Aaa/AAA 3,111,390 2,000,000 5.750%, 05/01/20 MBIA Insured (pre-refunded)........ Aaa/AAA 2,249,520 250,000 5.000%, 05/01/20 FSA Insured........................ Aaa/AAA 256,812 160,000 5.000%, 10/01/20 MBIA Insured....................... Aaa/AAA 164,584 270,000 5.100%, 10/01/21 MBIA Insured....................... Aaa/AAA 278,211 255,000 5.150%, 02/01/22 FSA Insured........................ Aaa/AAA 262,392 5,000,000 5.000%, 10/01/22 MBIA Insured....................... Aaa/AAA 5,114,750 235,000 5.000%, 08/01/23 MBIA Insured....................... Aaa/AAA 238,760 80,000 5.000%, 08/01/23 MBIA Insured (pre-refunded)........ Aaa/AAA 86,921 ------------ 108,905,331 ------------ COUNTY AGENCIES (8.6%) Floyd County, Kentucky Public Property Courthouse $ 510,000 5.500%, 09/01/14 (pre-refunded)..................... NR/NR* $ 548,209 Jefferson County, Kentucky Capital Projects 1,000,000 5.200%, 06/01/08 MBIA Insured....................... Aaa/AAA 1,081,960 430,000 5.200%, 06/01/12 MBIA Insured....................... Aaa/AAA 457,154 570,000 5.250%, 06/01/13 MBIA Insured....................... Aaa/AAA 614,055 520,000 5.250%, 06/01/14 MBIA Insured....................... Aaa/AAA 558,610 3,370,000 5.375%, 06/01/18 MBIA Insured....................... Aaa/AAA 3,596,565 1,640,000 5.375%, 06/01/22 MBIA Insured....................... Aaa/AAA 1,693,694 5,935,000 5.500%, 06/01/28 MBIA Insured....................... Aaa/AAA 6,145,752 Pendleton County, Kentucky Multi-County Lease Revenue 4,500,000 6.500%, 03/01/19.................................... NR/A 4,563,360 Warren County, Kentucky Justice Center 1,580,000 5.250%, 09/01/17 MBIA Insured....................... Aaa/AAA 1,675,606 Warren County, Kentucky Justice Center Expansion Corp. Revenue 700,000 5.400%, 09/01/24.................................... Aa3/NR 726,845 2,875,000 5.350%, 09/01/29 MBIA Insured....................... Aaa/AAA 2,959,496 ------------ 24,621,306 ------------ CITY / MUNICIPALITY OBLIGATIONS (4.1%) Jeffersontown, Kentucky Public Project Corp. 500,000 5.750%, 11/01/15.................................... A3/NR 531,505 Lexington-Fayette Urban County Government, Kentucky Public Facilities Revenue 120,000 5.125%, 10/01/23 FSA Insured........................ Aaa/AAA 121,878 Louisville, Kentucky Parking Authority 1,140,000 5.000%, 12/01/14 MBIA Insured....................... Aaa/AAA 1,189,772 Mount Sterling, Kentucky Lease Revenue 2,020,000 6.150%, 03/01/13.................................... Aa3/NR 2,048,058 7,000,000 6.200%, 03/01/18.................................... Aa3/NR 7,097,440 Shelbyville, Kentucky Certificates of Participation 625,000 5.000%, 10/01/22.................................... A2/NR 626,625 ------------ 11,615,278 ------------ HOSPITALS (4.5%) Jefferson County, Kentucky Health Facilities Revenue $ 240,000 5.000%, 10/01/12 MBIA Insured....................... Aaa/AAA $ 250,058 1,715,000 5.650%, 01/01/17 AMBAC Insured...................... Aaa/AAA 1,832,409 2,200,000 5.250%, 05/01/17.................................... NR/A 2,233,968 2,815,000 5.125%, 10/01/17 AMBAC Insured ETM.................. Aaa/AAA 2,907,079 525,000 5.125%, 10/01/18 MBIA Insured ETM................... Aaa/AAA 543,275 125,000 5.750%, 01/01/26 AMBAC Insured...................... Aaa/AAA 130,196 Kentucky Development Finance Authority Hospital Revenue 2,790,000 5.000%, 08/15/15 MBIA Insured....................... Aaa/AAA 2,855,928 Kentucky Economic Development Finance Authority 1,000,000 5.000%, 02/01/18 FSA Insured........................ Aaa/AAA 1,007,210 Louisville & Jefferson County, Kentucky Medical Center Revenue 1,000,000 5.000%, 06/01/18.................................... NR/A 1,018,730 ------------ 12,778,853 ------------ HOUSING (6.9%) Kentucky Housing Corp. Housing Revenue 310,000 6.100%, 07/01/16 AMT................................ Aaa/AAA 310,000 95,000 5.550%, 07/01/18 AMT................................ Aaa/AAA 95,489 250,000 5.850%, 07/01/20 AMT................................ Aaa/AAA 259,452 2,000,000 5.600%, 07/01/20 AMT................................ Aaa/AAA 2,023,260 1,150,000 5.350%, 01/01/21 AMT................................ Aaa/AAA 1,153,312 6,075,000 5.450%, 07/01/22 AMT................................ Aaa/AAA 6,130,647 4,065,000 5.250%, 07/01/22 AMT................................ Aaa/AAA 4,089,959 245,000 5.200%, 07/01/22.................................... Aaa/AAA 247,585 300,000 5.100%, 07/01/22 AMT................................ Aaa/AAA 296,520 4,140,000 5.200%, 07/01/25 AMT................................ Aaa/AAA 4,119,052 275,000 5.375%, 07/01/27.................................... Aaa/AAA 277,271 570,000 5.550%, 07/01/33.................................... Aaa/AAA 575,860 ------------ 19,578,407 ------------ POLLUTION CONTROL REVENUE (1.3%) Jefferson County, Kentucky Pollution Control (LG&E Energy) 3,800,000 5.900%, 04/15/23.................................... A1/A- 3,867,564 ------------ SCHOOLS (13.2%) Beechwood, Kentucky Independent School District Finance Corp. $ 180,000 5.650%, 03/01/20.................................... Aa3/NR $ 192,548 Boone County, Kentucky School District Finance Corp. School Building 660,000 5.000%, 06/01/15.................................... Aa3/NR 688,360 225,000 5.250%, 08/01/15.................................... Aa3/NR 240,280 285,000 5.700%, 02/01/16.................................... Aa3/NR 309,764 1,000,000 5.375%, 08/01/20 FSA Insured........................ AAA/NR 1,057,440 Boyd County, Kentucky School District Finance Corp. 1,025,000 5.000%, 10/01/15.................................... Aa3/NR 1,071,453 575,000 5.375%, 10/01/17.................................... Aa3/NR 613,755 Christian County, Kentucky School District Finance Corp. 500,000 5.000%, 06/01/09.................................... Aa3/NR 537,630 Fayette County, Kentucky School Building 1,780,000 5.700%, 12/01/16.................................... Aa3/AA- 1,932,831 Fayette County, Kentucky School Building Revenue 200,000 5.125%, 04/01/18 AMBAC Insured...................... Aaa/AAA 209,852 Fayette County, Kentucky School District Finance Corp. 250,000 5.300%, 09/01/14.................................... Aa3/AA- 268,948 Floyd County, Kentucky School Building 250,000 5.000%, 12/01/09.................................... Aa3/NR 270,353 Franklin County, Kentucky School District Finance Corp. 1,000,000 5.000%, 04/01/24.................................... Aa3/NR 1,002,980 Graves Co., Kentucky School Building Revenue 1,260,000 5.000%, 06/01/22.................................... Aa3/NR 1,277,111 1,320,000 5.000%, 06/01/23.................................... Aa3/NR 1,330,322 Grayson County, Kentucky School Building Revenue 1,940,000 6.000%, 01/01/15 (pre-refunded)..................... Aa3/NR 2,022,586 Hardin County, Kentucky School District Finance Corp. 100,000 5.500%, 02/01/17.................................... Aa3/NR 106,827 Jefferson County, Kentucky School District Finance Corp. School Building $ 750,000 5.300%, 01/01/13 FSA Insured........................ Aaa/AAA $ 822,397 695,000 5.125%, 11/01/14 FSA Insured (pre-refunded)......... Aaa/AAA 755,409 3,195,000 5.125%, 02/01/16 MBIA Insured (pre-refunded)........ Aaa/AAA 3,409,896 250,000 5.250%, 07/01/16 FSA Insured........................ Aaa/AAA 264,985 Kenton County, Kentucky School District 1,800,000 5.375%, 03/01/15.................................... Aa3/A+ 1,927,314 955,000 5.000%, 04/01/16.................................... Aa3/NR 997,899 1,055,000 5.000%, 04/01/17.................................... Aa3/NR 1,095,354 605,000 5.000%, 04/01/19.................................... Aa3/NR 621,353 Kentucky Economic Development Finance Authority College Revenue Centre College 1,230,000 5.000%, 04/01/17 FSA Insured........................ Aaa/AAA 1,287,367 1,675,000 5.000%, 04/01/19 FSA Insured........................ Aaa/AAA 1,736,657 Lexington-Fayette Urban County, Kentucky Government Project Transylvania University 1,320,000 5.125%, 08/01/18 MBIA Insured....................... Aaa/AAA 1,368,814 Lexington-Fayette Urban County, Kentucky Government Project U.K. Library 725,000 5.000%, 11/01/15 MBIA Insured....................... Aaa/AAA 765,919 205,000 5.000%, 11/01/18 MBIA Insured....................... Aaa/AAA 214,008 Meade County, Kentucky School District Finance Corp. 400,000 5.700%, 07/01/15.................................... Aa3/NR 431,368 500,000 6.000%, 07/01/16.................................... Aa3/NR 541,790 Middlesboro, Kentucky Independent School District Finance Corp. 100,000 6.100%, 08/01/16.................................... Aa3/NR 108,773 Oldham County, Kentucky School District Finance Corp. 500,000 5.000%, 05/01/19 MBIA Insured....................... Aaa/NR 521,250 Nelson County, Kentucky School Building 1,820,000 5.750%, 04/01/15 (pre-refunded)..................... Aa3/NR 1,915,150 Scott County, Kentucky School Building 2,750,000 5.900%, 06/01/18 (pre-refunded)..................... Aa3/A 2,911,012 100,000 5.000%, 03/01/22.................................... Aa3/NR 101,447 Taylor County, Kentucky School Building $ 280,000 6.000%, 08/01/16.................................... Aa3/NR $ 304,125 175,000 5.250%, 06/01/19.................................... Aa3/NR 184,474 University of Kentucky Revenue 1,335,000 5.000%, 05/01/16 FGIC Insured (pre-refunded)........ Aaa/AAA 1,452,734 505,000 5.000%, 06/01/18 FSA insured........................ Aaa/NR 526,175 Walton-Verona, Kentucky Independent School District 105,000 5.100%, 06/01/19.................................... Aa3/NR 108,443 ------------ 37,507,153 ------------ TRANSPORTATION (11.8%) Kenton County, Kentucky Airport Board Airport Revenue 800,000 5.000%, 03/01/08 MBIA Insured AMT................... Aaa/AAA 845,280 500,000 5.625%, 03/01/13 MBIA Insured AMT................... Aaa/AAA 533,710 1,570,000 5.000%, 03/01/13 MBIA Insured AMT................... Aaa/AAA 1,618,843 750,000 5.625%, 03/01/14 MBIA Insured AMT................... Aaa/AAA 799,072 1,000,000 5.500%, 03/01/17 MBIA Insured AMT................... Aaa/AAA 1,049,020 380,000 5.500%, 03/01/18 MBIA Insured AMT................... Aaa/AAA 395,626 1,000,000 5.000%, 03/01/23 MBIA Insured AMT................... Aaa/AAA 989,180 Kentucky Interlocal School Transportation Authority 150,000 5.100%, 03/01/05.................................... Aa3/A+ 153,511 145,000 5.400%, 06/01/17.................................... NR/A+ 146,773 400,000 6.000%, 12/01/20.................................... NR/A+ 410,492 200,000 6.000%, 12/01/20.................................... NR/A+ 205,246 300,000 5.800%, 12/01/20.................................... NR/A+ 305,358 400,000 5.650%, 12/01/20.................................... NR/A+ 406,908 350,000 5.600%, 12/01/20.................................... NR/A+ 355,974 Kentucky State Turnpike Authority Economic Development & Resource Recovery Road Revenue 120,000 8.500%, 07/01/06.................................... Aa3/A+ 134,314 1,000,000 6.500%, 07/01/08 AMBAC Insured...................... Aaa/AAA 1,132,580 1,010,000 5.500%, 07/01/11 AMBAC Insured...................... Aaa/AAA 1,020,100 1,000,000 5.625%, 07/01/12 FSA Insured........................ Aaa/AAA 1,101,020 200,000 5.625%, 07/01/13 FSA Insured........................ Aaa/AAA 220,204 500,000 5.625%, 07/01/14 FSA Insured........................ Aaa/AAA 550,210 250,000 5.200%, 07/01/14 FSA Insured........................ Aaa/AAA 266,842 Kentucky State Turnpike Authority Economic Development & Resource Recovery Road Revenue (continued) $ 2,760,000 5.625%, 07/01/15 AMBAC Insured (pre-refunded)....... Aaa/AAA $ 2,923,999 940,000 5.625%, 07/01/15 AMBAC Insured...................... Aaa/AAA 992,593 450,000 5.250%, 07/01/15 FSA Insured........................ Aaa/AAA 479,736 2,500,000 5.250%, 07/01/16 FSA Insured........................ Aaa/AAA 2,660,600 3,455,000 5.100%, 07/01/18 FSA Insured........................ Aaa/AAA 3,599,073 Louisville-Jefferson County Regional Airport, Kentucky 1,000,000 5.500%, 07/01/12 FSA Insured AMT.................... Aaa/AAA 1,069,920 2,000,000 5.750%, 07/01/15 FSA Insured AMT.................... Aaa/AAA 2,141,980 2,000,000 5.500%, 07/01/15 FSA Insured AMT.................... Aaa/AAA 2,122,180 1,000,000 5.250%, 07/01/18 FSA Insured AMT.................... Aaa/AAA 1,020,810 1,370,000 5.250%, 07/01/21 FSA Insured AMT.................... Aaa/AAA 1,392,550 2,390,000 5.250%, 07/01/22 FSA Insured AMT.................... Aaa/AAA 2,420,712 275,000 5.375%, 07/01/23 FSA Insured AMT.................... Aaa/AAA 279,727 ------------ 33,744,143 ------------ UTILITIES (8.8%) Campbell & Kenton Counties, Kentucky Sanitation Sewer District 125,000 5.000%, 08/01/18 FGIC Insured....................... Aaa/AAA 129,809 Hardin County, Kentucky Water District 605,000 5.900%, 01/01/25 MBIA Insured (pre-refunded)........ Aaa/AAA 644,700 395,000 5.900%, 01/01/25 MBIA Insured....................... Aaa/AAA 419,340 Kentucky Rural Water Finance Corp. 595,000 5.000%, 02/01/20 AMBAC Insured...................... Aaa/AAA 616,503 Lexington-Fayette Urban County Government, Kentucky Sewer System 1,000,000 5.000%, 07/01/19.................................... Aa3/AA 1,030,650 Louisville and Jefferson County, Kentucky Metropolitan Sewer District 1,000,000 5.000%, 05/15/12 FGIC Insured....................... Aaa/AAA 1,053,130 2,565,000 5.375%, 05/15/17 MBIA Insured....................... Aaa/AAA 2,777,921 1,410,000 5.400%, 05/15/22 FGIC Insured....................... Aaa/AAA 1,480,274 400,000 5.000%, 05/15/22 FGIC Insured....................... Aaa/AAA 406,264 120,000 6.250%, 05/15/26 MBIA Insured....................... Aaa/AAA 131,773 Louisville, Kentucky Waterworks Board Water System Revenue $ 1,000,000 5.250%, 11/15/16 FSA Insured........................ Aaa/AAA $ 1,059,150 1,000,000 5.250%, 11/15/17 FSA Insured........................ Aaa/AAA 1,056,860 2,485,000 5.250%, 11/15/18 FSA Insured........................ Aaa/AAA 2,614,990 6,600,000 5.250%, 11/15/22 FSA Insured........................ Aaa/AAA 6,837,468 2,415,000 5.250%, 11/15/24 FSA Insured........................ Aaa/AAA 2,472,477 Northern Kentucky Water District 240,000 5.000%, 02/01/23 FGIC Insured....................... Aaa/NR 243,312 Owensboro-Davies County, Kentucky Water District 600,000 5.000%, 01/01/13 AMBAC Insured...................... Aaa/AAA 621,210 Owensboro, Kentucky Electric and Power 1,310,000 5.000%, 01/01/20 FSA Insured........................ Aaa/AAA 1,344,257 ------------ 24,940,088 ------------ Total Revenue Bonds................................. 277,558,123 ------------ Total Investments (cost $273,387,081**)................ 98.8% 281,270,540 Other assets less liabilities.......................... 1.2 3,369,746 ----- ------------ Net Assets............................................. 100.0% $284,640,286 ===== ============
* Any security not rated (NR) by either credit rating service has been determined by the Manager 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. ** See note 4. PORTFOLIO ABBREVIATIONS: ------------------------------------------------- AMBAC - American Municipal Bond Assurance Corp. AMT - Alternative Minimum Tax ETM - Escrowed To Maturity FGIC - Financial Guaranty Insurance Co. FSA - Financial Security Assurance LOC - Letter of Credit MBIA - Municipal Bond Investors Assurance See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2004 (UNAUDITED) ASSETS Investments at value (cost $273,387,081) ........................................... $ 281,270,540 Interest receivable ................................................................ 4,241,584 Receivable for Fund shares sold .................................................... 129,133 Other assets ....................................................................... 18,466 ------------- Total assets ....................................................................... 285,659,723 ------------- LIABILITIES Cash overdraft ..................................................................... 209,634 Dividends payable .................................................................. 368,992 Payable for Fund shares redeemed ................................................... 175,243 Management fee payable ............................................................. 93,541 Distribution fees payable .......................................................... 73,165 Payable for securities purchased ................................................... 21,199 Accrued expenses ................................................................... 77,663 ------------- Total liabilities .................................................................. 1,019,437 ------------- NET ASSETS ............................................................................ $ 284,640,286 ============= Net Assets consist of: Capital Stock - Authorized an unlimited number of shares, par value $.01 per share . $ 270,693 Additional paid-in capital ......................................................... 277,083,928 Net unrealized appreciation on investments (note 4) ................................ 7,883,459 Undistributed net investment income ................................................ 446,662 Accumulated net realized loss on investments ....................................... (1,044,456) ------------- $ 284,640,286 ============= CLASS A Net Assets ......................................................................... $ 230,858,585 ============= Capital shares outstanding ......................................................... 21,956,087 ============= Net asset value and redemption price per share ..................................... $ 10.51 ============= Offering price per share (100/96 of $10.51 adjusted to nearest cent) ............... $ 10.95 ============= CLASS C Net Assets ......................................................................... $ 7,090,963 ============= Capital shares outstanding ......................................................... 674,697 ============= Net asset value and offering price per share ....................................... $ 10.51 ============= 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) ...................................... $ 10.51* ============= CLASS I Net Assets ......................................................................... $ 7,267,973 ============= Capital shares outstanding ......................................................... 691,559 ============= Net asset value, offering and redemption price per share ........................... $ 10.51 ============= CLASS Y Net Assets ......................................................................... $ 39,422,765 ============= Capital shares outstanding ......................................................... 3,746,974 ============= Net asset value, offering and redemption price per share ........................... $ 10.52 =============
See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED) INVESTMENT INCOME: Interest income ...................................... $ 6,867,547 Expenses: Management fee (note 3) .............................. $ 578,117 Distribution and service fees (note 3) ............... 214,459 Transfer and shareholder servicing agent fees ........ 70,006 Trustees' fees and expenses (note 8) ................. 48,380 Fund accounting fees ................................. 32,779 Shareholders' reports and proxy statements ........... 27,245 Legal fees ........................................... 21,384 Auditing and tax fees ................................ 14,186 Custodian fees ....................................... 10,850 Insurance ............................................ 8,819 Registration fees and dues ........................... 7,787 Miscellaneous ........................................ 13,327 ----------- Total expenses ....................................... 1,047,339 Expenses paid indirectly (note 6) .................... (6,352) ----------- Net expenses ......................................... 1,040,987 ----------- Net investment income ................................ 5,826,560 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from securities transactions 95,825 Change in unrealized appreciation on investments ..... (5,222,873) ----------- Net realized and unrealized gain (loss) on investments (5,127,048) ----------- Net change in net assets resulting from operations ... $ 699,512 ===========
See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 2004 YEAR ENDED (UNAUDITED) DECEMBER 31, 2003 ---------------- ----------------- OPERATIONS: Net investment income ............................... $ 5,826,560 $ 11,709,378 Net realized gain (loss) from securities transactions 95,825 259,635 Change in unrealized appreciation on investments .... (5,222,873) 183,334 ------------- ------------- Change in net assets from operations ............. 699,512 12,152,347 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 10): Class A Shares: Net investment income ............................... (4,608,384) (9,367,500) Class C Shares: Net investment income ............................... (112,902) (200,217) Class I Shares: Net investment income ............................... (99,818) (146,438) Class Y Shares: Net investment income ............................... (943,321) (1,944,616) ------------- ------------- Change in net assets from distributions .......... (5,764,425) (11,658,771) ------------- ------------- CAPITAL SHARE TRANSACTIONS (NOTE 7): Proceeds from shares sold ........................... 23,292,170 44,639,694 Reinvested dividends and distributions .............. 2,722,077 5,821,000 Cost of shares redeemed ............................. (23,433,099) (38,277,178) ------------- ------------- Change in net assets from capital share transactions 2,581,148 12,183,516 ------------- ------------- Change in net assets ................................ (2,483,765) 12,677,092 NET ASSETS: Beginning of period ................................. 287,124,051 274,446,959 ------------- ------------- End of period* ...................................... $ 284,640,286 $ 287,124,051 ============= ============= * Includes undistributed net investment income of: $ 446,662 $ 384,527 ============= =============
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 distribution 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. Class I Shares are sold at net asset value without any sales charge, redemption fees, or contingent deferred sales charge. Class I shares carry a distribution fee and a service fee. 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 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 by the pricing service at the mean of bid and asked quotations. If market quotations or a valuation from the pricing service is not readily available, the security is valued 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 is 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 exceeds 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) MULTIPLE CLASS ALLOCATIONS: All income, expenses (other than class-specific expenses), and realized and unrealized gains or losses 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 Investment Management LLC (the "Manager"), a wholly owned subsidiary of Aquila Management Corporation, 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 investment management and administrative services to the Fund. The Manager's services include providing the office of the Fund and all related services as well as managing relationships with of all the various support organizations to the Fund such as the shareholder servicing agent, custodian, legal counsel, fund accounting agent, auditors and distributor. 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 average 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 distribution 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, 2004, distribution fees on Class A Shares amounted to $173,286 of which the Distributor retained $4,156. 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 average net assets represented by Class C Shares and for the six months ended June 30, 2004, amounted to $26,985. 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 average net assets represented by Class C Shares and for the six months ended June 30, 2004, amounted to $8,994. The total of these payments with respect to Class C Shares amounted to $35,979 of which the Distributor retained $4,671. Under another part of the Plan, the Fund is authorized to make payments with respect to Class I Shares to Qualified Recipients. Class I payments, under the Plan, may not exceed for any fiscal year of the Fund a rate (currently 0.20%), set from time to time by the Board of Trustees, of 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%) of 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 six months ended June 30, 2004, these payments were made at the average annual rate of 0.35% of such net assets and amounted to $9,089 of which $5,194 related to the Plan and $3,895 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, 2004, total commissions on sales of Class A Shares amounted to $176,378 of which the Distributor received $19,716. c) OTHER RELATED PARTY TRANSACTIONS: For the six months ended June 30, 3004, the Fund incurred $20,682 of legal fees allocable to Hollyer Brady Barrett & 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 Barrett & Hines LLP. 4. PURCHASES AND SALES OF SECURITIES During the six months ended June 30, 2004, purchases of securities and proceeds from the sales of securities aggregated $19,337,725 and $14,962,743, respectively. At June 30, 2004, the aggregate tax cost for all securities was $273,006,611. At June 30, 2004, the aggregate gross unrealized appreciation for all securities in which there is an excess of market value over tax cost amounted to $9,485,281 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over market value amounted to $1,221,352 for a net unrealized appreciation of $8,263,929. 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. 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. 7. CAPITAL SHARE TRANSACTIONS Transactions in Capital Shares of the Fund were as follows:
SIX MONTHS ENDED JUNE 30, 2004 YEAR ENDED (UNAUDITED) DECEMBER 31, 2003 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ CLASS A SHARES: Proceeds from shares sold .. 1,218,021 $ 13,030,210 2,169,701 $ 23,197,568 Reinvested distributions ... 203,007 2,166,020 423,111 4,508,492 Cost of shares redeemed .... (894,462) (9,497,234) (2,359,392) (25,070,993) ---------- ------------ ---------- ------------ Net change .............. 526,566 5,698,996 233,420 2,635,067 ---------- ------------ ---------- ------------ CLASS C SHARES: Proceeds from shares sold .. 93,018 985,271 285,083 3,053,437 Reinvested distributions ... 6,612 70,552 12,041 128,176 Cost of shares redeemed .... (98,182) (1,047,968) (74,572) (795,113) ---------- ------------ ---------- ------------ Net change .............. 1,448 7,855 222,552 2,386,500 ---------- ------------ ---------- ------------ CLASS I SHARES: Proceeds from shares sold .. 281,382 2,975,745 198,482 2,130,432 Reinvested distributions ... 6,743 71,917 12,722 135,513 Cost of shares redeemed .... (11,700) (124,109) (21,821) (232,654) ---------- ------------ ---------- ------------ Net change .............. 276,425 2,923,553 189,383 2,033,291 ---------- ------------ ---------- ------------ CLASS Y SHARES: Proceeds from shares sold .. 583,810 6,300,944 1,511,098 16,258,257 Reinvested distributions ... 38,624 413,588 98,382 1,048,819 Cost of shares redeemed .... (1,203,298) (12,763,788) (1,145,269) (12,178,418) ---------- ------------ ---------- ------------ Net change .............. (580,864) (6,049,256) 464,211 5,128,658 ---------- ------------ ---------- ------------ Total transactions in Fund shares ..................... 223,575 $ 2,581,148 1,109,566 $ 12,183,516 ========== ============ ========== ============
8. TRUSTEES' FEES AND EXPENSES During the previous fiscal year ended December 31, 2003 there were nine trustees, two of whom were affiliated with the Manager and are not paid any trustee fees. Each Trustees' fee paid during the year was at the average annual rate of $7,250 for carrying out responsibilities and attendance at regularly scheduled Board Meetings. If additional or special meetings are scheduled for the Fund, separate meeting fees are paid for each such meeting to those Trustees in attendance. The Fund also reimburses Trustees for expenses such as travel, accommodations, and meals incurred in connection with attendance at regularly scheduled or special Board Meetings and at the Annual Meeting of Shareholders. For the fiscal year ended December 31, 2003 such reimbursements averaged approximately $3,400 per Trustee. 9. SECURITIES TRADED ON A WHEN-ISSUED BASIS The Fund may purchase or sell securities on a when-issued basis. When-issued transactions arise when securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Beginning on the date the Fund enters into a when-issued transaction, cash or other liquid securities are segregated in an amount equal to or greater than the amount of the when-issued transaction. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities. 10. INCOME TAX INFORMATION AND 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. 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 dividend income may, under some circumstances, be subject to the alternative minimum tax. At December 31, 2003, the Fund had a capital loss carryover of $1,077,355, $54,468 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. In addition, the Fund generated a post October net capital loss of $57,959. The tax character of distributions: YEAR ENDED DECEMBER 31, 2003 2002 ----------- ------------ Net tax-exempt income $11,625,804 $ 11,355,823 Ordinary income 32,967 13,045 ----------- ------------ $11,658,771 $ 11,368,868 =========== ============ As of December 31, 2003, the components of distributable earnings on a tax basis were as follows: Accumulated net realized loss $ (1,135,314) Unrealized appreciation 13,432,250 Undistributed tax-exempt income 53,642 ------------ $ 12,350,578 ============ The difference between book basis and tax basis unrealized appreciation is attributable primarily to wash sales and premium/discount adjustments. CHURCHILL TAX-FREE FUND OF KENTUCKY FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A ----------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 6/30/04 ------------------------------------------------------------ (UNAUDITED) 2003 2002 2001 2000 1999 ----------- -------- -------- -------- -------- -------- Net asset value, beginning of period ..... $ 10.69 $ 10.66 $ 10.31 $ 10.40 $ 10.09 $ 10.81 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income+ ............... 0.21 0.44 0.47 0.50 0.52 0.52 Net gain (loss) on securities (both realized and unrealized) ............ (0.18) 0.03 0.35 (0.09) 0.31 (0.68) -------- -------- -------- -------- -------- -------- Total from investment operations ...... 0.03 0.47 0.82 0.41 0.83 (0.16) -------- -------- -------- -------- -------- -------- Less distributions (note 10): Dividends from net investment income .. (0.21) (0.44) (0.47) (0.50) (0.52) (0.53) Distributions from capital gains ...... -- -- -- -- -- (0.03) -------- -------- -------- -------- -------- -------- Total distributions ................... (0.21) (0.44) (0.47) (0.50) (0.52) (0.56) -------- -------- -------- -------- -------- -------- Net asset value, end of period ........... $ 10.51 $ 10.69 $ 10.66 $ 10.31 $ 10.40 $ 10.09 ======== ======== ======== ======== ======== ======== Total return (not reflecting sales charge) 0.29%++ 4.50% 8.15% 4.02% 8.45% (1.51)% Ratios/supplemental data Net assets, end of period (in thousands) ...................... $230,859 $229,176 $226.014 $201,604 $196,890 $205,842 Ratio of expenses to average net assets .......................... 0.72%* 0.72% 0.72% 0.72% 0.74% 0.72% Ratio of net investment income to average net assets .................. 4.03%* 4.14% 4.82% 4.82% 5.10% 4.95% Portfolio turnover rate ............... 5.22%++ 17.92% 21.44% 21.44% 6.61% 6.35% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets .......................... 0.72%* 0.71% 0.71% 0.70% 0.73% 0.71% CLASS C ----------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 6/30/04 ------------------------------------------------------------- (UNAUDITED) 2003 2002 2001 2000 1999 ----------- -------- -------- -------- -------- -------- Net asset value, beginning of period ..... $ 10.69 $ 10.66 $ 10.31 $ 10.39 $ 10.08 $ 10.81 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income+ ............... 0.17 0.35 0.38 0.41 0.43 0.43 Net gain (loss) on securities (both realized and unrealized) ............ (0.18) 0.03 0.35 (0.08) 0.31 (0.69) -------- -------- -------- -------- -------- -------- Total from investment operations ...... (0.01) 0.38 0.73 0.33 0.74 (0.26) -------- -------- -------- -------- -------- -------- Less distributions (note 10): Dividends from net investment income .. (0.17) (0.35) (0.38) (0.41) (0.43) (0.44) Distributions from capital gains ...... -- -- -- -- -- (0.03) -------- -------- -------- -------- -------- -------- Total distributions ................... (0.17) (0.35) (0.38) (0.41) (0.43) (0.47) -------- -------- -------- -------- -------- -------- Net asset value, end of period ........... $ 10.51 $ 10.69 $ 10.66 $ 10.31 $ 10.39 $ 10.08 ======== ======== ======== ======== ======== ======== Total return (not reflecting sales charge) (0.14%)++ 3.62% 7.23% 3.24% 7.54% (2.45)% Ratios/supplemental data Net assets, end of period (in thousands) ...................... $ 7,091 $ 7,197 $ 4,804 $ 3,355 $ 1,861 $ 1,932 Ratio of expenses to average net assets .......................... 1.58%* 1.57% 1.56% 1.56% 1.59% 1.56% Ratio of net investment income to average net assets .................. 3.18%* 3.26% 3.62% 3.92% 4.24% 4.09% Portfolio turnover rate ............... 5.28%++ 17.92% 18.27% 21.44% 6.61% 6.35% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets .......................... 1.57%* 1.56% 1.55% 1.55% 1.58% 1.55%
------------- + Per share amounts have been calculated using the monthly average shares method. ++ Not annualized. * Annualized. Note: On July 1, 2000, Aquila Management Corporation was appointed as the Fund's Investment adviser, assuming investment management responsibilities, replacing Banc One Investment Advisers Corporation the Fund's Investment Sub-Adviser. Effective January 1, 2004, Aquila Management Corporation, founder of the Fund, assigned its Advisory and Administration Agreement to its wholly-owned subsidiary, Aquila Investment Management LLC. See accompanying notes to financial statements. CHURCHILL TAX-FREE FUND OF KENTUCKY FINANCIAL HIGHLIGHTS (CONTINUED) FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS I ---------------------------------------------------- SIX MONTHS YEAR ENDED ENDED DECEMBER 31, PERIOD 6/30/04 --------------------- ENDED (UNAUDITED) 2003 2002 12/31/01(1) ----------- -------- -------- ----------- Net asset value, beginning of period .......... $ 10.69 $ 10.66 $ 10.31 $ 10.44 -------- -------- -------- -------- Income (loss) from investment operations: Net investment income + .................... 0.20 0.43 0.46 0.19 Net gain (loss) on securities (both realized and unrealized) .......................... (0.18) 0.02 0.35 (0.13) -------- -------- -------- -------- Total from investment operations ........... 0.02 0.45 0.81 0.06 -------- -------- -------- -------- Less distributions (note 10): Dividends from net investment income ....... (0.20) (0.42) (0.46) (0.19) Distributions from capital gains ........... -- -- -- -- -------- -------- -------- -------- Total distributions ........................ (0.20) (0.42) (0.46) (0.19) -------- -------- -------- -------- Net asset value, end of period ................ $ 10.51 $ 10.69 $ 10.66 $ 10.31 ======== ======== ======== ======== Total return (not reflecting sales charge) .... 0.21%++ 4.33% 7.98% 0.58%++ Ratios/supplemental data Net assets, end of period (in thousands) ........................... $ 7,268 $ 4,438 $ 2,407 $ 1,426 Ratio of expenses to average net assets .... 0.88%* 0.88% 0.87% 0.83%* Ratio of net investment income to average net assets ............................... 3.87%* 3.95% 4.32% 4.47%* Portfolio turnover rate .................... 5.22%++ 17.92% 18.27% 21.44%++ The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets .... 0.87%* 0.87% 0.86% 0.82%* CLASS Y -------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 6/30/04 ----------------------------------------------------- (UNAUDITED) 2003 2002 2001 2000 1999 ----------- -------- -------- -------- -------- -------- Net asset value, beginning of period .......... $ 10.70 $ 10.67 $ 10.32 $ 10.40 $ 10.09 $ 10.82 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income + .................... 0.22 0.46 0.49 0.51 0.53 0.53 Net gain (loss) on securities (both realized and unrealized) .......................... (0.18) 0.03 0.35 (0.07) 0.32 (0.69) -------- -------- -------- -------- -------- -------- Total from investment operations ........... 0.04 0.49 0.84 0.44 0.85 (0.16) -------- -------- -------- -------- -------- -------- Less distributions (note 10): Dividends from net investment income ....... (0.22) (0.46) (0.49) (0.52) (0.54) (0.54) Distributions from capital gains ........... -- -- -- -- -- (0.03) -------- -------- -------- -------- -------- -------- Total distributions ........................ (0.22) (0.46) (0.49) (0.52) (0.54) (0.57) -------- -------- -------- -------- -------- -------- Net asset value, end of period ................ $ 10.52 $ 10.70 $ 10.67 $ 10.32 $ 10.40 $ 10.09 ======== ======== ======== ======== ======== ======== Total return (not reflecting sales charge) .... 0.36%++ 4.65% 8.30% 4.28% 8.62% (1.46)% Ratios/supplemental data Net assets, end of period (in thousands) ........................... $ 39,423 $ 46,313 $ 41,223 $ 25,585 $ 15,745 $ 13,346 Ratio of expenses to average net assets .... 0.57%* 0.57% 0.57% 0.57% 0.59% 0.57% Ratio of net investment income to average net assets ............................... 4.18%* 4.28% 4.63% 4.94% 5.25% 5.09% Portfolio turnover rate .................... 5.22%++ 17.92% 18.27% 21.44% 6.61% 6.35% The expense ratios after giving effect to the expense offset for uninvested cash balances were: Ratio of expenses to average net assets .... 0.57%* 0.56% 0.56% 0.55% 0.58% 0.56%
-------------- (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: On July 1, 2000, Aquila Management Corporation was appointed as the Fund's Investment adviser. Effective January 1, 2004, Aquila Management Corporation, founder of the Fund, assigned its Advisory and Administration Agreement to its wholly-owned subsidiary, Aquila Investment Management LLC. 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 23, 2004. The holders of shares representing 83% 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 are presented below). 1. To elect Trustees. Number of Votes: TRUSTEE FOR WITHHELD ------- --- -------- Lacy B. Herrmann 22,303,658 172,251 Thomas A. Christopher 22,328,274 147,635 Douglas Dean 22,327,387 148,522 Diana P. Herrmann 22,291,891 184,018 Theodore T. Mason 22,317,207 158,702 Anne J. Mills 22,322,909 153,000 William J. Nightingale 22,318,699 157,210 James R. Ramsey 22,304,012 171,897 2. To ratify the selection of KPMG LLP as the Fund's independent auditors. Number of Votes: FOR AGAINST ABSTAIN --- ------- ------- 22,029,198 51,340 395,370 -------------------------------------------------------------------------------- INFORMATION AVAILABLE (UNAUDITED) Much of the information that the funds in the Aquila(SM) Group of Funds produce is automatically sent to you and all other shareholders. Specifically, you are routinely sent the entire list of portfolio securities of your fund twice a year in the semi-annual and annual reports you receive. You should know, however, that we prepare, and have available, portfolio listings at the end of each quarter. Whenever you may be interested in seeing a listing of your Fund's portfolio other than in your shareholder reports, please check our website (www.aquilafunds.com) or call us at 1-800-437-1020. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PROXY VOTING RECORD. The Fund does not invest in equity securities. Accordingly, there were no matters relating to a portfolio security considered at any shareholder meeting held during the 12 months ended June 30, 2004 with respect to which the Fund was entitled to vote. Applicable regulations require us to inform you that the foregoing proxy voting information is available on the SEC website at http://www.sec.gov. -------------------------------------------------------------------------------- FOUNDER AQUILA MANAGEMENT CORPORATION MANAGER AQUILA INVESTMENT MANAGEMENT LLC 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 Theodore T. Mason Anne J. Mills William J. Nightingale James R. Ramsey OFFICERS Diana P. Herrmann, Vice Chair and President Thomas S. Albright, Senior Vice President and Portfolio Manager Jerry G. McGrew, Senior Vice President Jason T. McGrew, Vice President Joseph P. DiMaggio, Chief Financial Officer and 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. 760 Moore Road King of Prussia, Pennsylvania 19406 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP 757 Third Avenue New York, New York 10017 Further information is contained in the Prospectus, which must precede or accompany this report. ITEM 2. CODE OF ETHICS. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. 905: Not applicable. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) as of a date within 90 days of the fling of this report, the registrant's chief financial and executive officers have concluded that the disclosure controls and procedures of the registrant are appropriately designed to ensure that information required to be disclosed in the registrant's reports that are filed under the Securities Exchange Act of 1934 are accumulated and communicated to registrant's management, including its principal executive officer(s) and principal financial officer(s), to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the Securities and Exchange Commission. (b) There have been no significant changes in registrant's internal controls or in other factors that could significantly affect registrant's internal controls subsequent to the date of the most recent evaluation, including no significant deficiencies or material weaknesses that required corrective action. ITEM 10. EXHIBITS. (a)(1) Not applicable. (a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. (b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHURCHILL TAX-FREE TRUST By: /s/ Lacy B. Herrmann --------------------------------- Chairman of the Board September 6, 2004 By: /s/ Diana P. Herrmann --------------------------------- Vice Chair, Trustee and President September 6, 2004 By: /s/ Joseph P. DiMaggio ----------------------------------- Chief Financial Officer and Treasurer September 6, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Lacy B. Herrmann --------------------------------- Lacy B. Herrmann Chairman of the Board September 6, 2004 By: /s/ Diana P. Herrmann --------------------------------- Diana P. Herrmann Vice Chair, Trustee and President September 6, 2004 By: /s/ Joseph P. DiMaggio ----------------------------------- Joseph P. DiMaggio Chief Financial Officer and Treasurer September 6, 20034