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: 6/30/03
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
CHURCHILL TAX-FREE TRUST
Semi-Annual Report June 30, 2003
[Logo of the Aquila Group of Funds: an eagle's head]
AQUILA(SM)
GROUP OF FUNDS
SERVING KENTUCKY INVESTORS
FOR OVER 15 YEARS
CHURCHILL TAX-FREE
FUND OF KENTUCKY
380 MADISON AVENUE, SUITE 2300 * NEW YORK, NY 10017
800-437-1020 * 212-697-6666
[Logo of the Churchill Tax-Free Fund of Kentucky: a standing pegasus in a
circle]
SEMI-ANNUAL REPORT
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENT OF INVESTMENTS
JUNE 30, 2003
(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 $ 219,000
Lexington-Fayette Urban County Government
Project Unlimited Tax
125,000 5.000%, 12/01/15 ...................................... Aa2/AA+ 137,969
340,000 5.150%, 12/01/17 ...................................... Aa2/AA+ 372,300
Louisville Kentucky Unlimited Tax
2,205,000 5.000%, 10/01/21 FGIC Insured ......................... Aaa/AAA 2,334,544
Warren County Kentucky Judicial Unlimited Tax
345,000 5.100%, 09/01/17 AMBAC Insured ........................ Aaa/NR 377,775
365,000 5.150%, 09/01/18 AMBAC Insured ........................ Aaa/NR 398,763
---------------
Total General Obligation Bonds ..................... 3,840,351
---------------
REVENUE BONDS (97.4%)
----------------------------------------------------------
STATE AGENCIES (32.2%)
----------------------------------------------------------
Kentucky Area Development District Financing
500,000 5.000%, 12/01/23 LOC Wachovia Bank .................... NR/AA 523,750
280,000 4.700%, 06/01/23 LOC Wachovia Bank .................... NR/AA 277,900
300,000 4.000%, 06/01/16 LOC Wachovia Bank .................... NR/AA 298,125
2,465,000 4.800%, 06/01/29 LOC Wachovia Bank .................... NR/AA 2,449,594
Kentucky Infrastructure Authority
1,000,000 5.250%, 06/01/12 ...................................... Aa3/A+ 1,148,750
635,000 5.250%, 06/01/12 ...................................... Aa3/A+ 699,294
2,740,000 5.250%, 06/01/14 ...................................... Aa3/A+ 3,092,775
1,110,000 6.375%, 06/01/14 Pre-Refunded ......................... Aa3/AA- 1,239,038
1,500,000 5.375%, 02/01/18 ...................................... NR/A- 1,534,740
Kentucky Local Correctional Facilities Construction
Authority
6,355,000 5.500%, 11/01/14 FSA Insured .......................... Aaa/AAA 6,807,794
Kentucky Rural Economic Development Authority
3,110,000 7.250%, 06/01/17 LOC Bank One AMT ..................... NR/A+ 3,202,616
Kentucky State Property and Buildings Commission
3,000,000 6.250%, 09/01/07 MBIA Insured ......................... Aaa/AAA 3,506,250
220,000 6.000%, 09/01/08 ...................................... Aa3/A+ 259,325
$ 500,000 5.500%, 11/01/09 AMBAC Insured ........................ Aaa/AAA $ 551,875
400,000 5.000%, 09/01/13 ...................................... Aa3/A+ 409,744
4,000,000 5.375%, 02/01/14 FSA Insured .......................... Aaa/AAA 4,590,000
400,000 5.250%, 10/01/14 ...................................... Aa3/A+ 450,500
460,000 5.125%, 09/01/15 ...................................... Aa3/A+ 509,450
3,250,000 5.625%, 09/01/15 ...................................... Aa3/A+ 3,749,687
100,000 5.375%, 05/01/16 MBIA Insured ......................... Aaa/AAA 112,375
6,500,000 5.375%, 08/01/16 FSA Insured .......................... Aaa/AAA 7,328,750
3,905,000 5.125%, 09/01/16 ...................................... Aa3/A+ 4,275,975
5,000,000 5.250%, 10/01/16 ...................................... Aa3/A+ 5,531,250
1,150,000 5.000%, 08/01/17 FSA Insured .......................... Aaa/AAA 1,240,563
8,155,000 5.125%, 09/01/17 ...................................... Aa3/A+ 8,919,531
4,735,000 5.250%, 10/01/17 ...................................... Aa3/A+ 5,196,662
800,000 5.500%, 11/01/17 FSA Insured .......................... Aaa/AAA 915,000
165,000 5.375%, 02/01/18 FSA Insured .......................... Aaa/AAA 184,388
2,605,000 5.000%, 08/01/18 FSA Insured .......................... Aaa/AAA 2,790,606
3,950,000 5.125%, 09/01/18 ...................................... Aa3/A+ 4,305,500
6,000,000 5.250%, 10/01/18 ...................................... Aa3/A+ 6,607,500
145,000 5.100%, 11/01/18 ...................................... Aa3/A+ 156,056
1,040,000 5.000%, 08/01/19 FSA Insured .......................... Aaa/AAA 1,106,300
1,000,000 5.375%, 10/01/19 MBIA Insured ......................... Aaa/AAA 1,105,000
1,925,000 5.000%, 10/01/19 ...................................... Aa3/A+ 2,054,937
360,000 5.000%, 10/01/19 MBIA Insured ......................... Aaa/AAA 383,400
3,000,000 5.000%, 11/01/19 FSA Insured .......................... Aaa/AAA 3,217,500
705,000 5.150%, 11/01/19 FSA Insured .......................... Aaa/AAA 764,044
2,000,000 5.750%, 05/01/20 MBIA Insured ......................... Aaa/AAA 2,255,000
160,000 5.000%, 10/01/20 MBIA Insured ......................... Aaa/AAA 169,400
205,000 5.150%, 02/01/22 FSA Insured .......................... Aaa/AAA 217,300
---------------
94,138,244
---------------
COUNTY AGENCIES (8.7%)
----------------------------------------------------------
Floyd County Public Property Courthouse
510,000 5.500%, 09/01/14 Pre-Refunded ......................... NR/NR** 572,475
Jefferson County Kentucky Capital Projects
$ 1,000,000 5.200%, 06/01/08 MBIA Insured ......................... Aaa/AAA $ 1,127,500
430,000 5.200%, 06/01/12 MBIA Insured ......................... Aaa/AAA 476,225
570,000 5.250%, 06/01/13 MBIA Insured ......................... Aaa/AAA 628,425
520,000 5.250%, 06/01/14 MBIA Insured ......................... Aaa/AAA 577,850
3,370,000 5.375%, 06/01/18 MBIA Insured ......................... Aaa/AAA 3,681,725
1,640,000 5.375%, 06/01/22 MBIA Insured ......................... Aaa/AAA 1,742,500
5,935,000 5.500%, 06/01/28 MBIA Insured ......................... Aaa/AAA 6,380,125
Pendleton County Kentucky Multi-County
Lease Revenue
4,500,000 6.500%, 03/01/19 ...................................... NR/A 4,657,500
Warren Co., Kentucky Justice Center Expansion
Corp. Revenue
700,000 5.400%, 09/01/24 ...................................... Aa3/NR 757,750
2,875,000 5.350%, 09/01/29 MBIA Insured ......................... Aaa/AAA 3,047,500
Warren County Kentucky Justice Center
1,580,000 5.250%, 09/01/17 MBIA Insured ......................... Aaa/AAA 1,728,125
---------------
25,377,700
---------------
CITY / MUNICIPALITY OBLIGATIONS (5.8%)
----------------------------------------------------------
Jeffersontown Kentucky Public Project Corp.
500,000 5.750%, 11/01/15 ...................................... A3/NR 548,125
Kentucky League Cities Funding Trust Certificates
of Participation (Covington)
1,715,000 6.200%, 08/01/17 ...................................... NR/A+ 1,795,983
Kentucky League Cities Funding Trust Certificates
of Participation (Owensboro)
700,000 5.900%, 08/01/16 ...................................... NR/A 732,074
Lexington-Fayette UCG, Kentucky Pub. Facs.
Revenue FSA Insured
120,000 5.125%, 10/01/23 ...................................... Aaa/AAA 126,150
Louisville Kentucky Parking Authority
1,140,000 5.000%, 12/01/14 MBIA Insured ......................... Aaa/AAA 1,235,475
Mount Sterling Kentucky Lease Revenue
2,020,000 6.150%, 03/01/13 ...................................... Aa3/NR 2,090,902
7,000,000 6.200%, 03/01/18+ ..................................... Aa3/NR 7,246,400
Munfordville Kentucky Industrial Development
$ 2,500,000 7.000%, 06/01/19 LOC Bank One AMT ..................... NR/A+ $ 2,604,900
Shelbyville Kentucky Certificates of Participation
625,000 5.000%, 10/01/22 ...................................... A2/NR 653,906
---------------
17,033,915
---------------
HOSPITALS (5.3%)
----------------------------------------------------------
Jefferson County Kentucky Health Facilities Revenue
240,000 5.000%, 10/01/12 MBIA Insured ......................... Aaa/AAA 257,700
1,715,000 5.650%, 01/01/17 AMBAC Insured ........................ Aaa/AAA 1,886,500
2,200,000 5.250%, 05/01/17 ...................................... NR/A 2,323,750
2,765,000 5.125%, 10/01/17 AMBAC Insured ETM .................... Aaa/AAA 2,982,744
325,000 5.125%, 10/01/18 MBIA Insured ETM ..................... Aaa/AAA 352,219
125,000 5.750%, 01/01/26 AMBAC Insured ........................ Aaa/AAA 136,406
Kentucky Development Finance Authority
Hospital Revenue
1,375,000 6.125%, 02/01/12 FSA Insured .......................... Aaa/AAA 1,406,845
2,790,000 5.000%, 08/15/15 MBIA Insured ......................... Aaa/AAA 2,915,550
3,000,000 5.900%, 12/01/15 FGIC Insured ......................... Aaa/AAA 3,121,800
---------------
15,383,514
---------------
HOUSING (10.2%)
----------------------------------------------------------
Greater Kentucky Housing Assistance Corp. Multi-
Family Housing Revenue
320,000 6.300%, 07/01/15 MBIA Insured ......................... Aaa/AAA 326,000
275,000 6.400%, 07/01/23 MBIA Insured ......................... Aaa/AAA 279,812
Kentucky Housing Corp. Housing Revenue
1,660,000 5.400%, 07/01/14 ...................................... Aaa/AAA 1,712,024
1,150,000 6.250%, 07/01/15 AMT .................................. Aaa/AAA 1,213,250
315,000 6.100%, 07/01/16 AMT .................................. Aaa/AAA 335,081
575,000 6.400%, 01/01/17 ...................................... Aaa/AAA 595,481
95,000 5.550%, 07/01/18 AMT .................................. Aaa/AAA 97,612
835,000 5.800%, 01/01/19 ...................................... Aaa/AAA 851,700
250,000 5.850%, 07/01/20 AMT .................................. Aaa/AAA 269,375
2,000,000 5.600%, 07/01/20 AMT .................................. Aaa/AAA 2,095,000
$ 1,000,000 5.350%, 01/01/21 AMT .................................. Aaa/AAA $ 1,040,000
6,075,000 5.450%, 07/01/22 AMT .................................. Aaa/AAA 6,371,156
245,000 5.200%, 07/01/22 ...................................... Aaa/AAA 257,556
300,000 5.100%, 07/01/22 AMT .................................. Aaa/AAA 309,000
4,040,000 5.250%, 07/01/22 AMT .................................. Aaa/AAA 4,226,850
4,140,000 5.200%, 07/01/25 AMT .................................. Aaa/AAA 4,269,375
275,000 5.375%, 07/01/27 ...................................... Aaa/AAA 287,375
2,760,000 6.300%, 01/01/28 AMT .................................. Aaa/AAA 2,891,100
190,000 6.375%, 07/01/28 AMT .................................. Aaa/AAA 199,262
1,525,000 6.250%, 07/01/28 AMT .................................. Aaa/AAA 1,603,156
570,000 5.550%, 07/01/33 ...................................... Aaa/AAA 594,937
---------------
29,825,102
---------------
POLLUTION CONTROL REVENUE (1.4%)
----------------------------------------------------------
Jefferson County Kentucky Pollution Control (E.ON
AG -LGE Energy)
3,800,000 5.900%, 04/15/23 ...................................... A1/A- 3,937,750
---------------
SCHOOLS (14.7%)
----------------------------------------------------------
Beechwood, Kentucky Independent School District
Finance Corp.
180,000 5.650%, 03/01/20 ...................................... Aa3/NR 202,050
Boone County Kentucky School District Finance
Corp. School Building
660,000 5.000%, 06/01/15 ...................................... Aa3/NR 715,275
225,000 5.250%, 08/01/15 ...................................... Aa3/NR 252,281
285,000 5.700%, 02/01/16 ...................................... Aa3/NR 326,681
1,000,000 5.375%, 08/01/20 FSA Insured .......................... Aaa/NR 1,096,250
Boyd County Kentucky School District Finance Corp.
1,025,000 5.000%, 10/01/15 ...................................... Aa3/NR 1,105,719
575,000 5.375%, 10/01/17 ...................................... Aa3/NR 643,281
Campbell County Kentucky School District
Finance Corp.
350,000 5.100%, 02/01/12 ...................................... Aa3/NR 365,519
Christian County Kentucky School District Finance Corp.
$ 500,000 5.000%, 06/01/09 ...................................... Aa3/NR $ 557,500
Fayette County School Building
1,780,000 5.700%, 12/01/16 ...................................... Aa3/AA- 2,006,950
Fayette Co., Kentucky School Building Revenue
AMBAC Insured
200,000 5.125%, 04/01/18 ...................................... Aaa/AAA 216,750
Floyd County Kentucky School Building
250,000 5.000%, 12/01/09 ...................................... Aa3/NR 284,687
Franklin Co., Kentucky School Building Revenue
345,000 4.000%, 05/01/17 ...................................... Aa3/NR 345,862
400,000 4.000%, 05/01/19 ...................................... Aa3/NR 394,000
245,000 4.000%, 05/01/20 ...................................... Aa3/NR 238,262
Graves Co., Kentucky School Building Revenue
1,260,000 5.000%, 06/01/22++ .................................... Aa3/NR 1,330,875
1,320,000 5.000%, 06/01/23++ .................................... Aa3/NR 1,387,650
Grayson County Kentucky School Building Revenue
1,940,000 6.000%, 01/01/15 ...................................... Aa3/NR 2,114,600
Hardin County School District Finance Corp.
100,000 5.500%, 02/01/17 ...................................... Aa3/NR 113,625
Jefferson County Kentucky School District Finance
Corp. School Building
750,000 5.300%, 01/01/13 FSA Insured .......................... Aaa/AAA 868,125
695,000 5.125%, 11/01/14 FSA Insured .......................... Aaa/AAA 765,369
3,195,000 5.125%, 02/01/16 MBIA Insured ......................... Aaa/AAA 3,434,625
250,000 5.250%, 07/01/16 FSA Insured .......................... Aaa/AAA 276,250
Kenton County, Kentucky School District
1,760,000 5.375%, 03/01/15 ...................................... A1/A+ 1,944,800
955,000 5.000%, 04/01/16 ...................................... Aa3/NR 1,042,144
1,055,000 5.000%, 04/01/17 ...................................... Aa3/NR 1,142,037
605,000 5.000%, 04/01/19 ...................................... Aa3/NR 648,106
Kentucky Econ. Development Fin. Auth. College
Revenue Centre College
1,230,000 5.000%, 04/01/17 FSA Insured .......................... Aaa/AAA 1,337,625
1,675,000 5.000%, 04/01/19 FSA Insured .......................... Aaa/AAA 1,794,344
Larue County Kentucky School District Finance Corp.
$ 350,000 5.000%, 08/01/26 ...................................... Aa3/NR $ 366,625
Lexington-Fayette Urban County Government
Project Transylvania University
1,250,000 5.125%, 08/01/18 MBIA Insured ......................... Aaa/AAA 1,342,188
Lexington-Fayette Urban County Government
Project U.K. Library
725,000 5.000%, 11/01/15 MBIA Insured ......................... Aaa/AAA 790,250
205,000 5.000%, 11/01/18 MBIA Insured ......................... Aaa/AAA 218,325
McCreary Co., Kentucky School Building Revenue
320,000 4.000%, 05/01/17 ...................................... Aa3/NR 320,400
785,000 4.000%, 05/01/18 ...................................... Aa3/NR 778,131
795,000 4.000%, 05/01/19 ...................................... Aa3/NR 783,075
545,000 4.000%, 05/01/21 ...................................... Aa3/NR 523,200
Meade County Kentucky School District
Finance Corp.
400,000 5.700%, 07/01/15 ...................................... Aa3/NR 447,000
500,000 6.000%, 07/01/16 ...................................... Aa3/NR 563,125
Middlesboro Kentucky Independent School District
Finance Corp.
100,000 6.100%, 08/01/16 ...................................... Aa3/NR 113,375
Murray St. Univ., Kentucky Housing & Dining Revenue
165,000 4.000%, 09/01/22 ...................................... NR/A- 153,863
170,000 4.100%, 09/01/23 ...................................... NR/A- 159,375
160,000 4.000%, 09/01/21 ...................................... NR/A- 151,000
Nelson County Kentucky School Building
1,820,000 5.750%, 04/01/15 ...................................... Aa3/NR 1,997,450
Scott County Kentucky School Building
125,000 4.500%, 05/01/18 FSA Insured .......................... Aaa/NR 130,469
2,750,000 5.900%, 06/01/18 Pre-Refunded ......................... Aa3/A 3,045,625
100,000 5.000%, 03/01/22 ...................................... Aa3/NR 105,750
Taylor County Kentucky School Building
280,000 6.000%, 08/01/16 ...................................... Aa3/NR 316,400
175,000 5.250%, 06/01/19 ...................................... Aa3/NR 192,281
University of Kentucky Revenue
$ 1,335,000 5.000%, 05/01/16 FGIC Insured ......................... Aaa/AAA $ 1,440,131
385,000 5.000%, 06/01/18 FSA insured .......................... Aaa/AAA 411,469
Woodford Co., Kentucky School Building Revenue
1,665,000 4.000%, 07/01/20 ...................................... Aa3/NR 1,619,213
---------------
42,919,962
---------------
TRANSPORTATION (10.0%)
----------------------------------------------------------
Kenton Kentucky Airport Board
800,000 5.000%, 03/01/08 MBIA Insured AMT ..................... Aaa/AAA 879,000
500,000 5.625%, 03/01/13 MBIA Insured AMT ..................... Aaa/AAA 562,500
750,000 5.625%, 03/01/14 MBIA Insured AMT ..................... Aaa/AAA 845,625
1,000,000 5.500%, 03/01/17 MBIA Insured AMT ..................... Aaa/AAA 1,098,750
380,000 5.500%, 03/01/18 MBIA Insured AMT ..................... Aaa/AAA 414,675
1,625,000 5.000%, 03/01/23 MBIA Insured AMT ..................... Aaa/AAA 1,651,406
Kentucky Interlocal School Transportation Authority
150,000 5.100%, 03/01/05 ...................................... Aa3/A+ 159,187
145,000 5.400%, 06/01/17 ...................................... NR/A+ 146,799
200,000 6.000%, 12/01/20 ...................................... NR/A+ 203,884
400,000 6.000%, 12/01/20 ...................................... NR/A+ 407,768
300,000 5.800%, 12/01/20 ...................................... NR/A+ 305,844
400,000 5.650%, 12/01/20 ...................................... NR/A+ 407,168
350,000 5.600%, 12/01/20 ...................................... NR/A+ 356,230
Kentucky State Turnpike Auth. Econ. Development &
Resource Recovery Road Revenue
120,000 8.500%, 07/01/06 ...................................... Aa3/A+ 143,850
1,000,000 6.500%, 07/01/08 AMBAC Insured ........................ Aaa/AAA 1,196,250
1,010,000 5.500%, 07/01/11 AMBAC Insured ........................ Aaa/AAA 1,032,725
1,000,000 5.625%, 07/01/12 FSA Insured .......................... Aaa/AAA 1,158,750
200,000 5.625%, 07/01/13 FSA Insured .......................... Aaa/AAA 229,250
250,000 5.200%, 07/01/14 FSA Insured .......................... Aaa/AAA 278,438
500,000 5.625%, 07/01/14 FSA Insured .......................... Aaa/AAA 575,000
2,760,000 5.625%, 07/01/15 AMBAC Insured, Pre-Refunded .......... Aaa/AAA 3,053,250
940,000 5.625%, 07/01/15 AMBAC Insured ........................ Aaa/AAA 1,024,600
450,000 5.250%, 07/01/15 FSA Insured .......................... Aaa/AAA 501,750
$ 3,455,000 5.100%, 07/01/18 FSA Insured .......................... Aaa/AAA $ 3,757,313
2,500,000 5.250%, 07/01/16 FSA Insured .......................... Aaa/AAA 2,781,250
Louisville-Jefferson Co. Regional Airport
1,000,000 5.750%, 07/01/15 FSA Insured AMT ...................... Aaa/AAA 1,130,000
1,000,000 5.500%, 07/01/15 FSA Insured AMT ...................... Aaa/AAA 1,123,750
1,000,000 5.250%, 07/01/18 FSA Insured AMT ...................... Aaa/AAA 1,066,250
1,370,000 5.250%, 07/01/21 FSA Insured AMT ...................... Aaa/AAA 1,440,213
890,000 5.250%, 07/01/22 FSA Insured AMT ...................... Aaa/AAA 928,938
275,000 5.375%, 07/01/23 FSA Insured AMT ...................... Aaa/AAA 291,844
---------------
29,152,257
---------------
UTILITIES (9.1%)
----------------------------------------------------------
Boone Co.-Florence, Kentucky Water Supply Sys.
Revenue FGIC Insured
185,000 5.000%, 12/01/27 ...................................... Aaa/NR 193,325
Campbell & Kenton Counties, Kentucky Sanitation
Sewer Dist.
100,000 5.000%, 08/01/18 FGIC Insured ......................... Aaa/AAA 106,000
Hardin County, Kentucky Water District
1,000,000 5.900%, 01/01/25 MBIA Insured ......................... Aaa/AAA 1,093,750
Lexington-Fayette Urban County Government
Sewer System
1,000,000 5.000%, 07/01/19 ...................................... Aa3/AA 1,076,250
Louisville and Jefferson County Kentucky Metropolitan
Sewer District
1,000,000 5.000%, 05/15/12 FGIC Insured ......................... Aaa/AAA 1,095,000
2,565,000 5.375%, 05/15/17 MBIA Insured ......................... Aaa/AAA 2,892,038
1,410,000 5.400%, 05/15/22 FGIC Insured ......................... Aaa/AAA 1,489,313
120,000 6.250%, 05/15/26 MBIA Insured ......................... Aaa/AAA 138,150
Louisville Kentucky Waterworks Board Water
1,000,000 5.250%, 11/15/16 FSA Insured .......................... Aaa/AAA 1,107,500
1,000,000 5.250%, 11/15/17 FSA Insured .......................... Aaa/AAA 1,101,250
2,435,000 5.250%, 11/15/18 FSA Insured .......................... Aaa/AAA 2,666,325
$ 6,600,000 5.250%, 11/15/22 FSA Insured .......................... Aaa/AAA $ 7,053,750
2,415,000 5.250%, 11/15/24 FSA Insured .......................... Aaa/AAA 2,568,956
Northern Kentucky Water District
1,170,000 4.125%, 02/01/22 FGIC Insured++ ....................... Aaa/NR 1,143,675
200,000 5.000%, 02/01/23 FGIC Insured ......................... Aaa/NR 209,250
1,015,000 5.000%, 02/01/27 FGIC Insured ......................... Aaa/NR 1,053,063
Owensboro-Davies County Water District
600,000 5.000%, 01/01/13 AMBAC Insured ........................ Aaa/AAA 648,000
Owensboro, Kentucky Electric and Power
1,000,000 5.000%, 01/01/20 FSA Insured .......................... Aaa/AAA 1,051,250
---------------
26,686,845
---------------
Total Revenue Bonds ................................ 284,455,289
---------------
Total Investments (cost $272,273,634*) ................... 98.7% 288,295,640
Other assets less liabilities ............................ 1.3 3,929,034
------ ---------------
Net Assets ............................................... 100.0% $ 292,224,674
====== ===============
* See note 4.
** Any security not rated has been determined by the Investment 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.
+ Security pledged as collateral for the Fund's when - issued commitments
(see note 9).
++ Security traded on a "when-issued" basis.
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 Corp.
See accompanying notes to financial statements.
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2003 (UNAUDITED)
ASSETS
Investments at value (cost $272,273,634) ..................................................... $ 288,295,640
Cash ......................................................................................... 3,599,544
Interest receivable .......................................................................... 4,196,844
Receivable for investment securities sold .................................................... 1,115,000
Receivable for Fund shares sold .............................................................. 132,535
Other assets ................................................................................. 11,984
-------------
Total assets ................................................................................. 297,351,547
-------------
LIABILITIES
Payable for investment securities purchased .................................................. 4,394,293
Dividends payable ............................................................................ 388,549
Management fee payable ....................................................................... 96,531
Distribution fees payable .................................................................... 93,247
Payable for Fund shares redeemed ............................................................. 75,901
Accrued expenses ............................................................................. 78,352
-------------
Total liabilities ............................................................................ 5,126,873
-------------
NET ASSETS ......................................................................................... $ 292,224,674
=============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $.01 per share ........... $ 270,167
Additional paid-in capital ................................................................... 276,224,244
Net unrealized appreciation on investments (note 4) .......................................... 16,022,006
Undistributed net investment income .......................................................... 360,270
Accumulated net realized loss on investments ................................................. (652,013)
-------------
$ 292,224,674
=============
CLASS A
Net Assets ................................................................................... $ 231,525,990
=============
Capital shares outstanding ................................................................... 21,406,999
=============
Net asset value and redemption price per share ............................................... $ 10.82
=============
Offering price per share (100/96 of $10.82 adjusted to nearest cent) ......................... $ 11.27
=============
CLASS C
Net Assets ................................................................................... $ 6,574,775
=============
Capital shares outstanding ................................................................... 608,197
=============
Net asset value and offering price per share ................................................. $ 10.81
=============
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) .............................................. $ 10.81*
=============
CLASS I
Net Assets ................................................................................... $ 4,355,350
=============
Capital shares outstanding ................................................................... 402,858
=============
Net asset value, offering and redemption price per share ..................................... $ 10.81
=============
CLASS Y
Net Assets ................................................................................... $ 49,768,559
=============
Capital shares outstanding ................................................................... 4,598,623
=============
Net asset value, offering and redemption price per share ..................................... $ 10.82
=============
See accompanying notes to financial statements.
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(UNAUDITED)
INVESTMENT INCOME:
Interest income ............................................................ $ 6,780,500
Expenses:
Management fee (note 3) .................................................... $ 554,626
Distribution and service fees (note 3) ..................................... 199,127
Transfer and shareholder servicing agent fees .............................. 59,255
Trustees' fees and expenses (note 8) ....................................... 47,436
Legal fees ................................................................. 34,099
Shareholders' reports and proxy statements ................................. 29,255
Custodian fees ............................................................. 13,176
Auditing fees .............................................................. 12,829
Registration fees and dues ................................................. 8,738
Insurance .................................................................. 6,758
Fund accounting fees ....................................................... 5,510
Miscellaneous .............................................................. 10,152
--------------
Total expenses ............................................................. 980,961
Expenses paid indirectly (note 6) .......................................... (9,888)
--------------
Net expenses ............................................................... 971,073
-------------
Net investment income ...................................................... 5,809,427
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from securities transactions ...................... 747,903
Change in unrealized appreciation on investments ........................... 3,099,008
--------------
Net realized and unrealized gain (loss) on investments ..................... 3,846,911
-------------
Net change in net assets resulting from operations ......................... $ 9,656,338
-------------
See accompanying notes to financial statements.
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 2003 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2002
---------------- -----------------
OPERATIONS:
Net investment income ................................................... $ 5,809,427 $ 11,410,017
Net realized gain (loss) from securities transactions ................... 747,903 773,552
Change in unrealized appreciation on investments ........................ 3,099,008 7,631,648
------------- -------------
Change in net assets from operations ................................. 9,656,338 19,815,217
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 10):
Class A Shares:
Net investment income ................................................... (4,687,428) (9,598,236)
Class C Shares:
Net investment income ................................................... (89,997) (146,784)
Class I Shares:
Net investment income ................................................... (60,823) (86,355)
Class Y Shares:
Net investment income ................................................... (944,829) (1,537,493)
------------- -------------
Change in net assets from distributions .............................. (5,783,077) (11,368,868)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from shares sold ............................................... 28,490,226 52,239,557
Reinvested dividends and distributions .................................. 2,758,974 5,609,442
Cost of shares redeemed ................................................. (17,344,746) (23,818,330)
------------- -------------
Change in net assets from capital share transactions .................... 13,904,454 34,030,669
------------- -------------
Change in net assets .................................................... 17,777,715 42,477,018
NET ASSETS:
Beginning of period ..................................................... 274,446,959 231,969,941
------------- -------------
End of period* .......................................................... $ 292,224,674 $ 274,446,959
============= =============
* Includes undistributed net investment income of: $ 360,270 $ 333,920
============= =============
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 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 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) 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 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 overseeing the activities 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, 2003, service fees on Class A Shares
amounted to $168,702 of which the Distributor retained $4,533.
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, 2003, amounted to $20,523. 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, 2003, amounted to $6,841. The total
of these payments with respect to Class C Shares amounted to $27,364 of which
the Distributor retained $5,077.
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, 2003,
these payments were made at the average annual rate of 0.35% of such net assets
and amounted to $5,357 of which $3,061 related to the Plan and $2,296 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, 2003, total commissions on sales of Class A Shares amounted to $299,060 of
which the Distributor received $27,895.
c) OTHER RELATED PARTY TRANSACTIONS:
For the six months ended June 30, 2003, the Fund incurred $33,693 of legal
fees 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, 2003, purchases of securities and
proceeds from the sales of securities aggregated $34,773,077 and $25,986,061,
respectively.
At June 30, 2003, the aggregate tax cost for all securities was
$271,964,664. At June 30, 2003, the aggregate gross unrealized appreciation for
all securities in which there is an excess of market value over tax cost
amounted to $16,555,764 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$224,788 for a net unrealized appreciation of $16,330,976.
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, 2003 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2002
------------------------------------ ------------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
CLASS A SHARES:
Proceeds from shares sold ............... 1,265,865 $ 13,611,604 2,800,411 $ 29,436,982
Reinvested distributions ................ 212,624 2,280,603 454,110 4,764,701
Cost of shares redeemed ................. (1,267,591) (13,551,691) (1,611,194) (16,933,028)
------------- ------------ ------------- ------------
Net change ........................... 210,898 2,340,516 1,643,327 17,268,655
------------- ------------ ------------- ------------
CLASS C SHARES:
Proceeds from shares sold ............... 169,149 1,821,387 166,058 1,743,988
Reinvested distributions ................ 5,452 58,473 9,211 96,673
Cost of shares redeemed ................. (17,101) (183,737) (50,063) (523,419)
------------- ------------ ------------- ------------
Net change ........................... 157,500 1,696,123 125,206 1,317,242
------------- ------------ ------------- ------------
CLASS I SHARES:
Proceeds from shares sold ............... 183,454 1,971,320 85,241 895,032
Reinvested distributions ................ 4,051 43,515 7,325 77,007
Cost of shares redeemed ................. (10,398) (112,078) (5,158) (53,879)
------------- ------------ ------------- ------------
Net change ........................... 177,107 1,902,757 87,408 918,160
------------- ------------ ------------- ------------
CLASS Y SHARES:
Proceeds from shares sold ............... 1,025,052 11,085,915 1,918,939 20,163,555
Reinvested distributions ................ 35,048 376,383 63,761 671,061
Cost of shares redeemed ................. (325,104) (3,497,240) (599,076) (6,308,004)
------------- ------------ ------------- ------------
Net change ........................... 734,996 7,965,058 1,383,624 14,526,612
------------- ------------ ------------- ------------
Total transactions in Fund
shares .................................. 1,280,501 $ 13,904,454 3,239,565 $ 34,030,669
============= ============ ============= ============
8. TRUSTEES' FEES AND EXPENSES
During the previous fiscal year there were nine trustees, two of whom were
affiliated with the Manager and are not paid any trustee fees. Each Trustee's
fees paid during the year were at the annual rate of $6,750 for carrying out
their 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, 2002 such reimbursements averaged approximately $4,700 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. 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, 2002, the Fund had a capital loss carryover of $1,394,949,
$372,062 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.
CHURCHILL TAX-FREE FUND OF KENTUCKY
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A
----------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
6/30/03 ------------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
----------- ------ ------ ------ ------ ------
Net asset value, beginning of period .......... $10.66 $10.31 $10.40 $10.09 $10.81 $10.81
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income + .................... 0.22 0.47 0.50 0.52 0.52 0.53
Net gain (loss) on securities (both
realized and unrealized) ................ 0.16 0.35 (0.09) 0.31 (0.68) 0.01
------ ------ ------ ------ ------ ------
Total from investment operations ........... 0.38 0.82 0.41 0.83 (0.16) 0.54
------ ------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ....... (0.22) (0.47) (0.50) (0.52) (0.53) (0.53)
Distributions from capital gains ........... - - - - (0.03) (0.01)
------ ------ ------ ------ ------ ------
Total distributions ........................ (0.22) (0.47) (0.50) (0.52) (0.56) (0.54)
------ ------ ------ ------ ------ ------
Net asset value, end of period ................ $10.82 $10.66 $10.31 $10.40 $10.09 $10.81
====== ====== ====== ====== ====== ======
Total return (not reflecting sales charge) .... 3.62%++ 8.15% 4.02% 8.45% (1.51)% 5.13%
Ratios/supplemental data
Net assets, end of period
(in thousands) ........................... $231,526 $226,014 $201,604 $196,890 $205,842 $229,667
Ratio of expenses to average
net assets ............................... 0.71%* 0.72% 0.72% 0.74% 0.72% 0.73%
Ratio of net investment income to
average net assets ....................... 4.19%* 4.50% 4.82% 5.10% 4.95% 4.89%
Portfolio turnover rate .................... 9.39%++ 18.27% 21.44% 6.61% 6.35% 12.79%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average
net assets ............................... 0.71%* 0.71% 0.70% 0.73% 0.71% 0.72%
CLASS I
-----------------------------------------
SIX MONTHS
ENDED PERIOD
6/30/03 ENDED
(UNAUDITED) 2002 12/31/01(1)
----------- ------- -----------
Net asset value, beginning of period .......... $10.66 $10.31 $10.44
------ ------ ------
Income (loss) from investment operations:
Net investment income + .................... 0.21 0.46 0.19
Net gain (loss) on securities (both
realized and unrealized) ................. 0.15 0.35 (0.13)
------ ------ ------
Total from investment operations ........... 0.36 0.81 0.06
------ ------ ------
Less distributions (note 10):
Dividends from net investment income ....... (0.21) (0.46) (0.19)
Distributions from capital gains ........... - - -
------ ------ ------
Total distributions ........................ (0.21) (0.46) (0.19)
------ ------ ------
Net asset value, end of period ................ $10.81 $10.66 $10.31
====== ====== ======
Total return (not reflecting sales charge) .... 3.44%++ 7.98% 0.58%++
Ratios/supplemental data
Net assets, end of period
(in thousands) ........................... $4,355 $2,407 $1,426
Ratio of expenses to average
net assets .............................. 0.87%* 0.87% 0.83%*
Ratio of net investment income to
average net assets ...................... 3.99%* 4.32% 4.47%*
Portfolio turnover rate .................... 9.39%++ 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%* 0.86% 0.82%*
- ----------
(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 May 1, 1998, pursuant to new management arrangements, Banc One
Investment Advisors Corporation 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.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
----------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
6/30/03 ------------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
----------- ------ ------ ------ ------ ------
Net asset value, beginning of period .......... $10.66 $10.31 $10.39 $10.08 $ 10.81 $10.81
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income + .................... 0.17 0.38 0.41 0.43 0.43 0.44
Net gain (loss) on securities (both
realized and unrealized) ................. 0.16 0.35 (0.08) 0.31 (0.69) 0.01
------ ------ ------ ------ ------ ------
Total from investment operations ........... 0.33 0.73 0.33 0.74 (0.26) 0.45
------ ------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ....... (0.18) (0.38) (0.41) (0.43) (0.44) (0.44)
Distributions from capital gains ........... - - - - (0.03) (0.01)
------ ------ ------ ------ ------ ------
Total distributions ........................ (0.18) (0.38) (0.41) (0.43) (0.47) (0.45)
------ ------ ------ ------ ------ ------
Net asset value, end of period ................ $10.81 $10.66 $10.31 $10.39 $10.08 $10.81
====== ====== ====== ====== ====== ======
Total return (not reflecting sales charge) .... 3.08%++ 7.23% 3.24% 7.54% (2.45)% 4.24%
Ratios/supplemental data
Net assets, end of period
(in thousands) ........................... $6,575 $4,804 $3,355 $1,861 $1,932 $949
Ratio of expenses to average
net assets ............................... 1.56%* 1.56% 1.56% 1.59% 1.56% 1.59%
Ratio of net investment income
to average net assets .................... 3.30%* 3.62% 3.92% 4.24% 4.09% 4.04%
Portfolio turnover rate .................... 9.39%++ 18.27% 21.44% 6.61% 6.35% 12.79%
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% 1.55% 1.58% 1.55% 1.57%
CLASS Y
----------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
6/30/03 ------------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
----------- ------ ------ ------ ------ ------
Net asset value, beginning of period .......... $10.67 $10.32 $10.40 $10.09 $10.82 $10.82
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income + .................... 0.23 0.49 0.51 0.53 0.53 0.54
Net gain (loss) on securities (both
realized and unrealized) ................ 0.15 0.35 (0.07) 0.32 (0.69) 0.02
------ ------ ------ ------ ------ ------
Total from investment operations ........... 0.38 0.84 0.44 0.85 (0.16) 0.56
------ ------ ------ ------ ------ ------
Less distributions (note 10):
Dividends from net investment income ....... (0.23) (0.49) (0.52) (0.54) (0.54) (0.55)
Distributions from capital gains ........... - - - - (0.03) (0.01)
------ ------ ------ ------ ------ ------
Total distributions ........................ (0.23) (0.49) (0.52) (0.54) (0.57) (0.56)
------ ------ ------ ------ ------ ------
Net asset value, end of period ................ $10.82 $10.67 $10.32 $10.40 $10.09 $10.82
====== ====== ====== ====== ====== ======
Total return (not reflecting sales charge) .... 3.59%++ 8.30% 4.28% 8.62% (1.46)% 5.26%
Ratios/supplemental data
Net assets, end of period
(in thousands) .......................... $49,769 $41,223 $25,585 $15,745 $13,346 $14,335
Ratio of expenses to average
net assets .............................. 0.56%* 0.57% 0.57% 0.59% 0.57% 0.58%
Ratio of net investment income
to average net assets ................... 4.32%* 4.63% 4.94% 5.25% 5.09% 5.03%
Portfolio turnover rate .................... 9.39%++ 18.27% 21.44% 6.61% 6.35% 12.79%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average
net assets .............................. 0.56%* 0.56% 0.55% 0.58% 0.56% 0.57%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
++ Not annualized.
* Annualized.
Note: On May 1, 1998, pursuant to new management arrangements, Banc One
Investment Advisors Corporation 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 25, 2003. 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 17,109,013 684,610
Thomas A. Christopher 17,687,762 105,862
Douglas Dean 17,702,009 91,614
Diana P. Herrmann 17,107,249 686,375
Carroll F. Knicely 17,692,175 101,449
Theodore T. Mason 17,693,740 99,883
Anne J. Mills 17,704,864 88,759
William J. Nightingale 17,123,235 670,389
James R. Ramsey 17,680,082 113,542
2. To ratify the selection of KPMG LLP as the Fund's independent auditors.
Number of Votes:
FOR AGAINST ABSTAIN
--- ------- -------
17,241,009 41,206 511,408
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
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.
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, 2003
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
AQUILA(SM) GROUP OF FUNDS
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 8, 2003
By: /s/ Diana P. Herrmann
- ---------------------------------
President
September 8, 2003
By: /s/ Joseph P. DiMaggio
- -----------------------------------
Chief Financial Officer
September 8, 2003
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 8, 2003
By: /s/ Diana P. Herrmann
- ---------------------------------
Diana P. Herrmann
President
September 8, 2003
By: /s/ Joseph P. DiMaggio
- -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer
September 8, 2003
CHURCHILL TAX-FREE TRUST
EXHIBIT INDEX
(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) Certification of chief executive officer and chief financial
officer as required by Rule 30a-2(b) of the Investment Company Act
of 1940.