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