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: 12/31/04

FORM N-CSR

ITEM 1. REPORTS TO STOCKHOLDERS.

ANNUAL
REPORT

DECEMBER 31, 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]

[Logo of the Aquila Group of Funds: an eagle's head]

ONE OF THE
AQUILA(SM) GROUP OF FUNDS

[Logo of the Churchill Tax-Free Fund of Kentucky: a standing pegasus in a
circle]

SERVING KENTUCKY INVESTORS FOR MORE THAN 15 YEARS

CHURCHILL TAX-FREE FUND OF KENTUCKY

ANNUAL REPORT

MANAGEMENT DISCUSSION OF FUND PERFORMANCE

The year 2004 ended with neither a whimper nor a bang! It was another year
in which both bonds and stocks provided some amount of positive return. The
Federal Reserve responded aggressively last year to the threat of rising
inflation. Short-term rate targets were raised five times from their historical
1.00% low to 2.25% at year end. And, as we begin 2005, it too promises to be
every bit as eventful as it was in 2004: the United States prepares Iraq for the
country's first free elections; relief efforts are underway in the devastated
tsunami-ravaged areas of the world; and the ongoing political battles continue
in Washington and at the local level after November 2004's hotly contested
elections.

Last year, inflation started edging up, driven in large part by
out-of-control oil prices. Peaking at over $50 a barrel, oil closed the year at
just over $43 - well below November's average price of nearly $49. As measured
by the Producer Price Index (PPI), inflation is expected to have risen 4.7% for
the year. The Consumer Price Index (CPI) is forecasted to have risen 3.4% in
2004. And, what we believe to be the best overall measure of the nation's
economic health - the Gross Domestic Product (GDP) - is expected to have risen
approximately 4.0% in 2004, versus 4.6% in 2003. The national unemployment rate
ended the year at an annual rate of 5.4%.

2004 marks the second consecutive year that stocks provided investors with
positive year-end results. The Dow Jones Industrial Average rose 5.31%. Other
measures of equity performance fared even better: the S & P 500 closed up
10.88%; and the NASDAQ Composite Index rose 9.15%. We are proud to report that
Churchill Tax-Free Fund of Kentucky provided Class A shareholders with a
positive total rate of return of 4.49% in 2004, outperforming 94% of our peer
group of all intermediate single-state municipal bond funds according to
Morningstar.

As we enter 2005, Kentucky is still without an approved budget. With the
legislature reconvening in February, let's hope that partisan bickering will be
the only thing "tabled." The absence of a budget has been a double edged sword
for Kentucky bond holders. On the one hand, "no budget means no bonds"
(actually, a much reduced amount). Since demand for Kentucky bonds is still
strong, the bonds or bond funds you already own have really retained their
value. But on the other hand, if you are looking for more Kentucky bonds,
chances are you will have to pay a bit more for them, since demand is strong.
What a dilemma! 2004 saw a real improvement in Kentucky's overall economy.
Unemployment is down, productivity is up, and tax revenues, as measured by the
Commonwealth's General Fund, are on the rise.

The investment objective of Churchill Tax-Free Fund of Kentucky is to
strive to provide as high a level of triple tax-exempt current income as is
consistent with the preservation of capital. However, for certain investors,
some portion of your dividends may be subject to Federal and state taxes,
including the Alternative Minimum Tax (AMT). We believe this objective continues
to be successfully addressed by adhering to a discipline of solid fundamental,
conservative portfolio management

MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED)

ideals. The Class A share net asset value began 2004 at $10.69 per share. We
ended the year with a net asset value of $10.74 per share. The Fund continues to
maintain an average credit quality of "AA", with no bonds rated less than "A".
At year-end, over 66% of the portfolio was rated "AAA". Our "laddered" maturity
structure helps us manage price volatility. The Fund has an average life of
approximately 12.0 years and a modified duration of approximately 4.5 years. We
maintain a well-diversified portfolio of over 195 different Kentucky issues.

We remain cautiously optimistic about the prospects for the U. S. and
Kentucky economies in 2005, and will seek to continue to react appropriately to
signs of rising inflation. It is going to take continued vigilance and
intervention by the Federal Reserve to keep our economy on a positive track
while striving to tame inflation pressures over the course of 2005. To address
these concerns, we will seek to "stay the course" and manage the portfolio by
taking advantage of opportunities in the Kentucky marketplace that are
consistent with the investment objectives of the Fund.

PERFORMANCE REPORT

The following graph illustrates the value of $10,000 invested in the Class
A shares of Churchill Tax-Free Fund of Kentucky for the 10-year period ended
December 31, 2004 as compared with the Lehman Brothers Quality Intermediate
Municipal Bond Index and the Consumer Price Index (a cost of living index). The
performance of each of the other classes is not shown in the graph but is
included in the table below. It should be noted that the Lehman Index does not
include any operating expenses nor sales charges and being nationally oriented,
does not reflect state specific bond market performance.

Fund's Class A Shares

Cost Without With Lehman Brothers
of Sales Sales Quality Intermediate
Living Charge Charge Municipal Bond Index

$10,000 $10,000 $ 9,600 $10,000
10,254 11,345 10,887 11,380
10,595 11,861 11,382 11,865
10,775 12,794 12,277 12,734
10,949 13,443 12,899 13,498
11,242 13,240 12,705 13,537
11,623 14,345 13,765 14,705
11,804 14,925 14,321 15,516
12,084 16,082 15,432 16,948
12,311 16,886 16,203 17,735
12,712 17,660 16,946 18,270

AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 2004
--------------------------------------------
SINCE
CLASS AND INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ------------------------ ------ ------- -------- ---------

Class A (5/21/87)
With Sales Charge............................. 0.27% 5.05% 5.42% 6.21%
Without Sales Charge.......................... 4.49% 5.91% 5.85% 6.46%

Class C (4/1/96)
With CDSC..................................... 2.51% 4.99% n/a 4.39%
Without CDSC.................................. 3.51% 4.99% n/a 4.39%

Class Y (4/1/96)
No Sales Charge............................... 4.65% 6.08% n/a 5.43%

Class I (8/6/01)
No Sales Charge............................... 4.24% n/a n/a 5.01%

COMPARATIVE INDEX

Lehman Index..................................... 3.02% 6.18% 6.21% 6.35% (Class A)
5.58% (Class C&Y)
5.22% (Class I)

Total return figures shown for the Fund reflect any change in price and assume
all distributions within the period were invested in additional shares. Returns
for Class A shares are calculated with and without the effect of the initial 4%
maximum sales charge. Returns for Class C shares are calculated with and without
the effect of the 1% contingent deferred sales charge (CDSC), imposed on
redemptions made within the first 12 months after purchase. Class I and Y shares
are sold without any sales charge. The rates of return will vary and the
principal value of an investment will fluctuate with market conditions. Shares,
if redeemed, may be worth more or less than their original cost. A portion of
each class's income may be subject to federal and state income taxes. Past
performance is not predictive of future investment results.

- --------------------------------------------------------------------------------

[Logo of KPMG LLP: four solid rectangles with the letters KPMG in front of them]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders of
Churchill Tax-Free Fund of Kentucky:

We have audited the accompanying statement of assets and liabilities of
Churchill Tax-Free Fund of Kentucky, including the schedule of investments, as
of December 31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 2004, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Churchill Tax-Free Fund of Kentucky as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.

KPMG LLP

New York, New York
February 18, 2005

- --------------------------------------------------------------------------------

CHURCHILL TAX-FREE FUND OF KENTUCKY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004

RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (2.5%) S&P VALUE
- -------------- ----------------------------------------------------- ---------- ------------

Bowling Green, Kentucky
$ 200,000 5.300%, 06/01/18 .................................... Aa3/NR $ 218,208
Lexington-Fayette Urban County, Kentucky
Government Project Unlimited Tax
125,000 5.000%, 12/01/15 .................................... Aa2/AA+ 134,207
340,000 5.150%, 12/01/17 .................................... Aa2/AA+ 366,598
Louisville, Kentucky Unlimited Tax
2,205,000 5.000%, 10/01/21 FGIC Insured ....................... Aaa/AAA 2,344,356
Louisville-Jefferson County, Kentucky Metro
Government Unlimited Tax
1,590,000 5.020%, 11/01/19 .................................... Aa2/AA 1,718,011
1,825,000 5.00%, 11/01/20 ..................................... Aa2/AA 1,961,182
Warren County, Kentucky Judicial Unlimited Tax
345,000 5.100%, 09/01/17 AMBAC Insured ...................... Aaa/NR 375,222
365,000 5.150%, 09/01/18 AMBAC Insured ...................... Aaa/NR 398,354
------------
Total General Obligation Bonds ................... 7,516,138
------------

REVENUE BONDS (95.6%)

STATE AGENCIES (37.2%)
Kentucky Area Development District Financing
500,000 5.000%, 12/01/23 LOC Wachovia Bank .................. NR/AA 522,625
Kentucky Infrastructure Authority
1,000,000 5.250%, 06/01/12 .................................... Aa3/A+ 1,102,630
635,000 5.250%, 06/01/12 .................................... Aa3/A+ 677,640
2,740,000 5.250%, 06/01/14 .................................... Aa3/A+ 3,006,328
1,235,000 5.250%, 08/01/17 .................................... NR/AA 1,370,220
100,000 5.000%, 06/01/18 .................................... Aa3/A+ 105,946
230,000 5.000%, 06/01/21 .................................... Aa3/A+ 241,682
Kentucky State Property and Buildings Commission
3,000,000 6.250%, 09/01/07 MBIA Insured ....................... Aaa/AAA 3,300,210
220,000 6.000%, 09/01/08 .................................... Aa3/A+ 246,486
310,000 5.50%, 11/01/09 AMBAC Insured ....................... Aaa/AAA 324,843
190,000 5.50%, 11/01/09 AMBAC Insured (pre-refunded) ........ Aaa/AAA 199,112
4,000,000 5.375%, 02/01/14 FSA Insured (pre-refunded) ......... Aaa/AAA 4,549,360
400,000 5.250%, 10/01/14 (pre-refunded) ..................... Aa3/A+ 448,676

RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ----------------------------------------------------- ---------- ------------

STATE AGENCIES (CONTINUED)
Kentucky State Property and Buildings Commission
(continued)
$ 3,250,000 5.625%, 09/01/15 (pre-refunded) ..................... Aa3/A+ $ 3,714,230
460,000 5.125%, 09/01/15 (pre-refunded) ..................... Aa3/A+ 513,779
10,000,000 5.375%, 10/01/15 MBIA Insured (pre-refunded) ........ Aaa/AAA 11,367,000
1,000,000 5.000%, 11/01/15 AMBAC Insured ...................... Aaa/AAA 1,097,040
100,000 5.375%, 05/01/16 MBIA Insured (pre-refunded) ........ Aaa/AAA 112,111
3,775,000 5.375%, 08/01/16 (pre-refunded) ..................... Aaa/AAA 4,279,604
2,725,000 5.375%, 08/01/16 FSA Insured ........................ Aaa/AAA 2,989,053
3,905,000 5.125%, 09/01/16 (pre-refunded) ..................... Aa3/A+ 4,361,534
5,000,000 5.250%, 10/01/16 .................................... Aa3/A+ 5,448,300
1,100,000 5.000%, 11/01/16 AMBAC Insured ...................... Aaa/AAA 1,198,098
1,265,000 5.250%, 08/01/17 MBIA Insured (pre-refunded) ........ Aaa/AAA 1,436,724
1,250,000 5.000%, 08/01/17 FSA Insured (pre-refunded) ......... Aaa/AAA 1,389,425
975,000 5.000%, 08/01/17 FSA Insured ........................ Aaa/AAA 1,039,535
8,155,000 5.125%, 09/01/17 (pre-refunded) ..................... Aa3/A+ 9,108,401
200,000 5.375%, 10/01/17 MBIA Insured (pre-refunded) ........ Aaa/AAA 227,340
4,735,000 5.250%, 10/01/17 .................................... Aa3/A+ 5,148,508
1,250,000 5.500%, 11/01/17 FSA Insured ........................ Aaa/AAA 1,410,588
1,000,000 5.000%, 11/01/17 AMBAC Insured ...................... Aaa/AAA 1,085,280
165,000 5.375%, 02/01/18 FSA Insured (pre-refunded) ......... Aaa/AAA 187,661
3,030,000 5.000%, 08/01/18 FSA Insured (pre-refunded) ......... Aaa/AAA 3,367,966
3,950,000 5.125%, 09/01/18 (pre-refunded) ..................... Aa3/A+ 4,400,893
6,000,000 5.250%, 10/01/18 .................................... Aa3/A+ 6,517,020
1,000,000 5.500%, 11/01/18 FSA Insured ........................ Aaa/AAA 1,131,390
155,000 5.100%, 11/01/18 FSA Insured ........................ Aaa/AAA 167,862
145,000 5.100%, 11/01/18 (pre-refunded) ..................... Aa3/A+ 160,424
1,500,000 5.000%, 11/01/18 AMBAC Insured ...................... Aaa/AAA 1,620,930
1,040,000 5.000%, 08/01/19 FSA Insured (pre-refunded) ......... Aaa/AAA 1,156,002
4,000,000 5.375%, 10/01/19 MBIA Insured (pre-refunded) ........ Aaa/AAA 4,546,800
1,925,000 5.000%, 10/01/19 .................................... Aa3/A+ 2,035,688
360,000 5.000%, 10/01/19 MBIA Insured ....................... Aaa/AAA 381,935
705,000 5.150%, 11/01/19 FSA Insured ........................ Aaa/AAA 765,863
3,000,000 5.000%, 11/01/19 FSA Insured ........................ Aaa/AAA 3,207,960
2,000,000 5.750%, 05/01/20 MBIA Insured (pre-refunded) ........ Aaa/AAA 2,277,040

RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ----------------------------------------------------- ---------- ------------

STATE AGENCIES (CONTINUED)
Kentucky State Property and Buildings Commission
(continued)
$ 250,000 5.000%, 05/01/20 FSA Insured ......................... Aaa/AAA $ 263,402
160,000 5.000%, 10/01/20 MBIA Insured ........................ Aaa/AAA 169,069
270,000 5.100%, 10/01/21 MBIA Insured ........................ Aaa/AAA 287,539
255,000 5.150%, 02/01/22 FSA Insured ......................... Aaa/AAA 272,740
5,000,000 5.000%, 10/01/22 MBIA Insured ........................ Aaa/AAA 5,323,650
235,000 5.000%, 08/01/23 MBIA Insured ........................ Aaa/AAA 248,583
80,000 5.000%, 08/01/23 MBIA Insured (pre-refunded) ......... Aaa/AAA 89,384
------------
Total State Agencies .............................. 110,602,109
------------

COUNTY AGENCIES (8.5%)
Floyd County, Kentucky Public Property Courthouse
510,000 5.500%, 09/01/14 (pre-refunded) ...................... NR/NR* 539,090
Jefferson County, Kentucky Capital Projects
1,000,000 5.200%, 06/01/08 MBIA Insured ........................ Aaa/AAA 1,084,670
430,000 5.200%, 06/01/12 MBIA Insured ........................ Aaa/AAA 464,400
570,000 5.250%, 06/01/13 MBIA Insured ........................ Aaa/AAA 615,281
520,000 5.250%, 06/01/14 MBIA Insured ........................ Aaa/AAA 560,674
3,370,000 5.375%, 06/01/18 MBIA Insured ........................ Aaa/AAA 3,639,229
1,640,000 5.375%, 06/01/22 MBIA Insured ........................ Aaa/AAA 1,771,020
5,935,000 5.500%, 06/01/28 MBIA Insured ........................ Aaa/AAA 6,410,097
Pendleton County, Kentucky Multi-County Lease Revenue
4,500,000 6.500%, 03/01/19 ..................................... NR/A 4,535,055
Warren County, Kentucky Justice Center
1,580,000 5.250%, 09/01/17 MBIA Insured ........................ Aaa/AAA 1,709,402
Warren County, Kentucky Justice Center Expansion
Corp. Revenue
700,000 5.400%, 09/01/24 ..................................... Aa3/NR 755,965
2,895,000 5.350%, 09/01/29 MBIA Insured ........................ Aaa/AAA 3,062,939
------------
Total County Agencies ............................. 25,147,822
------------

CITY/MUNICIPALITY OBLIGATIONS (3.9%)
Jeffersontown, Kentucky Public Project Corp.
500,000 5.750%, 11/01/15 ..................................... A3/NR 532,820

RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ----------------------------------------------------- ---------- ------------

CITY/MUNICIPALITY OBLIGATIONS (CONTINUED)
Lexington-Fayette Urban County Government,
Kentucky Public Facilities Revenue
$ 180,000 5.125%, 10/01/23 FSA Insured ........................ Aaa/AAA $ 192,004
Louisville, Kentucky Parking Authority
1,140,000 5.000%, 12/01/14 MBIA Insured ....................... Aaa/AAA 1,218,022
Mount Sterling, Kentucky Lease Revenue
2,020,000 6.150%, 03/01/13 .................................... Aa3/NR 2,034,645
7,000,000 6.200%, 03/01/18 .................................... Aa3/NR 7,051,240
Mount Sterling, Kentucky Lease Revenue (continued)
Shelbyville, Kentucky Certificates of Participation
625,000 5.000%, 10/01/22 .................................... A2/NR 650,994
------------
Total City/Municipality Obligations .............. 11,679,725
------------

HOSPITALS (4.4%)
Jefferson County, Kentucky Health Facilities Revenue
240,000 5.000%, 10/01/12 MBIA Insured ....................... Aaa/AAA 255,780
1,715,000 5.650%, 01/01/17 AMBAC Insured ...................... Aaa/AAA 1,839,286
2,200,000 5.250%, 05/01/17 .................................... NR/A 2,330,570
2,815,000 5.125%, 10/01/17 AMBAC Insured ETM .................. Aaa/AAA 2,911,808
525,000 5.125%, 10/01/18 MBIA Insured ETM ................... Aaa/AAA 550,190
125,000 5.750%, 01/01/26 AMBAC Insured ...................... Aaa/AAA 134,349
Kentucky Development Finance Authority
Hospital Revenue
2,790,000 5.000%, 08/15/15 MBIA Insured ....................... Aaa/AAA 2,856,597
Kentucky Economic Development Finance Authority
1,000,000 5.000%, 02/01/18 FSA Insured ........................ Aaa/AAA 1,040,340
Louisville & Jefferson County, Kentucky Medical
Center Revenue
1,000,000 5.000%, 06/01/18 .................................... NR/A 1,063,990
------------
Total Hospitals .................................. 12,982,910
------------

HOUSING (6.7%)
Kentucky Housing Corp. Housing Revenue
100,000 5.125%, 07/01/17 .................................... Aaa/AAA 102,990
95,000 5.550%, 07/01/18 AMT ................................ Aaa/AAA 95,656

RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ---------------------------------------------------------- ---------- ------------

HOUSING (CONTINUED)
Kentucky Housing Corp. Housing Revenue (continued)
$ 250,000 5.850%, 07/01/20 AMT ..................................... Aaa/AAA $ 263,177
2,000,000 5.600%, 07/01/20 AMT ..................................... Aaa/AAA 2,056,740
1,150,000 5.350%, 01/01/21 AMT ..................................... Aaa/AAA 1,174,622
6,075,000 5.450%, 07/01/22 AMT ..................................... Aaa/AAA 6,248,988
4,065,000 5.250%, 07/01/22 AMT ..................................... Aaa/AAA 4,170,080
245,000 5.200%, 07/01/22 ......................................... Aaa/AAA 252,387
300,000 5.100%, 07/01/22 AMT ..................................... Aaa/AAA 304,473
4,140,000 5.200%, 07/01/25 AMT ..................................... Aaa/AAA 4,217,045
275,000 5.375%, 07/01/27 ......................................... Aaa/AAA 282,323
570,000 5.550%, 07/01/33 ......................................... Aaa/AAA 584,866
------------
Total Housing ......................................... 19,753,347
------------

POLLUTION CONTROL REVENUE (1.3%)
Jefferson County, Kentucky Pollution Control
(LG&E Energy)
3,800,000 5.900%, 04/15/23 ......................................... A1/A- 3,887,210
------------

SCHOOLS (11.5%)
Beechwood, Kentucky Independent School District
Finance Corp.
180,000 5.650%, 03/01/20 ......................................... Aa3/NR 198,709
Boone County, Kentucky School District Finance
Corp. School Building
660,000 5.000%, 06/01/15 ......................................... Aa3/NR 693,356
225,000 5.250%, 08/01/15 ......................................... Aa3/NR 244,955
285,000 5.700%, 02/01/16 ......................................... Aa3/NR 317,134
1,000,000 5.375%, 08/01/20 FSA Insured ............................. AAA/NR 1,084,930
Boyd County, Kentucky School District Finance Corp.
1,025,000 5.000%, 10/01/15 ......................................... Aa3/NR 1,103,013
575,000 5.375%, 10/01/17 ......................................... Aa3/NR 622,811
Christian County, Kentucky School District Finance Corp.
500,000 5.000%, 06/01/09 ......................................... Aa3/NR 538,540
Daviess County Kentucky School District Finance Corp.
200,000 5.000%, 06/01/24 ......................................... Aa3/NR 210,728

RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------- ---------- ------------

SCHOOLS (CONTINUED)
Fayette County, Kentucky School Building
$ 1,780,000 5.700%, 12/01/16 ...................................... Aa3/AA- $ 1,929,395
Fayette County, Kentucky School Building Revenue
200,000 5.125%, 04/01/18 AMBAC Insured ........................ Aaa/AAA 216,050
Fayette County, Kentucky School District Finance Corp.
250,000 5.300%, 09/01/14 ...................................... Aa3/AA- 273,255
Floyd County, Kentucky School Building
250,000 5.000%, 12/01/09 ...................................... Aa3/NR 273,958
Franklin County, Kentucky School District
Finance Corp.
1,000,000 5.000%, 04/01/24 ...................................... Aa3/NR 1,052,840
Graves Co., Kentucky School Building Revenue
1,260,000 5.000%, 06/01/22 ...................................... Aa3/NR 1,329,804
1,320,000 5.000%, 06/01/23 ...................................... Aa3/NR 1,386,449
Hardin County, Kentucky School District Finance Corp.
100,000 5.500%, 02/01/17 ...................................... Aa3/NR 109,568
Jefferson County, Kentucky School District Finance
Corp. School Building
750,000 5.300%, 01/01/13 FSA Insured .......................... Aaa/AAA 844,485
695,000 5.125%, 11/01/14 FSA Insured (pre-refunded) ........... Aaa/AAA 744,971
3,195,000 5.125%, 02/01/16 MBIA Insured (pre-refunded) .......... Aaa/AAA 3,359,734
250,000 5.250%, 07/01/16 FSA Insured .......................... Aaa/AAA 269,587
Kenton County, Kentucky School District
1,800,000 5.375%, 03/01/15 ...................................... Aa3/A+ 1,930,932
955,000 5.000%, 04/01/16 ...................................... Aa3/NR 1,025,002
1,055,000 5.000%, 04/01/17 ...................................... Aa3/NR 1,126,149
605,000 5.000%, 04/01/19 ...................................... Aa3/NR 642,661
Kentucky Economic Development Finance Authority
College Revenue Centre College
1,230,000 5.000%, 04/01/17 FSA Insured .......................... Aaa/AAA 1,323,824
1,675,000 5.000%, 04/01/19 FSA Insured .......................... Aaa/AAA 1,790,039
Lexington-Fayette Urban County, Kentucky
Government Project Transylvania University
1,320,000 5.125%, 08/01/18 MBIA Insured ......................... Aaa/AAA 1,407,199

RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ----------------------------------------------------- ---------- ------------

SCHOOLS (CONTINUED)
Lexington-Fayette Urban County, Kentucky
Government Project U.K. Library
$ 725,000 5.000%, 11/01/15 MBIA Insured ....................... Aaa/AAA $ 786,154
205,000 5.000%, 11/01/18 MBIA Insured ....................... Aaa/AAA 220,713
Meade County, Kentucky School District Finance Corp.
400,000 5.700%, 07/01/15 .................................... Aa3/NR 426,852
500,000 6.000%, 07/01/16 .................................... Aa3/NR 535,360
Middlesboro, Kentucky Independent School District
Finance Corp.
100,000 6.100%, 08/01/16 .................................... Aa3/NR 107,567
Oldham County, Kentucky School District Finance Corp.
500,000 5.000%, 05/01/19 MBIA Insured ....................... Aaa/NR 540,180
Scott County, Kentucky School Building
2,750,000 5.900%, 06/01/18 (pre-refunded) ..................... Aa3/A 2,848,395
100,000 5.000%, 03/01/22 .................................... Aa3/NR 105,574
Taylor County, Kentucky School Building
280,000 6.000%, 08/01/16 .................................... Aa3/NR 299,944
175,000 5.250%, 06/01/19 .................................... Aa3/NR 190,025
University of Kentucky Revenue
1,335,000 5.000%, 05/01/16 FGIC Insured (pre-refunded) ........ Aaa/AAA 1,474,374
505,000 5.000%, 06/01/18 FSA insured ........................ Aaa/NR 542,845
Walton-Verona, Kentucky Independent School District
105,000 5.100%, 06/01/19 .................................... Aa3/NR 111,595
------------
Total Schools .................................... 34,239,656
------------

TRANSPORTATION (13.3%)
Kenton County, Kentucky Airport Board Airport Revenue
800,000 5.000%, 03/01/08 MBIA Insured AMT ................... Aaa/AAA 851,528
500,000 5.625%, 03/01/13 MBIA Insured AMT ................... Aaa/AAA 551,080
1,570,000 5.000%, 03/01/13 MBIA Insured AMT ................... Aaa/AAA 1,681,643
750,000 5.625%, 03/01/14 MBIA Insured AMT ................... Aaa/AAA 826,620
1,000,000 5.500%, 03/01/17 MBIA Insured AMT ................... Aaa/AAA 1,098,340
2,230,000 5.500%, 03/01/18 MBIA Insured AMT ................... Aaa/AAA 2,437,970
1,300,000 5.000%, 03/01/23 MBIA Insured AMT ................... Aaa/AAA 1,342,094

RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ ---------- ------------

TRANSPORTATION (CONTINUED)
Kentucky Interlocal School Transportation Authority
$ 150,000 5.100%, 03/01/05 ..................................... Aa3/A+ $ 150,727
145,000 5.400%, 06/01/17 ..................................... NR/A+ 146,879
400,000 6.000%, 12/01/20 ..................................... NR/A+ 408,536
200,000 6.000%, 12/01/20 ..................................... NR/A+ 204,268
300,000 5.800%, 12/01/20 ..................................... NR/A+ 305,172
400,000 5.650%, 12/01/20 ..................................... NR/A+ 406,656
350,000 5.600%, 12/01/20 ..................................... NR/A+ 355,754
Kentucky State Turnpike Authority Economic
Development & Resource Recovery Road Revenue
120,000 8.500%, 07/01/06 ..................................... Aa3/A+ 130,680
1,000,000 6.500%, 07/01/08 AMBAC Insured ....................... Aaa/AAA 1,134,640
1,000,000 5.625%, 07/01/12 FSA Insured ......................... Aaa/AAA 1,142,910
200,000 5.625%, 07/01/13 FSA Insured ......................... Aaa/AAA 228,582
500,000 5.625%, 07/01/14 FSA Insured ......................... Aaa/AAA 571,455
250,000 5.200%, 07/01/14 FSA Insured ......................... Aaa/AAA 279,945
2,760,000 5.625%, 07/01/15 AMBAC Insured (pre-refunded) ........ Aaa/AAA 2,864,052
940,000 5.625%, 07/01/15 AMBAC Insured ....................... Aaa/AAA 974,451
450,000 5.250%, 07/01/15 FSA Insured ......................... Aaa/AAA 505,125
2,500,000 5.250%, 07/01/16 FSA Insured ......................... Aaa/AAA 2,721,725
3,455,000 5.100%, 07/01/18 FSA Insured ......................... Aaa/AAA 3,698,819
Louisville-Jefferson County Regional Airport, Kentucky
2,500,000 5.250%, 07/1/10 FSA Insured AMT ...................... Aaa/AAA 2,720,650
1,000,000 5.500%, 07/01/12 FSA Insured AMT ..................... Aaa/AAA 1,108,520
2,000,000 5.750%, 07/01/15 FSA Insured AMT ..................... Aaa/AAA 2,218,600
2,000,000 5.500%, 07/01/15 FSA Insured AMT ..................... Aaa/AAA 2,212,620
1,000,000 5.250%, 07/01/18 FSA Insured AMT ..................... Aaa/AAA 1,075,060
1,000,000 5.000%, 07/01/18 FSA Insured AMT ..................... Aaa/AAA 1,042,960
1,370,000 5.250%, 07/01/21 FSA Insured AMT ..................... Aaa/AAA 1,457,735
2,390,000 5.250%, 07/01/22 FSA Insured AMT ..................... Aaa/AAA 2,525,656
275,000 5.375%, 07/01/23 FSA Insured AMT ..................... Aaa/AAA 292,490
------------
Total Transportation .............................. 39,673,942
------------

RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ------------------------------------------------------ ---------- ------------

UTILITIES (8.8%)
Bardstown, Kentucky
$ 200,000 5.000%, 12/01/19 MBIA Insured ....................... Aaa/NR $ 215,054
Campbell & Kenton Counties, Kentucky Sanitation
Sewer District
125,000 5.000%, 08/01/18 FGIC Insured ....................... Aaa/AAA 134,456
Hardin County, Kentucky Water District
605,000 5.900%, 01/01/25 MBIA Insured (pre-refunded) ........ Aaa/AAA 630,561
395,000 5.900%, 01/01/25 MBIA Insured ....................... Aaa/AAA 411,270
Kentucky Rural Water Finance Corp.
595,000 5.000%, 02/01/20 AMBAC Insured ...................... Aaa/AAA 634,681
Lexington-Fayette Urban County Government,
Kentucky Sewer System
1,000,000 5.000%, 07/01/19 .................................... Aa3/AA 1,067,340
Louisville and Jefferson County, Kentucky
Metropolitan Sewer District
1,000,000 5.000%, 05/15/12 FGIC Insured ....................... Aaa/AAA 1,080,520
2,565,000 5.375%, 05/15/17 MBIA Insured ....................... Aaa/AAA 2,851,305
1,410,000 5.400%, 05/15/22 FGIC Insured ....................... Aaa/AAA 1,454,528
400,000 5.000%, 05/15/22 FGIC Insured ....................... Aaa/AAA 418,388
120,000 6.250%, 05/15/26 MBIA Insured ....................... Aaa/AAA 131,005
Louisville, Kentucky Waterworks Board Water
System Revenue
1,000,000 5.250%, 11/15/16 FSA Insured ........................ Aaa/AAA 1,098,630
1,000,000 5.250%, 11/15/17 FSA Insured ........................ Aaa/AAA 1,096,400
2,485,000 5.250%, 11/15/18 FSA Insured ........................ Aaa/AAA 2,721,796
205,000 5.250%, 11/15/19 FSA Insured ........................ Aaa/AAA 220,924
6,600,000 5.250%, 11/15/22 FSA Insured ........................ Aaa/AAA 7,194,198
2,415,000 5.250%, 11/15/24 FSA Insured ........................ Aaa/AAA 2,594,869
Northern Kentucky Water District
240,000 5.000%, 02/01/23 FGIC Insured ....................... Aaa/NR 251,784
Owensboro-Davies County, Kentucky Water District
600,000 5.000%, 01/01/13 AMBAC Insured ...................... Aaa/AAA 627,480
Owensboro, Kentucky Electric and Power
1,310,000 5.000%, 01/01/20 FSA Insured ........................ Aaa/AAA 1,398,569
------------
Total Utilities .................................. 26,233,758
------------

RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- -------------- ----------------------------------------------------- ---------- -------------

Total Revenue Bonds .............................. $ 284,200,479
-------------

Total Investments (cost $278,666,842**) .......... 98.1% 291,716,617
Other assets less liabilities .................... 1.9 5,736,734
----- -------------
Net Assets ....................................... 100.0% $ 297,453,351
===== =============

Portfolio Distribution By Quality Rating (unaudited)

Highest rating(1) ................................... 65.8%
Second highest rating(2) ............................ 28.9
Third highest rating(3) ............................. 5.1
Not rated* .......................................... 0.2
-----
100.0%
=====

(1) Aaa of Moody's or AAA of S&P.

(2) Aa of Moody's or AA of S&P.

(3) A of Moody's or S&P.

* 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 was 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
NR - Not Rated

See accompanying notes to financial statements.

CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004

ASSETS
Investments at value (cost $278,666,842) ............................................................. $ 291,716,617
Cash ................................................................................................. 1,279,083
Interest receivable .................................................................................. 4,338,491
Receivable for Fund shares sold ...................................................................... 855,890
Other assets ......................................................................................... 8,400
-------------
Total assets ......................................................................................... 298,198,481
-------------
LIABILITIES
Dividends payable .................................................................................... 266,635
Payable for Fund shares redeemed ..................................................................... 199,987
Management fee payable ............................................................................... 98,968
Distribution and service fees payable ................................................................ 70,611
Accrued expenses ..................................................................................... 108,929
-------------
Total liabilities ....................................................................................... 745,130
-------------
NET ASSETS .............................................................................................. $ 297,453,351
=============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $.01 per share ................... $ 276,972
Additional paid-in capital ........................................................................... 283,848,743
Net unrealized appreciation on investments (note 4) .................................................. 13,049,775
Undistributed net investment income .................................................................. 468,091
Accumulated net realized loss on investments ......................................................... (190,230)
-------------
$ 297,453,351
=============
CLASS A
Net Assets ........................................................................................... $ 232,927,160
=============
Capital shares outstanding ........................................................................... 21,690,576
=============
Net asset value and redemption price per share ....................................................... $ 10.74
=============
Offering price per share (100/96 of $10.74 adjusted to nearest cent) ................................. $ 11.19
=============
CLASS C
Net Assets ........................................................................................... $ 8,166,456
=============
Capital shares outstanding ........................................................................... 760,808
=============
Net asset value and offering price per share ......................................................... $ 10.73
=============
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) ........................................................ $ 10.73*
=============
CLASS I
Net Assets ........................................................................................... $ 7,564,281
=============
Capital shares outstanding ........................................................................... 704,736
=============
Net asset value, offering and redemption price per share ............................................. $ 10.73
=============
CLASS Y
Net Assets ........................................................................................... $ 48,795,454
=============
Capital shares outstanding ........................................................................... 4,541,110
=============
Net asset value, offering and redemption price per share ............................................. $ 10.75
=============

See accompanying notes to financial statements.

CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004

INVESTMENT INCOME:

Interest income ............................................. $13,578,718
Expenses:

Management fee (note 3) ..................................... $ 1,156,672
Distribution and service fees (note 3) ...................... 434,518
Transfer and shareholder servicing agent fees ............... 131,997
Trustees' fees and expenses (note 8) ........................ 93,711
Fund accounting fees ........................................ 68,464
Shareholders' reports and proxy statements .................. 62,575
Legal fees .................................................. 56,669
Auditing and tax fees ....................................... 32,775
Custodian fees .............................................. 29,984
Insurance ................................................... 17,538
Registration fees and dues .................................. 10,622
Chief compliance officer (note 3) ........................... 1,136
Miscellaneous ............................................... 30,211
-----------
Total expenses .............................................. 2,126,872

Expenses paid indirectly (note 6) ........................... (12,557)
-----------
Net expenses ................................................ 2,114,315
-----------
Net investment income ....................................... 11,464,403

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

Net realized gain (loss) from securities transactions ....... 950,051
Change in unrealized appreciation on investments ............ (56,557)
-----------
Net realized and unrealized gain (loss) on investments ...... 893,494
-----------
Net change in net assets resulting from operations .......... $12,357,897
===========

See accompanying notes to financial statements.

CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENTS OF CHANGES IN NET ASSETS

YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------

OPERATIONS:
Net investment income ................................................... $ 11,464,403 $ 11,709,378
Net realized gain (loss) from securities transactions ................... 950,051 259,635
Change in unrealized appreciation on investments ........................ (56,557) 183,334
------------- -------------
Change in net assets from operations .................................. 12,357,897 12,152,347
------------- -------------

DISTRIBUTIONS TO SHAREHOLDERS (NOTE 10):
Class A Shares:
Net investment income ................................................... (9,151,161) (9,367,500)

Class C Shares:
Net investment income ................................................... (225,967) (200,217)

Class I Shares:
Net investment income ................................................... (239,947) (146,438)

Class Y Shares:
Net investment income ................................................... (1,763,764) (1,944,616)
------------- -------------
Change in net assets from distributions ............................... (11,380,839) (11,658,771)
------------- -------------

CAPITAL SHARE TRANSACTIONS (NOTE 7):
Proceeds from shares sold ............................................... 45,176,081 44,639,694
Reinvested dividends and distributions .................................. 5,174,766 5,821,000
Cost of shares redeemed ................................................. (40,998,605) (38,277,178)
------------- -------------
Change in net assets from capital share transactions .................... 9,352,242 12,183,516
------------- -------------

Change in net assets .................................................... 10,329,300 12,677,092

NET ASSETS:
Beginning of period ..................................................... 287,124,051 274,446,959
------------- -------------

End of period* .......................................................... $ 297,453,351 $ 287,124,051
============= =============

* Includes undistributed net investment income of: ........................ $ 468,091 $ 384,527
============= =============

See accompanying notes to financial statements.

CHURCHILL TAX-FREE FUND OF KENTUCKY
NOTES TO FINANCIAL STATEMENTS

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 theFund 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.

Under the October 1, 2004, Compliance Agreement with the Manager, the
Manager is compensated for Chief Compliance Officer related services provided to
enable the Fund to comply with Rule 38a-1 of the Investment Company Act of 1940.

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 year ended December 31, 2004, distribution fees on Class A
Shares amounted to $348,547 of which the Distributor retained $8,438.

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
year ended December 31, 2004, amounted to $54,943. 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 year ended December 31, 2004, amounted to $18,314. The total
of these payments with respect to Class C Shares amounted to $73,257 of which
the Distributor retained $12,102.

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 year ended December 31, 2004, these
payments were made at the average annual rate of 0.35% of such net assets and
amounted to $22,249 of which $12,714 related to the Plan and $9,535 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 year ended December
31, 2004, total commissions on sales of Class A Shares amounted to $315,473 of
which the Distributor received $37,104.

c) OTHER RELATED PARTY TRANSACTIONS:

For the year ended December 31, 2004, the Fund incurred $55,624 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 year ended December 31, 2004, purchases of securities and
proceeds from the sales of securities aggregated $50,200,915 and $40,975,204,
respectively.

At December 31, 2004, the aggregate tax cost for all securities was
$278,532,352. At December 31, 2004, the aggregate gross unrealized appreciation
for all securities in which there is an excess of market value over tax cost
amounted to $13,222,081 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over market value amounted to
$37,816 for a net unrealized appreciation of $13,184,265.

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:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------

CLASS A SHARES:
Proceeds from shares sold ............... 1,986,073 $ 21,266,749 2,169,701 $ 23,197,568
Reinvested distributions ................ 404,551 4,328,795 423,111 4,508,492
Cost of shares redeemed ................. (2,129,569) (22,709,719) (2,359,392) (25,070,993)
---------- ------------ ---------- ------------
Net change ........................... 261,055 2,885,825 233,420 2,635,067
---------- ------------ ---------- ------------
CLASS C SHARES:
Proceeds from shares sold ............... 262,256 2,800,388 285,083 3,053,437
Reinvested distributions ................ 13,189 141,099 12,041 128,176
Cost of shares redeemed ................. (187,886) (2,010,343) (74,572) (795,113)
---------- ------------ ---------- ------------
Net change ........................... 87,559 931,144 222,552 2,386,500
---------- ------------ ---------- ------------
CLASS I SHARES:
Proceeds from shares sold ............... 283,026 2,993,441 198,482 2,130,432
Reinvested distributions ................ 21,333 227,786 12,722 135,513
Cost of shares redeemed ................. (14,757) (156,921) (21,821) (232,654)
---------- ------------ ---------- ------------
Net change ........................... 289,602 3,064,306 189,383 2,033,291
---------- ------------ ---------- ------------
CLASS Y SHARES:
Proceeds from shares sold ............... 1,685,639 18,115,503 1,511,098 16,258,257
Reinvested distributions ................ 44,562 477,086 98,382 1,048,819
Cost of shares redeemed ................. (1,516,929) (16,121,622) (1,145,269) (12,178,418)
---------- ------------ ---------- ------------
Net change ........................... 213,272 2,470,967 464,211 5,128,658
---------- ------------ ---------- ------------
Total transactions in Fund
shares .................................. 851,488 $ 9,352,242 1,109,566 $ 12,183,516
========== ============ ========== ============

8. TRUSTEES' FEES AND EXPENSES

During the fiscal year ended December 31, 2004 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 annual rate of $8,750 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, 2004 such reimbursements averaged
approximately $4,550 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, 2004, the Fund had a capital loss carryover of $185,263
which expires 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.

The tax character of distributions:

YEAR ENDED DECEMBER 31,
2004 2003
----------- -----------
Net tax-exempt income $11,146,096 $11,625,804
Ordinary income 234,743 32,967
----------- -----------
$11,380,839 $11,658,771
=========== ===========

As of December 31, 2004, the components of distributable earnings on a tax
basis were as follows:

Accumulated net realized loss $ (185,263)
Unrealized appreciation 13,184,265
Undistributed tax-exempt income 328,636
------------
$ 13,327,638
============

The difference between book basis and tax basis unrealized appreciation is
attributable primarily to premium/discount adjustments.

CHURCHILL TAX-FREE FUND OF KENTUCKY
FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

CLASS A
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------

Net asset value, beginning of period ............ $ 10.69 $ 10.66 $ 10.31 $ 10.40 $ 10.09
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income + ...................... 0.42 0.44 0.47 0.50 0.52
Net gain (loss) on securities (both
realized and unrealized) ................... 0.05 0.03 0.35 (0.09) 0.31
-------- -------- -------- -------- --------
Total from investment operations ............. 0.47 0.47 0.82 0.41 0.83
-------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ......... (0.42) (0.44) (0.47) (0.50) (0.52)
Distributions from capital gains ............. -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions .......................... (0.42) (0.44) (0.47) (0.50) (0.52)
-------- -------- -------- -------- --------
Net asset value, end of period .................. $ 10.74 $ 10.69 $ 10.66 $ 10.31 $ 10.40
======== ======== ======== ======== ========

Total return (not reflecting sales charge) ...... 4.49% 4.50% 8.15% 4.02% 8.45%

Ratios/supplemental data
Net assets, end of period
(in thousands) ............................. $232,927 $229,176 $226,014 $201,604 $196,890
Ratio of expenses to average
net assets ................................. 0.73% 0.72% 0.72% 0.72% 0.74%
Ratio of net investment income
to average net assets ...................... 3.96% 4.14% 4.82% 4.82% 5.10%
Portfolio turnover rate ...................... 14.31% 17.92% 18.27% 21.44% 6.61%

The expense ratios after giving effect to the expense offset for uninvested cash balances were:

Ratio of expenses to average
net assets ................................. 0.73% 0.71% 0.71% 0.70% 0.73%

CLASS C
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------

Net asset value, beginning of period ............ $ 10.69 $ 10.66 $ 10.31 $ 10.39 $ 10.08
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income + ...................... 0.33 0.35 0.38 0.41 0.43
Net gain (loss) on securities (both
realized and unrealized) ................... 0.04 0.03 0.35 (0.08) 0.31
-------- -------- -------- -------- --------
Total from investment operations ............. 0.37 0.38 0.73 0.33 0.74
-------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ......... (0.33) (0.35) (0.38) (0.41) (0.43)
Distributions from capital gains ............. -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions .......................... (0.33) (0.35) (0.38) (0.41) (0.43)
-------- -------- -------- -------- --------
Net asset value, end of period .................. $ 10.73 $ 10.69 $ 10.66 $ 10.31 $ 10.39
======== ======== ======== ======== ========

Total return (not reflecting sales charge) ...... 3.51% 3.62% 7.23% 3.24% 7.54%

Ratios/supplemental data
Net assets, end of period
(in thousands) ............................. $ 8,166 $ 7,197 $ 4,804 $ 3,355 $ 1,861
Ratio of expenses to average
net assets ................................. 1.58% 1.57% 1.56% 1.56% 1.59%
Ratio of net investment income
to average net assets ...................... 3.11% 3.26% 3.62% 3.92% 4.24%
Portfolio turnover rate ...................... 14.31% 17.92% 18.27% 21.44% 6.61%

The expense ratios after giving effect to the expense offset for uninvested cash balances were:

Ratio of expenses to average
net assets ................................. 1.58% 1.56% 1.55% 1.55% 1.58%

+ Per share amounts have been calculated using the monthly average shares
method.

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.

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

CLASS I
---------------------------------------------------
YEAR ENDED PERIOD
DECEMBER 31, ENDED
2004 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 + ...................... 0.41 0.43 0.46 0.19
Net gain (loss) on securities (both realized
and unrealized) ............................ 0.03 0.02 0.35 (0.13)
-------- -------- -------- --------
Total from investment operations ............. 0.44 0.45 0.81 0.06
-------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ......... (0.40) (0.42) (0.46) (0.19)
Distributions from capital gains ............. -- -- -- --
-------- -------- -------- --------
Total distributions .......................... (0.40) (0.42) (0.46) (0.19)
-------- -------- -------- --------
Net asset value, end of period .................. $ 10.73 $ 10.69 $ 10.66 $ 10.31
======== ======== ======== ========
Total return (not reflecting sales charge) ...... 4.24% 4.33% 7.98% 0.58%++
Ratios/supplemental data
Net assets, end of period
(in thousands) ............................. $ 7,564 $ 4,438 $ 2,407 $ 1,426
Ratio of expenses to average net assets ...... 0.89% 0.88% 0.87% 0.83%*
Ratio of net investment income to average
net assets ................................. 3.79% 3.95% 4.32% 4.47%*
Portfolio turnover rate ...................... 14.31% 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 ...... 0.89% 0.87% 0.86% 0.82%*

CLASS Y
----------------------------------------------------------------

YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------

Net asset value, beginning of period ............ $ 10.70 $ 10.67 $ 10.32 $ 10.40 $ 10.09
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income + ...................... 0.44 0.46 0.49 0.51 0.53
Net gain (loss) on securities (both realized
and unrealized) ............................ 0.05 0.03 0.35 (0.07) 0.32
-------- -------- -------- -------- --------
Total from investment operations ............. 0.49 0.49 0.84 0.44 0.85
-------- -------- -------- -------- --------
Less distributions (note 10):
Dividends from net investment income ......... (0.44) (0.46) (0.49) (0.52) (0.54)
Distributions from capital gains ............. -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions .......................... (0.44) (0.46) (0.49) (0.52) (0.54)
-------- -------- -------- -------- --------
Net asset value, end of period .................. $ 10.75 $ 10.70 $ 10.67 $ 10.32 $ 10.40
======== ======== ======== ======== ========
Total return (not reflecting sales charge) ...... 4.65% 4.65% 8.30% 4.28% 8.62%
Ratios/supplemental data
Net assets, end of period
(in thousands) ............................. $ 48,795 $ 46,313 $ 41,223 $ 25,585 $ 15,745
Ratio of expenses to average net assets ...... 0.58% 0.57% 0.57% 0.57% 0.59%
Ratio of net investment income to average
net assets ................................. 4.11% 4.28% 4.63% 4.94% 5.25%
Portfolio turnover rate ...................... 14.31% 17.92% 18.27% 21.44% 6.61%

The expense ratios after giving effect to the
expense offset for uninvested cash balances were:
Ratio of expenses to average net assets ...... 0.58% 0.56% 0.56% 0.55% 0.58%

- ----------
(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.

See accompanying notes to financial statements.

- --------------------------------------------------------------------------------

ANALYSIS OF EXPENSES (UNAUDITED)

As a shareholder of the Fund, you may incur two types of costs: (1)
transaction costs, including front-end sales charges with respect to Class A
shares or contingent deferred sales charges ("CDSC") with respect to Class C
shares; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other Fund expenses. The tables below are intended to
help you understand your ongoing costs (in dollars) of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.

The tables below are based on an investment of $1,000 invested on July 1,
2004 and held for the six months ended December 31, 2004.

ACTUAL EXPENSES

This table provides information about actual account values and actual
expenses. You may use the information provided in this table, together with the
amount you invested, to estimate the expenses that you paid over the period. To
estimate the expenses you paid on your account, divide your ending account value
by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6),
then multiply the result by the number under the heading entitled "Expenses Paid
During the Period".

FOR THE SIX MONTHS ENDED DECEMBER 31, 2004

ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A 4.20% $1,000.00 $1,042.00 $3.80
- --------------------------------------------------------------------------------
Class C 3.66% $1,000.00 $1,036.60 $8.09
- --------------------------------------------------------------------------------
Class I 4.02% $1,000.00 $1,040.20 $4.62
- --------------------------------------------------------------------------------
Class Y 4.28% $1,000.00 $1,042.80 $3.03
- --------------------------------------------------------------------------------

(1) ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS, IF
ANY, AT NET ASSET VALUE AND DOES NOT REFLECT THE DEDUCTION OF THE
APPLICABLE SALES CHARGES WITH RESPECT TO CLASS A SHARES OR THE APPLICABLE
CONTINGENT DEFERRED SALES CHARGES ("CDSC") WITH RESPECT TO CLASS C SHARES.
TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
TOTAL RETURN FOR THE YEAR.

(2) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.74%, 1.58%, 0.90%
AND 0.59% FOR THE FUND'S CLASS A, C, I AND Y SHARES, RESPECTIVELY,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).

- --------------------------------------------------------------------------------

ANALYSIS OF EXPENSES (UNAUDITED) (CONTINUED)

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The table below provides information about hypothetical account values and
hypothetical expenses based on the actual expense ratio and an assumed rate of
return of 5.00% per year before expenses, which is not the Fund's actual return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
the information provided in this table to compare the ongoing costs of investing
in the Fund and other mutual funds. To do so, compare this 5.00% hypothetical
example relating to the Fund with the 5.00% hypothetical examples that appear in
the shareholder reports of other mutual funds.

Please note that the expenses shown in the table below are meant to
highlight your ongoing costs only and do not reflect any transactional costs,
with respect to Class A shares. The example does not reflect the deduction of
contingent deferred sales charges ("CDSC") with respect to Class C shares.
Therefore, the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different mutual funds. In
addition, if these transaction costs were included, your costs would have been
higher.

FOR THE SIX MONTHS ENDED DECEMBER 31, 2004

HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.42 $3.76
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,017.19 $8.01
- --------------------------------------------------------------------------------
Class I 5.00% $1,000.00 $1,020.61 $4.57
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,022.17 $3.00
- --------------------------------------------------------------------------------

(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.74%, 1.58%, 0.90%
AND 0.59% FOR THE FUND'S CLASS A, C, I AND Y SHARES, RESPECTIVELY,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).

- --------------------------------------------------------------------------------

FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)

This information is presented in order to comply with a requirement of the
Internal Revenue Code AND NO ACTION ON THE PART OF SHAREHOLDERS IS REQUIRED.

For the fiscal year ended December 31, 2004, $11,146,096 of dividends paid
by Churchill Tax-Free Fund of Kentucky, constituting 97.937% of total dividends
paid during fiscal 2004, were exempt-interest dividends.

Prior to January 31, 2005, shareholders were mailed IRS Form 1099-DIV
which contained information on the status of distributions paid for the 2004
CALENDAR YEAR.

- --------------------------------------------------------------------------------

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. Additionally, 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.

The Fund additionally files a complete list of its portfolio holdings with
the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms
N-Q are available free of charge on the SEC website at www.sec.gov. You may also
review or, for a fee, copy the forms at the SEC's Public Reference Room in
Washington, DC or by calling 800-SEC-0330.

- --------------------------------------------------------------------------------

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.

- --------------------------------------------------------------------------------

ADDITIONAL INFORMATION (UNAUDITED)

INFORMATION ABOUT
TRUSTEES(1) AND OFFICERS

NUMBER OF
POSITIONS PORTFOLIOS OTHER DIRECTORSHIPS
HELD WITH IN FUND HELD BY TRUSTEE
NAME, FUND AND PRINCIPAL COMPLEX(4) (THE POSITION HELD IS
ADDRESS(2) LENGTH OF OCCUPATION(S) OVERSEEN A DIRECTORSHIP UNLESS
AND DATE OF BIRTH SERVICE(3) DURING PAST 5 YEARS BY TRUSTEE INDICATED OTHERWISE.)
- ----------------- ---------- ------------------- ---------- ---------------------

INTERESTED TRUSTEES(5)

Lacy B. Herrmann(6) Founder and Founder and Chairman of the Board, Aquila 12 Director or trustee,
New York, NY Chairman of Management Corporation, the sponsoring Pimco Advisors VIT,
(05/12/29) the Board of organization and parent of the Manager or Oppenheimer Quest
Trustees Administrator and/or Adviser or Sub-Adviser to Value Funds Group,
since 1987 each fund of the Aquila(sm) Group of Funds,(7) Oppenheimer Small Cap
Chairman of the Manager or Administrator Value Fund,
and/or Adviser or Sub-Adviser to each since Oppenheimer Midcap
2004, and Founder, Chairman of the Board of Fund, and Oppenheimer
Trustees, Trustee and (currently or until Rochester Group of
1998) President of each since its Funds.
establishment, beginning in 1984, except
Chairman of the Board of Trustees of Hawaiian
Tax-Free Trust, Pacific Capital Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets
Trust and Pacific Capital U.S. Government
Securities Cash Assets Trust through 2003,
Trustee until 2004 and Chairman of the Board,
Emeritus since 2004; Director of the
Distributor since 1981 and formerly Vice
President or Secretary, 1981-1998; Trustee
Emeritus, Brown University and the Hopkins
School; active in university, school and
charitable organizations.

Diana P. Herrmann Trustee since Vice Chair and Chief Executive Officer of Aquila 10 None
New York, NY 1995 and Management Corporation, Founder of the Aquila(sm)
(02/25/58) President Group of Funds and parent of Aquila Investment
since 1999 Management LLC, Manager, since 2004, President
and Chief Operating Officer since 1997, a
Director since 1984, Secretary since 1986 and
previously its Executive Vice President, Senior
Vice President or Vice President, 1986-1997;
Chief Executive Officer and Vice Chair since
2004 and President, Chief Operating Officer and
Manager of the Manager since 2003; Vice Chair,
President, Executive Vice President or Senior
Vice President of funds in the Aquila(sm) Group
of Funds since 1986; Director of the Distributor
since 1997; trustee, Reserve Money-Market Funds,
1999-2000 and Reserve Private Equity Series,
1998-2000; Governor, Investment Company
Institute (2004) and head of its Small Funds
Committee since 2004; active in charitable and
volunteer organizations.

NON-INTERESTED TRUSTEES

Thomas A. Christopher(6) Trustee Vice President of Robinson, Hughes & 2 None
Danville, KY since 1992 Christopher, C.P.A.s, P.S.C., since 1977;
(12/19/47) President, A Good Place for Fun, Inc., a sports
facility, since 1987.

Douglas Dean Trustee Founder and Chairman of the Board of Directors, 1 None
Lexington, KY since 1987 Dean, Dorton & Ford P.S.C., a public accounting
(03/21/49) firm, since 1982; active as an officer and
member of various charitable and community
organizations.

Theodore T. Mason Trustee Executive Director, East Wind Power Partners LTD 10 Trustee, Pimco
New York, NY since 1987 since 1994 and Louisiana Power Partners, Advisors VIT.
(11/24/35) 1999-2003; Treasurer, Alumni Association of SUNY
Maritime College since 2004 (President,
2002-2003, First Vice President, 2000-2001,
Second Vice President, 1998-2000) and director
of the same organization since 1997; Director,
STCM Management Company, Inc., 1973-2004; twice
national officer of Naval Reserve Association,
commanding officer of four naval reserve units
and Captain, USNR (Ret); director, The Navy
League of the United States New York Council
since 2002; trustee, The Maritime Industry
Museum at Fort Schuyler, 2000-2004, and the
Maritime College at Fort Schuyler Foundation,
Inc. since 2000.

Anne J. Mills Trustee President, Loring Consulting Company since 2001; 4 None
Castle Rock, CO since 1987 Vice President for Business Affairs, Ottawa
(12/23/38) University, 1992-2001; IBM Corporation,
1965-1991; Budget Review Officer, the American
Baptist Churches/USA, 1994-1997; director, the
American Baptist Foundation; Trustee, Ottawa
University; and Trustee Emerita, Brown
University.

William J. Nightingale Trustee Retired; formerly Chairman, founder (1975) and 2 Ring's End, Inc.
Rowayton, CT since 1993 Senior Advisor until 2000 of Nightingale &
(09/16/29) Associates, L.L.C., a general management
consulting firm focusing on interim management,
divestitures, turnaround of troubled companies,
corporate restructuring and financial advisory
services.

James R. Ramsey Trustee President, University of Louisville since 2 Community Bank and
Louisville, KY since 1987 November 2002; Professor of Economics, Trust, Pikeville, KY
(11/14/48) University of Louisville, 1999-present; Kentucky
Governor's Senior Policy Advisor and State
Budget Director, 1999-2002; Vice Chancellor for
Finance and Administration, the University of
North Carolina at Chapel Hill, 1998 to 1999;
previously Vice President for Finance and
Administration at Western Kentucky University,
State Budget Director for the Commonwealth of
Kentucky, Chief State Economist and Executive
Director for the Office of Financial Management
and Economic Analysis for the Commonwealth of
Kentucky, Adjunct Professor at the University of
Kentucky, Associate Professor at Loyola
University-New Orleans and Assistant Professor
at Middle Tennessee State University.
OFFICERS

Charles E. Childs, III Executive Vice Executive Vice President of all funds in the N/A N/A
New York, NY President Aquila(sm) Group of Funds and the Manager since
(04/01/57) since 2003 2003; Senior Vice President, corporate
development, formerly Vice President, Assistant
Vice President and Associate of the Manager's
parent since 1987; Senior Vice President, Vice
President or Assistant Vice President of the
Aquila Money-Market Funds, 1988-2003.

Thomas S. Albright Senior Vice Senior Vice President and Portfolio Manager, N/A N/A
Louisville, KY President Churchill Tax-Free Fund of Kentucky since July
(07/26/52) since 2000 2000; Senior Vice President, Tax-Free Fund For
Utah since 2003, Vice President, 2001-2003 and
co-portfolio manager since 2001; Vice President
and backup portfolio manager, Tax-Free Trust of
Arizona, since 2004; Vice President and
Portfolio Manager, Banc One Investment Advisors,
Inc., 1994-2000.

Jerry G. McGrew Senior Vice President of the Distributor since 1998, N/A N/A
New York, NY President Registered Principal since 1993, Senior Vice
(06/18/44) since 1994 President, 1997-1998 and Vice President,
1993-1997; Senior Vice President, Aquila Rocky
Mountain Equity Fund and five Aquila Bond Funds
since 1995; Vice President, Churchill Cash
Reserves Trust, 1995-2001.

Todd W. Curtis Vice President Senior Vice President and Portfolio Manager, N/A N/A
Phoenix, AZ since 2004 Tax-Free Trust of Arizona, since August 2004;
(06/08/49) Vice President and backup portfolio manager,
Churchill Tax-Free Fund of Kentucky, since 2004;
Vice President and Portfolio Manager, Banc One
Investment Advisors, Inc. and its predecessors,
1981-2004.

James M. McCullough Vice President Senior Vice President or Vice President of N/A N/A
Portland, OR since 2000 Aquila Rocky Mountain Equity Fund and four
(06/11/45) Aquila Bond Funds; Senior Vice President of the
Distributor since 2000; Director of Fixed Income
Institutional Sales, CIBC Oppenheimer & Co.
Inc., Seattle, WA, 1995-1999.

Jason T. McGrew Vice President Vice President, Churchill Tax-Free Fund of N/A N/A
Elizabethtown, KY since 2001 Kentucky since 2001, Assistant Vice President,
(08/14/71) 2000-2001; Investment Broker with Raymond James
Financial Services 1999-2000 and with J.C.
Bradford and Company 1997-1999; Associate Broker
at Prudential Securities 1996-1997.

Robert W. Anderson Chief Chief Compliance Officer of the Fund, the N/A N/A
New York, NY Compliance Manager and the Distributor since 2004,
(08/23/40) Officer since Compliance Officer of the Manager or its
2004 and predecessor and current parent since 1998 and
Assistant Assistant Secretary of the Aquila(sm) Group of
Secretary Funds since 2000; Consultant, The Wadsworth
since 2000 Group, 1995-1998.

Joseph P. DiMaggio Chief Financial Chief Financial Officer of the Aquila(sm) Group N/A N/A
New York, NY Officer since of Funds since 2003 and Treasurer since 2000;
(11/06/56) 2003 and Controller, Van Eck Global Funds, 1993-2000.
Treasurer
since 2000

Edward M. W. Hines Secretary Partner, Hollyer Brady Barrett & Hines LLP, N/A N/A
New York, NY since 1987 legal counsel to the Fund, since 1989; Secretary
(12/16/39) of the Aquila(sm) Group of Funds.

John M. Herndon Assistant Assistant Secretary of the Aquila(sm) Group of N/A N/A
New York, NY Secretary Funds since 1995 and Vice President of the
(12/17/39) since 1995 three Aquila Money-Market Funds since 1990;
Vice President of the Manager or its
predecessor and current parent since 1990.

Lori A. Vindigni Assistant Assistant Treasurer of the Aquila(sm) Group of N/A N/A
New York, NY Treasurer Funds since 2000; Assistant Vice President of
(11/02/66) since 2000 the Manager or its predecessor and current
parent since 1998; Fund Accountant for the
Aquila(sm) Group of Funds, 1995-1998.

TRUSTEE EMERITUS

Carroll F. Knicely(8) Trustee President, Associated Publications Inc, N/A N/A
Glasgow, KY Emeritus Glasgow, Kentucky; director and member,
(12/08/28) since 2004 Executive Board of West Kentucky Corporation
and director and Secretary-Treasurer, South
Gate Plaza, Inc. (owner and developer of
shopping centers and commercial real estate);
director, Vice President and Treasurer, Knicely
and Knicely, Inc. (owner and developer of
rental properties and residential real estate);
former trustee, Cambellsville University;
formerly Secretary of Commerce and Commissioner
of Commerce, Commonwealth of Kentucky.

(1) The Fund's Statement of Additional Information includes additional
information about the Trustees and is available, without charge, upon
request by calling 800-437-1020 (toll free).

(2) The mailing address of each Trustee and officer is c/o Churchill Tax-Free
Fund of Kentucky, 380 Madison Avenue, New York, NY 10017.

(3) Each Trustee holds office until the next annual meeting of shareholders or
until his or her successor is elected and qualifies. The term of office of
each officer is one year.

(4) Includes certain Aquila-sponsored funds that are dormant and have no
public shareholders.

(5) Mr. Herrmann and Ms. Herrmann are interested persons of the Fund, as that
term is defined in the 1940 Act, as officers of the Fund and through their
affiliations with both the Manager and the Distributor. Each is also an
interested person as a member of the immediate family of the other.

(6) Effective January 1, 2005, Mr. Christopher became Chair and Mr. Herrmann
became Chairman Emeritus, continuing as Trustee.

(7) In this material Pacific Capital Cash Assets Trust, Pacific Capital U.S.
Government Securities Cash Assets Trust and Pacific Capital Tax-Free Cash
Assets Trust, each of which is a money-market fund, are called the "Aquila
Money-Market Funds"; Hawaiian Tax-Free Trust, Tax-Free Trust of Arizona,
Tax-Free Trust of Oregon, Tax-Free Fund of Colorado, Churchill Tax-Free
Fund of Kentucky, Narragansett Insured Tax-Free Income Fund and Tax-Free
Fund For Utah, each of which is a tax-free municipal bond fund, are called
the "Aquila Bond Funds"; Aquila Rocky Mountain Equity Fund is an equity
fund; considered together, these 11 funds, which do not include the
dormant funds described in footnote 4, are called the "Aquila(sm) Group of
Funds."

(8) A Trustee Emeritus may attend Trustee meetings but has no voting power.

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PRIVACY NOTICES (UNAUDITED)

CHURCHILL TAX-FREE FUND OF KENTUCKY

OUR PRIVACY POLICY. In providing services to you as an individual who owns or is
considering investing in shares of the Fund we collect certain nonpublic
personal information about you. Our policy is to keep this information strictly
safeguarded and confidential, and to use or disclose it only as necessary to
provide services to you or as otherwise permitted by law. Our privacy policy
applies equally to former shareholders and persons who inquire about a fund.

INFORMATION WE COLLECT. "Nonpublic personal information" is personally
identifiable financial information about you as an individual or your family.
The kinds of nonpublic personal information we have about you may include the
information you provide us on your share purchase application or in telephone
calls or correspondence with us, and information about your fund transactions
and holdings, how you voted your shares and the account where your shares are
held.

INFORMATION WE DISCLOSE. We disclose nonpublic personal information about you to
companies that provide necessary services to us, such as the Fund's transfer
agent, distributor or investment adviser, as permitted or required by law, or as
authorized by you. Any other use is strictly prohibited. We do not sell
information about you or any of our fund shareholders to anyone.

HOW WE SAFEGUARD YOUR INFORMATION. We restrict access to nonpublic personal
information about you to only those persons who need it to provide services to
you or who are permitted by law to receive it. We maintain physical, electronic
and procedural safeguards to protect the confidentiality of all nonpublic
personal information we have about you.

If you have any questions regarding our Privacy Policy, please contact us at
1-800-437-1020.

AQUILA DISTRIBUTORS, INC.
AQUILA INVESTMENT MANAGEMENT LLC

This Privacy Policy also has been adopted by Aquila Distributors, Inc. and
Aquila Investment Management LLC and applies to all nonpublic information about
you that each of these companies may obtain in connection with services provided
to the Fund or to you as a shareholder of the Fund.

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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 (thru 12/31/04)
Thomas A. Christopher, Chair (effective 1/01/05)
Douglas Dean
Diana P. Herrmann
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.
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.

(a) As of December 31, 2004 (the end of the reporting period) the
Trust has adopted a code of ethics that applies to the Fund's
principal executive officer(s)and principal financial officer(s)
and persons performing similar functions ("Covered Officers") as
defined in the Aquila Group of Funds Code of Ethics for Principal
Executive and Senior Financial Officers under Section 406 of the
Sarbanes-Oxley Act of 2002.;

(f)(1) Pursuant to Item 10(a)(1), a copy of the Fund's Code of
Ethics that applies to the Trust's principal executive officer(s)
and principal financial officer(s) and persons performing similar
functions is included as an exhibit to its annual report on this
Form N-CSR;

(f)(2) The text of the Fund's Code of Ethics that applies to the
Fund's principal executive officer(s) and principal financial
officer(s) and persons performing similar functions has been
posted on its Internet website which can be found at the Fund's
Internet address at aquilafunds.com.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

(a)(1)(ii) The Board of Trustees of the Fund has determined that
it does not have at least one audit committee financial expert
serving on its audit committee. The Fund does not have such a
person serving on the audit committee because none of the persons
currently serving as Trustees happens to have the technical
accounting and auditing expertise included in the definition of
"audit committee financial expert" adopted by the Securities
and Exchange Commission in connection with this Form N-CSR, and the
Board has not heretofore deemed it necessary to seek such a person
for election to the Board.

The primary mission of the Board, which is that of oversight over
the operations and affairs of the Fund, confronts the Trustees with
a wide and expanding range of issues and responsibilities. The
Trustees believe that, accordingly, it is essential that the Board's
membership consist of persons with as extensive experience as possible
in fulfilling the duties and responsibilities of mutual fund directors
and audit committee members and, ideally, with extensive experience
and background relating to the economic and financial sectors and
securities in which the Fund invests, including exposure to the
financial and accounting matters commonly encountered with respect
to those sectors and securities. The Board believes that its current
membership satisfies those criteria. It recognizes that it would
also be helpful to have a member with the relatively focused accounting
and auditing expertise reflected in the applicable definition of
"audit committee financial expert," just as additional members with
similarly focused technical expertise in other areas relevant to
the Fund's operations and affairs would also contribute added value.
However, the Board believes that the Fund is better served, and its
assets better employed, by a policy of hiring experts in various
areas, including the specialized area of technical accounting and
auditing matters, if and as the Board identifies the need, rather
than by seeking to expand its numbers by adding technical experts
in the areas constituting its domain of responsibility. The Fund's
Audit Committee Charter explicitly authorizes the Committee to
retain such experts as it deems necessary in fulfilling its duties
under the Charter.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

a) Audit Fees - The aggregate fees billed for professional services rendered
by the principal accountant for the audit of the Registrant's annual
financial statements were $20,700 in 2004 and $20,100 in 2003.

b) Audit Related Fees - There were no amounts billed for audit-related
fees over the past two years.

c) Tax Fees - The Registrant was billed by the principal accountant $8,350
and $8,942 in 2003 and 2004, respectively, for return preparation.

d) All Other Fees - There were no additional fees paid for audit and non-
audit services other than those disclosed in a) thorough c) above.

e)(1) Currently, the audit committee of the Registrant pre-approves audit
services and fees on an engagement-by-engagement basis

e)(2) None of the services described in b) through d) above were approved
by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X, all were pre-approved on an engagement-by-engagement basis.

f) No applicable.

g) There were no non-audit services fees billed by the Registrant's accountant
to the Registrant's investment adviser or distributor over the past two years.

h) 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) (a)(1) Aquila Group of Funds Code of Ethics for Principal Executive and
Senior Financial Officers under Section 406 of the Sarbanes-Oxley Act of 2002.

(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/ Diana P. Herrmann
- ---------------------------------
President and Trustee
February 28, 2005

By: /s/ Joseph P. DiMaggio
- -----------------------------------
Chief Financial Officer and Treasurer
February 28, 2005

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/ Diana P. Herrmann
- ---------------------------------
Diana P. Herrmann
President and Trustee
February 28, 2005

By: /s/ Joseph P. DiMaggio
- -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
February 28, 2005

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.