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: 06/30/07
FORM N-CSR
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMI-ANNUAL
REPORT
JUNE 30, 2007
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: ONE OF THE
AN EAGLE'S HEAD] AQUILA GROUP OF FUNDS (SM)
[LOGO OF THE CHURCHILL TAX-FREE FUND OF KENTUCKY:
A STANDING PEGASUS IN A CIRCLE]
SERVING KENTUCKY INVESTORS FOR TWO DECADES
CHURCHILL TAX-FREE FUND OF KENTUCKY
"PROFESSIONAL MANAGEMENT"
August, 2007
Dear Fellow Shareholder:
Rising interest rates, reaching for yield and tightening yield curves - these
are all topics that have been in the news as of late. While there is a plethora
of information available on these topics and others if you are interested, the
good news is that when it comes to Churchill Tax-Free Fund of Kentucky you don't
need to be versed in "financialese" any more than you wish.
Why? Because one of the conveniences afforded you through an investment in
Churchill Tax-Free Fund of Kentucky is local active professional portfolio
management. The Fund's portfolio manager continuously monitors economic,
monetary and financial trends and adjusts the portfolio accordingly as and when
he deems appropriate.
Your Fund's portfolio manager provides ongoing surveillance of the marketplace
and strives to maneuver cautiously through its ups and downs - much like a
ship's captain whose job it is to ride out sudden storms.
Not unlike the prudent ship's captain who ensures that the cargo is properly
balanced and positioned, the Fund's portfolio manager is constantly monitoring
the investment portfolio and the economic weather conditions striving to provide
as stable a net asset value and as high a level of tax-free income as possible.
As with a ship in choppy seas, your investment requires constant vigilance and
nimble reflexes in all phases of its management. This does not, however, mean
selling and buying securities continuously based upon market blips. What it does
mean is being a keen observer of the scene, monitoring securities very carefully
and taking action as appropriate whenever significant changes occur or are
anticipated.
NOT A PART OF THE SEMI-ANNUAL REPORT
Your portfolio manager seeks opportunities that make sense within the prevailing
marketplace and which provide double tax-free income while maintaining the
overall conservative nature of the portfolio.
In short, your professional manager does the work for you. So, the next time you
come across a boring, complex analysis of the bond market, feel free to flip
right past it. Your Fund's portfolio management team's job (and their passion)
is to keep on top of and make sense out of all the news. Thus, like a seasoned
traveler, you can enjoy your trip knowing that there are experienced eyes
watching the waters and steady hands on the helm.
Sincerely,
/s/ Lacy B. Herrmann /s/ Diana P. Herrmann
Lacy B. Herrmann Diana P. Herrmann
Founder and Chairman Emeritus President
For certain investors, some dividends of your Fund may be subject to Federal and
State taxes, including the Alternative Minimum Tax.
NOT A PART OF THE SEMI-ANNUAL REPORT
RATING
PRINCIPAL MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (4.5%) S&P VALUE
- --------------- ----------------------------------------------------- ---------- -------------
Bowling Green, Kentucky
$ 200,000 5.300%, 06/01/18 ......................................... Aa3/NR $ 208,336
Lexington-Fayette Urban County, Kentucky
4,175,000 4.250%, 05/01/23 MBIA Insured ............................ Aaa/AAA 3,983,660
Louisville, Kentucky Unlimited Tax
2,205,000 5.000%, 10/01/21 FGIC Insured ............................ Aaa/AAA 2,278,669
Louisville & Jefferson County, Kentucky
955,000 4.200%, 11/01/22 MBIA Insured ............................ Aaa/AAA 917,335
Louisville & Jefferson County, Kentucky Metro
Government Unlimited Tax
1,590,000 5.000%, 11/01/19 ......................................... Aa2/AA+ 1,670,390
1,825,000 5.000%, 11/01/20 ......................................... Aa2/AA+ 1,912,582
Warren County, Kentucky Judicial Unlimited Tax
345,000 5.100%, 09/01/17 AMBAC Insured ........................... Aaa/NR 363,061
365,000 5.150%, 09/01/18 AMBAC Insured ........................... Aaa/NR 384,644
-------------
Total General Obligation Bonds ........................... 11,718,677
-------------
REVENUE BONDS (94.6%)
STATE AGENCIES (19.1%)
Kentucky Area Development District Financing
500,000 5.000%, 12/01/23 LOC Wachovia Bank NR/AA 514,200
Kentucky Asset/Liability Commission
500,000 4.500%, 10/01/22 FGIC Insured Aaa/AAA 503,050
Kentucky Infrastructure Authority
1,000,000 5.250%, 06/01/12 Aa3/A+ 1,043,270
635,000 5.250%, 06/01/12 Aa3/A+ 642,112
2,740,000 5.250%, 06/01/14 Aa3/A+ 2,857,573
1,235,000 5.250%, 08/01/17 NR/AA 1,315,152
230,000 5.000%, 06/01/21 Aa3/A+ 236,222
Kentucky State Property and Buildings Commission
4,000,000 5.375%, 02/01/14 FSA Insured (pre-refunded) Aaa/AAA 4,229,320
1,000,000 5.000%, 11/01/15 AMBAC Insured Aaa/AAA 1,054,750
2,725,000 5.375%, 08/01/16 FSA Insured Aaa/AAA 2,860,242
4,735,000 5.250%, 10/01/17 Aa3/A+ 4,925,016
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- ----------------------------------------------------- ---------- -------------
STATE AGENCIES (CONTINUED)
Kentucky State Property and Buildings Commission
(continued)
$ 1,250,000 5.500%, 11/01/17 FSA Insured ............................. Aaa/AAA $ 1,333,450
1,000,000 5.000%, 11/01/17 AMBAC Insured ........................... Aaa/AAA 1,050,190
6,000,000 5.250%, 10/01/18 ......................................... Aa3/A+ 6,236,520
1,925,000 5.000%, 10/01/19 ......................................... Aa3/A+ 1,974,973
785,000 5.150%, 11/01/19 FSA Insured ............................. Aaa/AAA 823,245
3,000,000 5.000%, 11/01/19 FSA Insured ............................. Aaa/AAA 3,117,570
5,000,000 5.000%, 10/01/22 MBIA Insured (pre-refunded) ............. Aaa/AAA 5,270,550
Kentucky State Property Buildings
Community Revenues
6,200,000 5.000%, 08/01/21 FSA Insured ............................. Aaa/AAA 6,593,142
2,500,000 5.000%, 08/01/24 FSA Insured ............................. Aaa/AAA 2,658,525
-------------
Total State Agencies 49,239,072
-------------
COUNTY AGENCIES (2.2%)
Jefferson County, Kentucky Capital Projects
1,575,000 4.250%, 06/01/23 FSA Insured ............................. Aaa/NR 1,483,430
4,140,000 4.375%, 06/01/28 FSA Insured ............................. Aaa/NR 3,871,024
Warren County, Kentucky Justice Center
365,000 4.300%, 09/01/22 MBIA Insured ............................ Aaa/NR 356,631
-------------
Total County Agencies 5,711,085
-------------
CITY/MUNICIPALITY OBLIGATIONS (0.3%)
Shelbyville, Kentucky Certificates of Participation
625,000 5.000%, 10/01/22 ......................................... A2/NR 641,744
-------------
Total City/Municipality Obligations 641,744
-------------
HOSPITALS (9.1%)
Jefferson County, Kentucky Health Facilities Revenue
1,715,000 5.650%, 01/01/17 AMBAC Insured ........................... Aaa/AAA 1,747,894
2,200,000 5.250%, 05/01/17 ......................................... NR/A 2,277,858
815,000 5.125%, 10/01/17 AMBAC Insured ETM ....................... Aaa/AAA 825,994
Jefferson County, Kentucky Revenue Medical
Center Revenue
2,000,000 5.500%, 05/01/22 ......................................... NR/A 2,098,180
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- ----------------------------------------------------- ---------- -------------
HOSPITALS (CONTINUED)
Kentucky Economic Development Finance Authority
$ 1,000,000 5.000%, 02/01/18 FSA Insured ............................. Aaa/AAA $ 1,014,650
Lexington-Fayette Urban County, Kentucky Public
Facilities Revenue
500,000 4.250%, 10/01/26 MBIA Insured ............................ Aaa/NR 475,330
Louisville & Jefferson County, Kentucky Medical
Center Revenue
1,000,000 5.000%, 06/01/18 ......................................... NR/A 1,040,790
Louisville & Jefferson County, Kentucky Metropolitan
Government Health System Revenue (Norton)
8,090,000 5.000%, 10/01/26 ......................................... NR/A- 8,125,021
6,000,000 5.000%, 10/01/30 ......................................... NR/A- 5,991,360
-------------
Total Hospitals .......................................... 23,597,077
-------------
HOUSING (11.1%)
Kentucky Housing Corporation Housing Revenue
405,000 4.350%, 01/01/15 AMT ..................................... Aaa/AAA 401,173
140,000 4.200%, 01/01/15 AMT ..................................... Aaa/AAA 136,009
250,000 4.100%, 01/01/15 AMT ..................................... Aaa/AAA 242,210
170,000 4.100%, 07/01/15 AMT ..................................... Aaa/AAA 164,448
265,000 4.650%, 01/01/16 AMT ..................................... Aaa/AAA 266,847
210,000 4.300%, 01/01/16 AMT ..................................... Aaa/AAA 208,524
150,000 4.250%, 01/01/16 AMT ..................................... Aaa/AAA 145,889
200,000 4.200%, 01/01/16 AMT ..................................... Aaa/AAA 193,226
420,000 4.650%, 07/01/16 AMT ..................................... Aaa/AAA 424,519
610,000 4.300%, 07/01/16 AMT ..................................... Aaa/AAA 605,510
550,000 4.200%, 07/01/16 AMT ..................................... Aaa/AAA 530,618
555,000 4.200%, 01/01/17 ......................................... Aaa/AAA 543,933
100,000 5.125%, 07/01/17 ......................................... Aaa/AAA 101,456
680,000 4.200%, 07/01/17 ......................................... Aaa/AAA 665,870
470,000 4.800%, 01/01/18 AMT ..................................... Aaa/AAA 474,188
285,000 4.250%, 01/01/18 ......................................... Aaa/AAA 279,092
575,000 4.800%, 07/01/18 AMT ..................................... Aaa/AAA 580,123
180,000 4.250%, 07/01/18 ......................................... Aaa/AAA 176,132
900,000 4.800%, 07/01/20 AMT ..................................... Aaa/AAA 902,295
1,150,000 5.350%, 01/01/21 AMT ..................................... Aaa/AAA 1,171,034
6,125,000 5.450%, 07/01/22 AMT ..................................... Aaa/AAA 6,291,478
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- ----------------------------------------------------- ---------- -------------
HOUSING (CONTINUED)
Kentucky Housing Corporation Housing Revenue
(continued)
$ 4,065,000 5.250%, 07/01/22 AMT ..................................... Aaa/AAA $ 4,142,967
245,000 5.200%, 07/01/22 ......................................... Aaa/AAA 249,212
415,000 5.100%, 07/01/22 AMT ..................................... Aaa/AAA 421,013
4,140,000 5.200%, 07/01/25 AMT ..................................... Aaa/AAA 4,220,026
275,000 5.375%, 07/01/27 ......................................... Aaa/AAA 281,317
560,000 5.550%, 07/01/33 ......................................... Aaa/AAA 573,703
Kentucky Housing Corporation Housing Revenue
2,000,000 4.700%, 07/01/22 Series E AMT ........................... Aaa/AAA 1,961,820
1,000,000 4.750%, 07/01/27 Series E AMT ........................... Aaa/AAA 973,560
Kentucky Housing Multifamily Mortgage Revenue
1,325,000 5.000%, 06/01/35 AMT ..................................... NR/AAA 1,338,873
-------------
Total Housing ............................................ 28,667,065
-------------
Schools (30.5%)
Barren County, Kentucky School Building Revenue
1,265,000 4.250%, 08/01/25 CIFG Assurance North America,
Inc. Insured .......................................... Aaa/NR 1,208,024
1,670,000 4.375%, 08/01/26 CIFG Assurance North America,
Inc. Insured .......................................... Aaa/NR 1,614,339
Beechwood, Kentucky Independent School District
Finance Corp.
180,000 5.650%, 03/01/20 ......................................... Aa3/NR 189,209
Berea, Kentucky Educational Facilities Revenue
(Berea College)
1,000,000 4.125%, 06/01/25 ......................................... Aaa/NR 923,460
Boone County, Kentucky School District Finance Corp.
1,730,000 4.125%, 08/01/22 XLCA Insured ............................ Aaa/NR 1,657,669
Boone County, Kentucky School District Finance Corp.
School Building Revenue
285,000 5.700%, 02/01/16 ......................................... Aa3/NR 300,082
140,000 4.750%, 06/01/20 FSA Insured ............................. Aaa/AAA 142,754
1,000,000 5.375%, 08/01/20 FSA Insured ............................. Aaa/NR 1,051,460
1,580,000 4.500%, 08/01/23 FSA Insured ............................. Aaa/NR 1,586,968
1,250,000 4.125%, 03/01/25 FSA Insured ............................. Aaa/NR 1,148,400
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- ----------------------------------------------------- ---------- -------------
SCHOOLS (CONTINUED)
Boyd County, Kentucky School District Finance Corp.
$ 1,025,000 5.000%, 10/01/15 ......................................... Aa3/NR $ 1,047,909
575,000 5.375%, 10/01/17 ......................................... Aa3/NR 588,553
Bullitt County, Kentucky School District Finance Corp.
200,000 4.300%, 10/01/21 ......................................... Aaa/NR 196,228
2,455,000 4.500%, 10/01/22 MBIA Insured ............................ Aaa/NR 2,483,601
2,590,000 4.500%, 10/01/23 MBIA Insured ............................ Aaa/NR 2,615,356
Christian County, Kentucky School District
Finance Corp.
820,000 4.000%, 08/01/19 XLCA Insured ............................ Aaa/NR 795,498
855,000 4.000%, 08/01/20 XLCA Insured ............................ Aaa/NR 825,383
905,000 4.000%, 08/01/21 XLCA Insured ............................ Aaa/NR 869,135
1,465,000 4.000%, 08/01/22 XLCA Insured ............................ Aaa/NR 1,399,339
1,525,000 4.125%, 08/01/23 XLCA Insured ............................ Aaa/NR 1,453,310
1,590,000 4.125%, 08/01/24 XLCA Insured ............................ Aaa/NR 1,510,341
Daviess County, Kentucky School District Finance Corp.
200,000 5.000%, 06/01/24 ......................................... Aa3/NR 206,230
Fayette County, Kentucky School District Finance Corp.
5,000,000 4.250%, 04/01/23 FSA Insured ............................. Aaa/AAA 4,837,900
Floyd County, Kentucky School Building
680,000 4.375%, 10/01/22 ......................................... Aa3/NR 661,878
Floyd County, Kentucky School Finance Corporation
School Building
380,000 4.000%, 03/01/17 XLCA Insured ............................ Aaa/NR 374,296
1,320,000 4.000%, 03/01/23 XLCA Insured ............................ Aaa/NR 1,254,898
1,855,000 4.125%, 03/01/26 XLCA Insured ............................ Aaa/NR 1,747,577
Fort Thomas, Kentucky Independent School
District Finance
785,000 4.375%, 04/01/21 ......................................... Aa3/NR 767,895
Franklin County, Kentucky School District Finance Corp.
330,000 4.500%, 04/01/18 ......................................... Aa3/NR 334,000
1,000,000 5.000%, 04/01/24 ......................................... Aa3/NR 1,030,480
Graves County, Kentucky School Building Revenue
1,260,000 5.000%, 06/01/22 ......................................... Aa3/NR 1,300,874
1,320,000 5.000%, 06/01/23 ......................................... Aa3/NR 1,360,748
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- ----------------------------------------------------- ---------- -------------
SCHOOLS (CONTINUED)
Hardin County, Kentucky School District Finance Corp.
$ 1,475,000 4.000%, 02/01/19 AMBAC Insured ........................... Aaa/NR $ 1,432,328
Jefferson County, Kentucky School District Finance
Corp. School Building
250,000 5.250%, 07/01/16 FSA Insured ............................. Aaa/AAA 260,263
150,000 5.000%, 04/01/20 FSA Insured ............................. Aaa/AAA 155,177
1,360,000 4.250%, 06/01/21 FSA Insured ............................. Aaa/AAA 1,327,836
Kenton County, Kentucky School Building Revenue
590,000 4.250%, 10/10/22 FSA Insured ............................. Aaa/NR 563,592
Kenton County, Kentucky School District
955,000 5.000%, 04/01/16 ......................................... Aa3/NR 990,373
605,000 5.000%, 04/01/19 ......................................... Aa3/NR 624,777
Kenton County, Kentucky School District Finance Corp.
445,000 4.300%, 04/01/22 CIFG Assurance North America,
Inc. Insured .......................................... Aaa/NR 434,992
4,250,000 5.000%, 06/01/22 MBIA Insured ............................ Aaa/NR 4,423,358
750,000 4.375%, 04/01/24 CIFG Assurance North America,
Inc. Insured .......................................... Aaa/NR 734,693
325,000 4.400%, 04/01/26 CIFG Assurance North America,
Inc. Insured .......................................... Aaa/NR 319,280
Kentucky Economic Development Finance Authority
College Revenue Centre College
1,675,000 5.000%, 04/01/19 FSA Insured ............................. Aaa/AAA 1,735,736
Larue County, Kentucky School District Finance Corp.
270,000 4.500%, 07/01/21 MBIA Insured ............................ Aaa/NR 269,166
470,000 4.500%, 07/01/22 MBIA Insured ............................ Aaa/NR 469,488
785,000 4.500%, 07/01/23 MBIA Insured ............................ Aaa/NR 781,452
Lexington-Fayette Urban County, Kentucky
Government Project Transylvania University
1,320,000 5.125%, 08/01/18 MBIA Insured ............................ Aaa/AAA 1,349,581
Lexington-Fayette Urban County, Kentucky
Government Project U.K. Library
725,000 5.000%, 11/01/15 MBIA Insured ............................ Aaa/AAA 749,012
300,000 5.000%, 11/01/20 MBIA Insured ............................ Aaa/AAA 309,231
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- ----------------------------------------------------- ---------- -------------
SCHOOLS (CONTINUED)
Louisville & Jefferson County, Kentucky University
of Louisville
$ 500,000 5.000%, 06/01/19 AMBAC Insured ........................... Aaa/AAA $ 525,965
525,000 5.000%, 06/01/20 AMBAC Insured ........................... Aaa/AAA 551,182
Magoffin County, Kentucky School District
450,000 4.250%, 08/01/25 AMBAC Insured ........................... Aaa/NR 432,401
Meade County, Kentucky School District
490,000 4.250%, 09/01/26 MBIA Insured ............................ Aaa/NR 468,896
Oldham County, Kentucky School District
Finance Corp.
900,000 5.000%, 05/01/19 MBIA Insured ............................ Aaa/NR 941,184
Pendleton County, Kentucky School District
Finance Corp. School Building Revenue
730,000 4.000%, 02/01/23 MBIA Insured ........................... Aaa/NR 666,490
Scott County, Kentucky School District Finance Corp.
1,115,000 4.200%, 01/01/22 AMBAC Insured ........................... Aaa/NR 1,090,124
1,955,000 4.250%, 01/01/23 AMBAC Insured ........................... Aaa/NR 1,915,861
1,560,000 4.300%, 01/01/24 AMBAC Insured ........................... Aaa/NR 1,523,948
Scott County, Kentucky School District Finance Corp.
School Building Revenue
2,435,000 4.250%, 02/01/26 FSA Insured ............................. Aaa/NR 2,251,766
1,000,000 4.250%, 02/01/27 FSA Insured ............................. Aaa/NR 921,640
Spencer County, Kentucky School District
Finance Corp.
1,415,000 5.000%, 07/01/19 FSA insured ............................ Aaa/NR 1,481,194
University of Kentucky General Receipts
885,000 4.500%, 10/01/22 XLCA Insured ............................ Aaa/AAA 879,159
1,545,000 4.500%, 10/01/23 XLCA Insured ............................ Aaa/AAA 1,529,102
1,625,000 4.500%, 10/01/25 XLCA Insured ............................ Aaa/AAA 1,601,031
1,010,000 4.500%, 10/01/26 XLCA Insured ............................ Aaa/AAA 992,073
University of Louisville, Kentucky
1,055,000 4.000%, 09/01/25 MBIA Insured ............................ Aaa/AAA 975,147
Warren County, Kentucky School District Finance Corp.
295,000 4.125%, 02/01/23 MBIA Insured ............................ Aaa/NR 281,430
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- ----------------------------------------------------- ---------- -------------
SCHOOLS (CONTINUED)
Western Kentucky University Revenue General Receipts
$ 2,860,000 4.200%, 09/01/25 Series A MBIA Insured ................... Aaa/AAA $ 2,648,045
2,980,000 4.200%, 09/01/26 Series A MBIA Insured ................... Aaa/AAA 2,745,236
-------------
Total Schools 78,836,003
-------------
Transportation (7.0%)
Kenton County, Kentucky Airport Board
Airport Revenue
750,000 5.625%, 03/01/14 MBIA Insured AMT ........................ Aaa/AAA 793,748
1,000,000 5.500%, 03/01/17 MBIA Insured AMT ........................ Aaa/AAA 1,052,950
1,300,000 5.000%, 03/01/23 MBIA Insured AMT ........................ Aaa/AAA 1,324,908
Kentucky Interlocal School Transportation Authority
145,000 5.400%, 06/01/17 ......................................... Aa3/A+ 145,919
400,000 6.000%, 12/01/20 ......................................... Aa3/A+ 405,108
200,000 6.000%, 12/01/20 ......................................... Aa3/A+ 202,554
300,000 5.800%, 12/01/20 ......................................... Aa3/A+ 303,594
400,000 5.650%, 12/01/20 ......................................... Aa3/A+ 404,552
350,000 5.600%, 12/01/20 ......................................... Aa3/A+ 353,913
Kentucky State Turnpike Authority Economic
Development & Resource Recovery Road Revenue
1,000,000 5.625%, 07/01/12 FSA Insured (pre-refunded) .............. Aaa/AAA 1,054,760
200,000 5.625%, 07/01/13 FSA Insured (pre-refunded) .............. Aaa/AAA 210,952
500,000 5.625%, 07/01/14 FSA Insured (pre-refunded) .............. Aaa/AAA 527,380
450,000 5.250%, 07/01/15 FSA Insured (pre-refunded) .............. Aaa/AAA 469,188
2,000,000 5.100%, 07/01/18 FSA Insured ............................. Aaa/AAA 2,069,920
Louisville & Jefferson County Regional Airport, Kentucky
2,000,000 5.750%, 07/01/15 FSA Insured AMT ......................... Aaa/AAA 2,124,400
1,000,000 5.250%, 07/01/18 FSA Insured AMT ......................... Aaa/AAA 1,041,650
1,370,000 5.250%, 07/01/21 FSA Insured AMT ......................... Aaa/AAA 1,419,772
3,390,000 5.250%, 07/01/22 FSA Insured AMT ......................... Aaa/AAA 3,509,565
275,000 5.375%, 07/01/23 FSA Insured AMT ......................... Aaa/AAA 285,519
500,000 5.000%, 07/01/25 MBIA Insured AMT ........................ Aaa/AAA 507,055
-------------
Total Transportation 18,207,407
-------------
UTILITIES (15.3%)
Bardstown, Kentucky
200,000 5.000%, 12/01/19 MBIA Insured Aaa/NR 207,530
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- ----------------------------------------------------- ---------- -------------
UTILITIES (CONTINUED)
Boone County, Kentucky Pollution Control Revenue -
Dayton Power & Light
$ 2,000,000 4.700%, 01/01/28 FGIC Insured ............................ Aaa/AAA $ 1,997,380
Campbell & Kenton Counties, Kentucky Sanitation
District Revenue
1,695,000 4.300%, 08/01/24 MBIA Insured ............................ Aaa/AAA 1,635,268
300,000 4.300%, 08/01/27 MBIA Insured ............................ Aaa/AAA 282,645
1,450,000 4.300%, 08/01/28 MBIA Insured ............................ Aaa/AAA 1,361,826
805,000 4.375%, 08/01/30 MBIA Insured ............................ Aaa/AAA 758,632
505,000 4.375%, 08/01/33 MBIA Insured ............................ Aaa/AAA 471,827
Kentucky Rural Water Finance Corp.
205,000 4.250%, 08/01/19 MBIA Insured ............................ Aaa/AAA 202,706
595,000 5.000%, 02/01/20 AMBAC Insured ........................... Aaa/AAA 618,259
210,000 4.250%, 08/01/20 MBIA Insured ............................ Aaa/AAA 206,888
200,000 4.375%, 08/01/22 MBIA Insured ............................ Aaa/AAA 198,142
240,000 4.500%, 08/01/23 MBIA Insured ............................ Aaa/AAA 240,170
200,000 4.500%, 02/01/24 MBIA Insured ............................ Aaa/AAA 199,994
255,000 4.500%, 08/01/24 MBIA Insured ............................ Aaa/AAA 254,992
290,000 4.500%, 08/01/27 MBIA Insured ............................ Aaa/AAA 288,095
245,000 4.600%, 08/01/28 MBIA Insured ............................ Aaa/AAA 245,713
315,000 4.625%, 08/01/29 MBIA Insured ............................ Aaa/AAA 316,033
Lexington-Fayette Urban County Government,
Kentucky Sewer System
1,000,000 5.000%, 07/01/19 ......................................... Aa3/AA 1,038,320
Louisville & Jefferson County, Kentucky Metropolitan
Sewer District
1,000,000 5.000%, 05/15/12 FGIC Insured ............................ Aaa/AAA 1,019,280
2,565,000 5.375%, 05/15/17 MBIA Insured ............................ Aaa/AAA 2,730,545
2,380,000 4.250%, 05/15/20 FSA Insured ............................. Aaa/AAA 2,345,109
2,510,000 4.250%, 05/15/21 FSA Insured ............................. Aaa/AAA 2,450,739
400,000 5.000%, 05/15/22 FGIC Insured ............................ Aaa/AAA 407,028
Louisville, Kentucky Waterworks Board Water
System Revenue
1,000,000 5.250%, 11/15/16 FSA Insured ............................. Aaa/AAA 1,040,170
1,000,000 5.250%, 11/15/17 FSA Insured ............................. Aaa/AAA 1,039,220
2,530,000 5.250%, 11/15/18 FSA Insured ............................. Aaa/AAA 2,627,607
6,600,000 5.250%, 11/15/22 FSA Insured ............................. Aaa/AAA 6,842,022
2,415,000 5.250%, 11/15/24 FSA Insured ............................. Aaa/AAA 2,502,012
RATING
PRINCIPAL MOODY'S/
AMOUNT REVENUE BONDS (CONTINUED) S&P VALUE
- --------------- ----------------------------------------------------- ---------- -------------
Utilities (continued)
Northern Kentucky Water District
$ 660,000 5.000%, 02/01/23 FGIC Insured ............................ Aaa/NR $ 677,866
Owensboro, Kentucky Electric and Power
1,555,000 5.000%, 01/01/20 FSA Insured ............................. Aaa/AAA 1,591,682
Owensboro-Daviess County, Kentucky Regional
Water Resource Agency Wastewater Refunding &
Improvement Revenue
930,000 4.375%, 01/01/27 Series A XLCA Insured ................... NR/AAA 880,319
Trimble County, Kentucky Environmental
Facilities Revenue
3,000,000 4.600%, 06/01/33 AMBAC Insured ........................... Aaa/AAA 2,902,830
-------------
Total Utilities 39,580,849
-------------
Total Revenue Bonds 244,480,302
-------------
Total Investments (cost $256,550,581-note 4) .......... 99.1% 256,198,979
Other assets less liabilities ......................... 0.9 2,397,189
----- -------------
Net Assets ............................................ 100.0% $ 258,596,168
===== =============
PERCENT OF
PORTFOLIO DISTRIBUTION BY QUALITY RATING (UNAUDITED) PORTFOLIO
---------------------------------------------------- ---------
Aaa of Moody's or AAA of S&P .................. 78.1%
Aa of Moody's or AA of S&P .................... 14.0
A of Moody's or S&P ........................... 7.9
-----
100.0%
=====
PORTFOLIO ABBREVIATIONS:
--------------------------------------------------------------------
AMBAC - American Municipal Bond Assurance Corp.
AMT - Alternative Minimum Tax
CIFG - CDC IXIS Financial Guaranty
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
XLCA - XL Capital Assurance
See accompanying notes to financial statements.
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2007 (unaudited)
ASSETS
Investments at value (cost $256,550,581) .............................................................. $ 256,198,979
Interest receivable ................................................................................... 3,600,774
Receivable for Fund shares sold ....................................................................... 36,871
Other assets .......................................................................................... 13,455
-------------
Total assets .......................................................................................... 259,850,079
-------------
LIABILITIES
Cash overdraft .......................................................................................... 411,771
Payable for Fund shares redeemed ........................................................................ 436,004
Dividends payable ....................................................................................... 277,147
Management fee payable .................................................................................. 85,493
Distribution and service fees payable ................................................................... 26,897
Accrued expenses ........................................................................................ 16,599
-------------
Total liabilities ....................................................................................... 1,253,911
-------------
NET ASSETS ................................................................................................. $ 258,596,168
=============
Net Assets consist of:
Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share ..................... $ 250,662
Additional paid-in capital .............................................................................. 256,294,732
Net unrealized depreciation on investments (note 4) ..................................................... (351,602)
Undistributed net investment income ..................................................................... 432,845
Accumulated net realized gain on investments ............................................................ 1,969,531
-------------
$ 258,596,168
=============
CLASS A
Net Assets .............................................................................................. $ 200,032,187
=============
Capital shares outstanding .............................................................................. 19,391,126
=============
Net asset value and redemption price per share .......................................................... $ 10.32
=============
Offering price per share (100/96 of $10.32 adjusted to nearest cent) .................................... $ 10.75
=============
CLASS C
Net Assets .............................................................................................. $ 5,364,894
=============
Capital shares outstanding .............................................................................. 520,334
=============
Net asset value and offering price per share ............................................................ $ 10.31
=============
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) ........................................................... $ 10.31*
=============
CLASS I
Net Assets .............................................................................................. $ 8,189,745
=============
Capital shares outstanding .............................................................................. 794,306
=============
Net asset value, offering and redemption price per share ................................................ $ 10.31
=============
CLASS Y
Net Assets .............................................................................................. $ 45,009,342
=============
Capital shares outstanding .............................................................................. 4,360,439
=============
Net asset value, offering and redemption price per share ................................................ $ 10.32
=============
See accompanying notes to financial statements.
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2007 (unaudited)
Investment Income:
Interest income .............................................................. $ 5,988,089
Expenses:
Management fee (note 3) ...................................................... $ 532,697
Distribution and service fees (note 3) ....................................... 190,643
Transfer and shareholder servicing agent fees (note 3) ....................... 83,485
Trustees' fees and expenses (note 8) ......................................... 58,214
Shareholders' reports and proxy statements ................................... 21,169
Legal fees (note 3) .......................................................... 19,573
Fund accounting fees ......................................................... 18,433
Custodian fees ............................................................... 9,537
Insurance .................................................................... 9,519
Auditing and tax fees ........................................................ 9,423
Registration fees and dues ................................................... 6,182
Chief compliance officer (note 3) ............................................ 2,253
Miscellaneous ................................................................ 13,245
--------------
Total expenses ............................................................... 974,373
Expenses paid indirectly (note 6) ............................................ (8,183)
--------------
Net expenses ................................................................. 966,190
--------------
Net investment income ........................................................ 5,021,899
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) from securities transactions ........................ 481,409
Change in unrealized appreciation on investments ............................. (7,410,992)
--------------
Net realized and unrealized gain (loss) on investments ....................... (6,929,583)
--------------
Net change in net assets resulting from operations ........................... $ (1,907,684)
==============
See accompanying notes to financial statements.
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED
JUNE 30, 2007 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2006
----------------- -----------------
OPERATIONS:
Net investment income ....................................................... $ 5,021,899 $ 10,338,414
Net realized gain (loss) from securities transactions ....................... 481,409 1,488,134
Change in unrealized appreciation on investments ............................ (7,410,992) (1,028,674)
------------- -------------
Change in net assets from operations ...................................... (1,907,684) 10,797,874
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (note 10):
Class A Shares:
Net investment income ......................................................... (3,888,093) (8,091,702)
Net realized gain on investments .............................................. -- (683,967)
Class C Shares:
Net investment income ......................................................... (80,697) (182,422)
Net realized gain on investments .............................................. -- (18,381)
Class I Shares:
Net investment income ......................................................... (144,190) (280,046)
Net realized gain on investments .............................................. -- (25,907)
Class Y Shares:
Net investment income ......................................................... (904,346) (1,790,592)
Net realized gain on investments .............................................. -- (150,999)
------------- -------------
Change in net assets from distributions .................................... (5,017,326) (11,224,016)
------------- -------------
CAPITAL SHARE TRANSACTIONS (note 7):
Proceeds from shares sold ..................................................... 42,657,088 23,546,485
Reinvested dividends and distributions ........................................ 2,013,687 4,954,954
Cost of shares redeemed ....................................................... (50,979,469) (42,932,145)
------------- -------------
Change in net assets from capital share transactions .......................... (6,308,694) (14,430,706)
------------- -------------
Change in net assets .......................................................... (13,233,704) (14,856,848)
NET ASSETS:
Beginning of period ........................................................... 271,829,872 286,686,720
------------- -------------
End of period* ................................................................ $ 258,596,168 $ 271,829,872
============= =============
* Includes undistributed net investment income of: ............................ $ 432,845 $ 428,272
============= =============
See accompanying notes to financial statements.
CHURCHILL TAX-FREE FUND OF KENTUCKY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007 (unaudited)
1. ORGANIZATION
Churchill Tax-Free Fund of Kentucky (the "Fund"), a non-diversified,
open-end investment company, was organized in March, 1987 as a Massachusetts
business trust and commenced operations on May 21, 1987. The Fund is authorized
to issue an unlimited number of shares and, since its inception to April 1,
1996, offered only one class of shares. On that date, the Fund began offering
two additional classes of shares, Class C and Class Y shares. All shares
outstanding prior to that date were designated as Class A shares and are sold
with a front-payment sales charge and bear an annual distribution fee. Class C
shares are sold with a level-payment sales charge with no payment at time of
purchase but level service and distribution fees from date of purchase through a
period of six years thereafter. A contingent deferred sales charge of 1% is
assessed to any Class C shareholder who redeems shares of this Class within one
year from the date of purchase. Class C Shares together with a pro-rata portion
of all Class C Shares acquired through reinvestment of dividends and other
distributions paid in additional Class C Shares, automatically convert to Class
A Shares after 6 years. The Class Y shares are only offered to institutions
acting for an investor in a fiduciary, advisory, agency, custodian or similar
capacity and are not offered directly to retail investors. Class Y shares are
sold at net asset value without any sales charge, redemption fees, contingent
deferred sales charge or distribution or service fees. On April 30, 1998, the
Fund established Class I shares, which are offered and sold only through
financial intermediaries and are not offered directly to retail investors. Class
I Shares are sold at net asset value without any sales charge, redemption fees,
or contingent deferred sales charge. Class I shares carry a distribution fee and
a service fee. All classes of shares represent interests in the same portfolio
of investments and are identical as to rights and privileges but differ with
respect to the effect of sales charges, the distribution and/or service fees
borne by each class, expenses specific to each class, voting rights on matters
affecting a single class and the exchange privileges of each class.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with accounting principles generally accepted in the United States of
America for investment companies.
a) PORTFOLIO VALUATION: Municipal securities which have remaining maturities
of more than 60 days are valued each business day based upon information
provided by a nationally prominent independent pricing service and
periodically verified through other pricing services. In the case of
securities for which market quotations are readily available, securities
are valued by the pricing service at the mean of bid and asked quotations.
If market quotations or a valuation from the pricing service is not
readily available, the security is valued at fair value determined in good
faith 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.
f) RECLASSIFICATION OF CAPITAL ACCOUNTS: Accounting principles generally
accepted in the United States of America require that certain components
of net assets relating to permanent differences be reclassified between
financial and tax reporting. These reclassifications have no effect on net
assets or net asset value per share. On December 31, 2006 the Fund
increased undistributed net realized gain on investments by $4,967 and
decreased additional paid-in capital by $4,967.
g) ACCOUNTING PRONOUNCEMENTS: In July 2006, the Financial Accounting
Standards Board ("FASB") released FASB Interpretation No. 48 "Accounting
for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides guidance for
how uncertain tax positions should be recognized, measured, presented and
disclosed in the financial statements. FIN 48 required the evaluation of
tax positions taken or expected to be taken in the course of preparing the
Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority.
Tax positions not deemed to meet the more-likely-than-not threshold would
have been recorded as a tax benefit or expense in the current year. FIN 48
was effective for the Fund on June 29, 2007 and there were no uncertain
tax positions to be reflected in the Fund's financial statements at June
30, 2007.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value
Measurement" ("SFAS 157"), which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair
value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Fund
believes adoption of SFAS 157 will have no material impact on the Fund's
financial statements.
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 a 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 six months ended June 30, 2007, distribution fees on Class A
Shares amounted to $154,951 of which the Distributor retained $5,381.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Fund's Class C shares or
servicing of shareholder accounts. These payments are made at the annual rate of
0.75% of the Fund's average net assets represented by Class C Shares and for the
six months ended June 30, 2007, amounted to $20,798. In addition, under a
Shareholder Services Plan, the Fund is authorized to make service fee payments
with respect to Class C Shares to Qualified Recipients for providing personal
services and/or maintenance of shareholder accounts. These payments are made at
the annual rate of 0.25% of the Fund's average net assets represented by Class C
Shares and for the six months ended June 30, 2007, amounted to $6,933. The total
of these payments with respect to Class C Shares amounted to $27,731 of which
the Distributor retained $7,072.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class I Shares to Qualified Recipients. Class I payments, under
the Plan, may not exceed for any fiscal year of the Fund a rate (currently
0.20%), set from time to time by the Board of Trustees, of not more than 0.25%
of the average annual net assets represented by the Class I Shares. In addition,
Class I has a Shareholder Services Plan under which it may pay service fees
(currently 0.15%) of not more than 0.25% of the average annual net assets
represented by Class I Shares. That is, the total payments under both plans will
not exceed 0.50% of such net assets. For the six months ended June 30, 2007,
these payments were made at the average annual rate of 0.35% of such net assets
and amounted to $13,932 of which $7,961 related to the Plan and $5,971 related
to the Shareholder Services Plan.
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, the Distributor serves as the exclusive
distributor of the Fund's shares. Through agreements between the Distributor and
various broker-dealer firms ("dealers"), the Fund's shares are sold primarily
through the facilities of these dealers having offices within Kentucky, with the
bulk of sales commissions inuring to such dealers. For the six months ended June
30, 2007, total commissions on sales of Class A Shares amounted to $63,166 of
which the Distributor received $5,469.
c) OTHER RELATED PARTY TRANSACTIONS:
For the six months ended June 30, 2007, the Fund incurred $18,865 of legal
fees allocable to Hollyer Brady Barrett & Hines LLP ("Hollyer Brady") and its
successor, Butzel Long PC, counsel to the Fund, for legal services in
conjunction with the Fund's ongoing operations. The Secretary of the Fund was a
partner at Hollyer Brady and is a shareholder of its successor.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended June 30, 2007, purchases of securities and
proceeds from the sales of securities aggregated $31,729,178 and $36,902,753,
respectively.
At June 30, 2007 the aggregate tax cost for all securities was
$256,534,287. At June 30, 2007, the aggregate gross unrealized appreciation for
all securities in which there is an excess of value over tax cost amounted to
$2,662,864 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $2,998,172 for a net
unrealized depreciation of $335,308.
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.
7. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
SIX MONTHS ENDED
JUNE 30, 2007 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2006
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
CLASS A SHARES:
Proceeds from shares sold ................... 659,324 $ 6,943,473 1,487,718 $ 15,671,235
Reinvested distributions .................... 173,252 1,818,247 412,423 4,351,152
Cost of shares redeemed ..................... (1,417,461) (14,859,177) (3,039,963) (32,001,358)
------------ ------------ ------------ ------------
Net change ............................... (584,885) (6,097,457) (1,139,822) (11,978,971)
------------ ------------ ------------ ------------
CLASS C SHARES:
Proceeds from shares sold ................... 68,839 724,237 42,869 453,039
Reinvested distributions .................... 4,632 48,585 12,141 128,026
Cost of shares redeemed ..................... (90,399) (949,076) (206,398) (2,171,663)
------------ ------------ ------------ ------------
Net change ............................... (16,928) (176,254) (151,388) (1,590,598)
------------ ------------ ------------ ------------
CLASS I SHARES:
Proceeds from shares sold ................... 51,282 540,000 -- --
Reinvested distributions .................... 9,954 104,749 25,480 268,623
Cost of shares redeemed ..................... (24,629) (259,628) (690) (7,267)
------------ ------------ ------------ ------------
Net change ............................... 36,607 385,121 24,790 261,356
------------ ------------ ------------ ------------
CLASS Y SHARES:
Proceeds from shares sold ................... 3,277,209 34,449,378 704,473 7,422,211
Reinvested distributions .................... 3,996 42,106 19,553 207,153
Cost of shares redeemed ..................... (3,321,609) (34,911,588) (831,561) (8,751,857)
------------ ------------ ------------ ------------
Net change ............................... (40,404) (420,104) (107,535) (1,122,493)
------------ ------------ ------------ ------------
Total transactions in Fund
shares ...................................... (605,610) $ (6,308,694) (1,373,955) $(14,430,706)
============ ============ ============ ============
8. TRUSTEES' FEES AND EXPENSES
At June 30, 2007 there were 6 Trustees, one of which is affiliated with
the Manager and is not paid any fees. The total amount of Trustees' service and
attendance fees paid during the six months ended June 30, 2007 was $44,035 to
cover carrying out their responsibilities and attendance at regularly scheduled
quarterly Board Meetings and meetings of the Independent Trustees held prior to
each quarterly Board Meeting. When additional or special meetings are held, the
meeting fees are paid to those Trustees in attendance. Trustees are reimbursed
for their expenses such as travel, accommodations, and meals incurred in
connection with attendance at Board Meetings and the Annual Meeting of
Shareholders. For the six months ended June 30, 2007, such meeting-related
expenses amounted to $14,179.
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.
The tax character of distributions:
Year Ended December 31,
2006 2005
----------- -----------
Net tax-exempt income $ 10,343,290 $ 10,817,058
Ordinary income 1,472 73,362
Net realized gain on investments 879,254 --
------------ ------------
$ 11,224,016 $ 10,890,420
============ ============
As of December 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Accumulated net realized gain $ 1,487,104
Unrealized appreciation 7,069,211
Undistributed tax-exempt income 419,469
-------------
$ 8,975,784
=============
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to premium/discount adjustments.
11. RECENT DEVELOPMENTS
In late May, 2007, the U. S. Supreme Court agreed to hear an appeal in
Department of Revenue of Kentucky v. Davis, a case concerning the
constitutionality of differential tax treatment for interest from in-state vs.
out-of-state municipal securities, a practice which is common among the majority
of the states. If the U.S. Supreme Court affirms the prior decision, Kentucky
(and all other states that differentially tax interest on municipal bonds) may
then be required to accord equal income tax treatment to all municipal bond
interest. While it is impossible to predict the consequences of such an outcome,
they may include effects on the net asset values of the shares, and/or on the
tax treatment of the dividends, of some or all single-state municipal bond
funds, including the Fund. The case is expected to be heard and decided during
the U.S. Supreme Court's October 2007 - April 2008 term, with a decision likely
to be handed down in 2008.
CHURCHILL TAX-FREE FUND OF KENTUCKY
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
Class A
----------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/07 -------------------------------------------------------------
(unaudited) 2006 2005 2004 2003 2002
------------ --------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 10.59 $ 10.60 $ 10.74 $ 10.69 $ 10.66 $ 10.31
--------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income+ ................. 0.20 0.39 0.39 0.42 0.44 0.47
Net gain (loss) on securities (both
realized and unrealized) ............. (0.27) 0.03 (0.14) 0.05 0.03 0.35
--------- --------- --------- --------- --------- ---------
Total from investment operations ....... (0.07) 0.42 0.25 0.47 0.47 0.82
--------- --------- --------- --------- --------- ---------
Less distributions (note 10):
Dividends from net investment income ... (0.20) (0.40) (0.39) (0.42) (0.44) (0.47)
Distributions from capital gains ....... -- (0.03) -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions .................... (0.20) (0.43) (0.39) (0.42) (0.44) (0.47)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 10.32 $ 10.59 $ 10.60 $ 10.74 $ 10.69 $ 10.66
========= ========= ========= ========= ========= =========
Total return (not reflecting sales charge) (0.72)%* 4.02% 2.39% 4.49% 4.50% 8.15%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 200,032 $ 211,501 $ 223,811 $ 232,927 $ 229,176 $ 226,014
Ratio of expenses to average
net assets ........................... 0.74%** 0.76% 0.77% 0.73% 0.72% 0.72%
Ratio of net investment income to
average net assets ................... 3.76%** 3.71% 3.66% 3.96% 4.14% 4.82%
Portfolio turnover rate ................ 11.88%* 19.07% 24.87% 14.31% 17.92% 18.27%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average
net assets ........................... 0.73%** 0.76% 0.76% 0.73% 0.71% 0.71%
Class C
-----------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/07 -------------------------------------------------------------
(unaudited) 2006 2005 2004 2003 2002
----------- --------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 10.58 $ 10.59 $ 10.73 $ 10.69 $ 10.66 $ 10.31
--------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income+ ................. 0.15 0.30 0.30 0.33 0.35 0.38
Net gain (loss) on securities (both
realized and unrealized) ............. (0.27) 0.03 (0.14) 0.04 0.03 0.35
--------- --------- --------- --------- --------- ---------
Total from investment operations ....... (0.12) 0.33 0.16 0.37 0.38 0.73
--------- --------- --------- --------- --------- ---------
Less distributions (note 10):
Dividends from net investment income ... (0.15) (0.31) (0.30) (0.33) (0.35) (0.38)
Distributions from capital gains ....... -- (0.03) -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions .................... (0.15) (0.34) (0.30) (0.33) (0.35) (0.38)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 10.31 $ 10.58 $ 10.59 $ 10.73 $ 10.69 $ 10.66
========= ========= ========= ========= ========= =========
Total return (not reflecting sales charge) (1.13)%* 3.15% 1.53% 3.51% 3.62% 7.23%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 5,365 $ 5,686 $ 7,296 $ 8,166 $ 7,197 $ 4,804
Ratio of expenses to average
net assets ........................... 1.59%** 1.62% 1.62% 1.58% 1.57% 1.56%
Ratio of net investment income to
average net assets ................... 2.91%** 2.87% 2.81% 3.11% 3.26% 3.62%
Portfolio turnover rate ................ 11.88%* 19.07% 24.87% 14.31% 17.92% 18.27%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average
net assets ........................... 1.58%** 1.61% 1.61% 1.58% 1.56% 1.55%
- ----------
+ Per share amounts have been calculated using the monthly average shares
method.
* Not annualized.
** Annualized.
See accompanying notes to financial statements.
CHURCHILL TAX-FREE FUND OF KENTUCKY
FINANCIAL HIGHLIGHTS (continued)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Class I
---------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/07 -------------------------------------------------------------
(unaudited) 2006 2005 2004 2003 2002
----------- --------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 10.58 $ 10.59 $ 10.73 $ 10.69 $ 10.66 $ 10.31
--------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income+ ................. 0.19 0.38 0.38 0.41 0.43 0.46
Net gain (loss) on securities (both
realized and unrealized) ............. (0.27) 0.02 (0.14) 0.03 0.02 0.35
--------- --------- --------- --------- --------- ---------
Total from investment operations ....... (0.08) 0.40 0.24 0.44 0.45 0.81
--------- --------- --------- --------- --------- ---------
Less distributions (note 10):
Dividends from net investment income ... (0.19) (0.38) (0.38) (0.40) (0.42) (0.46)
Distributions from capital gains ....... -- (0.03) -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions .................... (0.19) (0.41) (0.38) (0.40) (0.42) (0.46)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 10.31 $ 10.58 $ 10.59 $ 10.73 $ 10.69 $ 10.66
========= ========= ========= ========= ========= =========
Total return (not reflecting sales charge) (0.79)%* 3.87% 2.24% 4.24% 4.33% 7.98%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 8,190 $ 8,018 $ 7,764 $ 7,564 $ 4,438 $ 2,407
Ratio of expenses to average
net assets ........................... 0.88%** 0.91% 0.92% 0.89% 0.88% 0.87%
Ratio of net investment income to
average net assets ................... 3.62%** 3.57% 3.52% 3.79% 3.95% 4.32%
Portfolio turnover rate ................ 11.88%* 19.07% 24.87% 14.31% 17.92% 18.27%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average
net assets ........................... 0.87%** 0.90% 0.91% 0.89% 0.87% 0.86%
Class Y
----------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
6/30/07 -------------------------------------------------------------
(unaudited) 2006 2005 2004 2003 2002
----------- --------- --------- --------- --------- ---------
Net asset value, beginning of period ..... $ 10.59 $ 10.61 $ 10.75 $ 10.70 $ 10.67 $ 10.32
--------- --------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income+ ................. 0.20 0.41 0.41 0.44 0.46 0.49
Net gain (loss) on securities (both
realized and unrealized) ............. (0.27) 0.01 (0.14) 0.05 0.03 0.35
--------- --------- --------- --------- --------- ---------
Total from investment operations ....... (0.07) 0.42 0.27 0.49 0.49 0.84
--------- --------- --------- --------- --------- ---------
Less distributions (note 10):
Dividends from net investment income ... (0.20) (0.41) (0.41) (0.44) (0.46) (0.49)
Distributions from capital gains ....... -- (0.03) -- -- -- --
--------- --------- --------- --------- --------- ---------
Total distributions .................... (0.20) (0.44) (0.41) (0.44) (0.46) (0.49)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ........... $ 10.32 $ 10.59 $ 10.61 $ 10.75 $ 10.70 $ 10.67
========= ========= ========= ========= ========= =========
Total return (not reflecting sales charge) (0.64)%* 4.08% 2.55% 4.65% 4.65% 8.30%
Ratios/supplemental data
Net assets, end of period
(in thousands) ....................... $ 45,009 $ 46,625 $ 47,816 $ 48,795 $ 46,313 $ 41,223
Ratio of expenses to average
net assets ........................... 0.59%** 0.61% 0.62% 0.58% 0.57% 0.57%
Ratio of net investment income to
average net assets ................... 3.91%** 3.86% 3.81% 4.11% 4.28% 4.63%
Portfolio turnover rate ................ 11.88%* 19.07% 24.87% 14.31% 17.92% 18.27%
The expense ratios after giving effect to the expense offset for uninvested cash balances were:
Ratio of expenses to average
net assets ........................... 0.58%** 0.61% 0.61% 0.58% 0.56% 0.56%
- ----------
+ 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 table below is 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 table below is based on an investment of $1,000 invested on January 1,
2007 and held for the six months ended June 30, 2007.
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".
SIX MONTHS ENDED JUNE 30, 2007
ACTUAL
TOTAL RETURN BEGINNING ENDING EXPENSES
WITHOUT ACCOUNT ACCOUNT PAID DURING
SALES CHARGES(1) VALUE VALUE THE PERIOD(2)
- --------------------------------------------------------------------------------
Class A (0.72)% $1,000.00 $992.80 $3.61
- --------------------------------------------------------------------------------
Class C (1.13)% $1,000.00 $988.70 $7.79
- --------------------------------------------------------------------------------
Class I (0.79)% $1,000.00 $992.10 $4.30
- --------------------------------------------------------------------------------
Class Y (0.64)% $1,000.00 $993.60 $2.87
- --------------------------------------------------------------------------------
(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 0.73%, 1.58%, 0.87%
AND 0.58% FOR THE FUND'S CLASS A, C, I AND Y SHARES, RESPECTIVELY,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
181/365 (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.
SIX MONTHS ENDED JUNE 30, 2007
HYPOTHETICAL
ANNUALIZED BEGINNING ENDING EXPENSES
TOTAL ACCOUNT ACCOUNT PAID DURING
RETURN VALUE VALUE THE PERIOD(1)
- --------------------------------------------------------------------------------
Class A 5.00% $1,000.00 $1,021.17 $3.66
- --------------------------------------------------------------------------------
Class C 5.00% $1,000.00 $1,016.96 $7.90
- --------------------------------------------------------------------------------
Class I 5.00% $1,000.00 $1,020.48 $4.36
- --------------------------------------------------------------------------------
Class Y 5.00% $1,000.00 $1,021.92 $2.91
- --------------------------------------------------------------------------------
(1) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF 0.73%, 1.58%, 0.87%
AND 0.58% FOR THE FUND'S CLASS A, C, I AND Y SHARES, RESPECTIVELY,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMATION AVAILABLE (UNAUDITED)
Much of the information that the funds in the Aquila Group of Fundssm
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
(http://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 http://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 (UNAUDITED)
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, 2007 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.
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING RESULTS (UNAUDITED)
The Annual Meeting of Shareholders of Churchill Tax-Free Fund of Kentucky
(the "Fund") was held on April 27, 2007. The holders of shares representing 85%
of the total net asset value of the shares entitled to vote were present in
person or by proxy. At the meeting, the following matters were voted upon and
approved by the shareholders (the resulting votes are presented below).
1. To elect Trustees.
DOLLAR AMOUNT OF VOTES
----------------------
TRUSTEE FOR WITHHELD
------- --- --------
Thomas A. Christopher $229,290,668 $1,685,782
Diana P. Herrmann $229,439,122 $1,537,329
Timothy J. Leach $229,332,067 $1,644,384
Theodore T. Mason $229,232,065 $1,744,386
Anne J. Mills $229,343,471 $1,632,991
James R. Ramsey $228,254,456 $2,721,995
2. To ratify the selection of Tait, Weller & Baker LLP as the Fund's independent
registered public accounting firm.
DOLLAR AMOUNT OF VOTES
----------------------
FOR AGAINST ABSTAIN
--- ------- -------
$228,502,912 $662,928 $1,809,979
ADDITIONAL INFORMATION (UNAUDITED)
RENEWAL OF THE ADVISORY AND ADMINISTRATION AGREEMENT
Renewal until June 30, 2008 of the Advisory and Administration Agreement
(the "Advisory Agreement") between the Fund and the Manager was approved by the
Board of Trustees and the independent Trustees in June, 2007. At a meeting
called and held for that purpose at which a majority of the independent Trustees
were present in person, the following materials were considered:
o Copies of the agreement to be renewed;
o A term sheet describing the material terms of the agreement;
o The Annual Report of the Fund for the year ended December 31, 2006;
o A report, prepared by the Manager and provided to the Trustees in
advance of the meeting for the Trustees' review, containing data
about the performance of the Fund, data about its fees, expenses and
purchases and redemptions of capital stock together with comparisons
of such data with similar data about other comparable funds, as well
as data as to the profitability of the Manager; and
o Quarterly materials reviewed at prior meetings on the Fund's
performance, operations, portfolio and compliance.
The Trustees reviewed materials relevant to, and considered the following
factors:
THE NATURE, EXTENT, AND QUALITY OF THE SERVICES PROVIDED BY THE MANAGER.
The Manager has provided local management of the Fund's portfolio. The
Trustees noted that the Manager employed Thomas S. Albright as portfolio manager
for the Fund and has established facilities for credit analysis of the Fund's
portfolio securities. Mr. Albright, based in Louisville, has provided local
information regarding specific holdings in the Fund's portfolio. The portfolio
manager has also been available to and has met with the brokerage and financial
planner community and with investors and prospective investors to provide them
with information generally about the Fund's portfolio, with which to assess the
Fund as an investment vehicle for residents of Kentucky in light of prevailing
interest rates and local economic conditions.
The Board considered that the Manager had provided all services the Board
deemed necessary or appropriate, including the specific services that the Board
has determined are required for the Fund, given that its purpose is to provide
shareholders with as high a level of current income exempt from Kentucky state
and regular Federal income taxes as is consistent with preservation of capital.
The Manager has additionally provided all administrative services to the
Fund. The Board considered the nature and extent of the Manager's supervision of
third-party service providers, including the Fund's shareholder servicing agent
and custodian. The Board considered that the Manager had established and
maintained a strong culture of ethical conduct and regulatory compliance.
The Board concluded that the services provided were appropriate and
satisfactory and that the Fund would be well served if they continued.
Evaluation of this factor weighed in favor of renewal of the Advisory Agreement.
THE INVESTMENT PERFORMANCE OF THE FUND AND THE MANAGER.
The Board reviewed each aspect of the Fund's performance and compared its
performance with that of its local competitors, with national averages and the
benchmark index. It was noted that the materials provided by the Manager
indicated that compared to the largest competitive Kentucky funds, the Fund has
had investment performance that is generally comparable to that of its peers for
the one- five- and ten-year periods, with lower investment performance explained
by the Fund's generally higher-quality portfolio and generally shorter average
maturities.
The Board concluded that the performance of the Fund was acceptable in
light of market conditions, the length of its average maturities, its investment
objectives and its long-standing emphasis on minimizing risk. Evaluation of this
factor indicated to the Trustees that renewal of the Advisory Agreement would be
appropriate.
THE COSTS OF THE SERVICES TO BE PROVIDED AND PROFITS TO BE REALIZED BY THE
MANAGER AND ITS AFFILIATE FROM THE RELATIONSHIP WITH THE FUND.
The information provided in connection with renewal contained expense data
for the Fund and its competitors as well as data for all single-state tax-free
municipal bond funds nationwide, including data for all such front-end load
funds of a comparable asset size. The materials also showed the profitability to
the Manager of its services to the Fund.
The Board compared the expense and fee data with respect to the Fund to
similar data about other funds that it found to be relevant. The Board concluded
that the expenses of the Fund and the fees paid were similar to and were
reasonable as compared to those being paid by single-state tax-free municipal
bond funds nationwide, and by the Fund's local competitors, all of which had
higher management fees except for one.
The Board further concluded that the profitability to the Manager and the
Distributor did not argue against approval of the fees to be paid under the
Advisory Agreement.
THE EXTENT TO WHICH ECONOMIES OF SCALE WOULD BE REALIZED AS THE FUND GROWS.
Data provided to the Trustees showed that the Fund's asset size had
declined in recent years. They concluded that the recent increases in prevailing
interest rates and the possibility of further increases might make it difficult
to achieve substantial growth in assets in the near future. The Trustees also
noted that the materials indicated that the Fund's fees were already generally
lower than those of its peers, including those with breakpoints. Evaluation of
this factor indicated to the Board that the Advisory Agreement should be renewed
without addition of breakpoints at this time.
BENEFITS DERIVED OR TO BE DERIVED BY THE MANAGER AND ITS AFFILIATE FROM THE
RELATIONSHIP WITH THE FUND.
The Board observed that, as is generally true of most fund complexes, the
Manager and its affiliate, by providing services to a number of funds or other
investment clients including the Fund, were able to spread costs as they would
otherwise be unable to do. The Board noted that while that produces efficiencies
and increased profitability for the Manager and its affiliate, it also makes
their services available to the Fund at favorable levels of quality and cost
which are more advantageous to the Fund than would otherwise have been possible.
(THIS PAGE INTENTIONALLY LEFT BLANK)
Founders
Lacy B. Herrmann, Chairman Emeritus
Aquila Management Corporation
MANAGER
AQUILA INVESTMENT MANAGEMENT LLC
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Thomas A. Christopher, Chair
Diana P. Herrmann
Timothy J. Leach
Theodore T. Mason
Anne J. Mills
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
Robert W. Anderson, Chief Compliance Officer
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
TRANSFER AND SHAREHOLDER SERVICING AGENT
PFPC INC.
101 Sabin Street
Pawtucket, RI 02860
CUSTODIAN
JPMorgan Chase Bank, N.A.
1111 Polaris Parkway
Columbus, Ohio 43240
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Further information is contained in the Prospectus, which must precede or
accompany this report.
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included in Item 1 above
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Directors of the Registrant has adopted a Nominating
Committee Charter which provides that the Nominating Committee (the 'Committee')
may consider and evaluate nominee candidates properly submitted by shareholders
if a vacancy among the Independent Trustees of the Registrant occurs and if,
based on the Board's then current size, composition and structure, the Committee
determines that the vacancy should be filled. The Committee will consider
candidates submitted by shareholders on the same basis as it considers and
evaluates candidates recommended by other sources. A copy of the qualifications
and procedures that must be met or followed by shareholders to properly submit
a nominee candidate to the Committee may be obtained by submitting a request
in writing to the Secretary of the Registrant.
ITEM 11. 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 filing 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 12. EXHIBITS.
(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
September 6, 2007
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Chief Financial Officer and Treasurer
September 6, 2007
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
September 6, 2007
By: /s/ Joseph P. DiMaggio
- - - -----------------------------------
Joseph P. DiMaggio
Chief Financial Officer and Treasurer
September 6, 2007
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.