INVESTMENT ADVISER
BANC ONE INVESTMENT ADVISORS CORPORATION
416 West Jefferson Street
Louisville, Kentucky 40202
ADMINISTRATOR AND FOUNDER
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Thomas A. Christopher
Douglas Dean
Diana P. Herrmann
Ann R. Leven
Theodore T. Mason
Anne J. Mills
William J. Nightingale
James R. Ramsey
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Senior Vice President
Teresa M. Priest, Vice President
L. Michele Robbins, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, 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.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
ADMINISTRATIVE DATA
MANAGEMENT CORP.
581 Main Street
Woodbridge, New Jersey 07095-1198
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
SEMI-ANNUAL
REPORT
JUNE 30, 1997
AQUILA
[Logo of Aquila Group of Funds: an eagle's head]
A TAX-FREE INCOME INVESTMENT
CHURCHILL
TAX-FREE FUND OF
KENTUCKY
[Logo for Churchill Tax-Free Fund of Kentucky: a standing pegasus with a
circle around it]
ONE OF THE
AQUILASM GROUP OF FUNDS
<PAGE>
[Logo for Churchill Tax-Free Fund of Kentucky: a standing pegasus with a
circle around it]
CHURCHILL TAX-FREE FUND OF KENTUCKY
SEMI-ANNUAL REPORT
"INCREASED SAFETY IN NUMBERS"
August 15, 1997
Dear Investor:
A childhood lesson that is often imparted generation after
generation is "don't wander off by yourself - stick with the crowd." The
underlying premise is that there is "safety in numbers."
The idea of increased safety in numbers is also very appropriate
when discussing municipal bond funds. In fact, one of the most significant
benefits gained by owning shares of a municipal bond mutual fund is that of
"numbers."
Participating in the ownership of many different issues through
such a fund is generally less risky than purchasing individual issues.
Instead of having your money ride on a handful of securities, you can spread
the risk over a larger number of issues. And, you have the advantage of a
skilled and knowledgeable portfolio manager selecting and continuously
monitoring each security in the portfolio.
But, how does the manager decide which security to purchase?
After all, you need to know the crowd with whom you're about to associate.
Being with a large unruly group could be far worse than being alone.
KNOWING THE TERRITORY
Shareholders of Churchill Tax-Free Fund of Kentucky have the
added advantage of having a locally-based portfolio manager. Banc One
Investment Advisors Corporation, located in Louisville, is well aware of the
issues facing the Commonwealth as a whole, as well as the nuances of many of
the cities and counties.
FINDING THE RIGHT MIX
Unfortunately, there is no foolproof test to follow when
considering an issue for purchase. Security selection is really more art than
science. A portfolio manager needs to look for a security which meets certain
specific criteria and which fits in with the overall mix of the portfolio and
the Fund's investment objective.
Among other things, Banc One Investment Advisors Corporation
carefully examines a security's yield, quality, maturity, and whether or not
its inclusion in the portfolio enhances overall diversification.
Keeping in mind the Fund's objective of providing as high a level
of current income as is consistent with preservation of capital, let's take a
look at each of these areas.
QUALITY
As you know, the Fund limits its investments to only those
securities in the top four credit ratings or equivalent. We have adopted this
policy since we have found from experience that high quality is best in the
long run. Of course, it is true that securities which possess a lower credit
rating
<PAGE>
generally produce a higher yield, since investors require compensation
for the additional potential risk. However, purchasing solely for yield can
cause feelings of unease for a risk adverse investor. Consequently, Churchill
Tax-Free Fund of Kentucky looks for high quality securities which should
produce relatively good yields. Currently, 96.8% of the investment portfolio
is in the top three credit ratings - AAA, AA, AND A. Such high quality helps
preserve shareholders' capital and promote stability.
MATURITY
The key here is to assemble a blend of maturities which offers a
reasonable level of TRIPLE TAX-FREE* return yet still avoids the problem of
excessive market price volatility. As you probably are aware, short-term
maturities tend to have very little price fluctuation, but generally produce
a substantially lesser rate of return than longer maturity securities.
Conversely, long-term maturities usually produce a higher return level, but
have a much higher price volatility factor than shorter-term issues since
they reflect the risks associated with potential interest rate changes over
the extended life of the municipal bond.
By creating a blend of maturities, the Fund attempts to provide
you with a satisfactory level of return without subjecting the share price to
excessive swings as interest rates move up and down.
The Fund utilizes a spread of maturities for the portfolio which
centers upon the relatively intermediate term average maturity of 16.4 years.
In constructing the portfolio, maturities of securities in the Fund range
from one year and under to over 20 years in length. However, in order to
achieve a reasonably high level of stability for the Fund's share value, in
good markets and bad and in up and down interest rate environments, the focus
has been to keep the average of maturities relatively limited in term.
DIVERSIFICATION
Having a breadth of participation in the portfolio helps to
spread risk and protect against any significant loss of principal in the
event of unforseen problems with any particular security.
Although Churchill Tax-Free Fund of Kentucky is classified a
"non-diversified" fund under the Investment Company Act of 1940, the Fund
does attempt to vary its portfolio in several ways. First, there is the use
of a number of issues. At June 30, 1997, over 170 issues made up the Fund's
portfolio, with no one issue representing more than 4% of the Fund's net
assets. Next, there is investment among different types of municipal projects
- - universities, basic services, utilities, health care, pollution control,
etc. - so that there is no undue concentration in any one type of municipal
project. And, finally, there is variety achieved through geographic
representation throughout various cities, counties, and communities within
Kentucky.
Such portfolio mixture by number of issues, by geographic
distribution, and by variety of projects lends itself to a further high level
of preservation and stability for your investment in the Fund.
HOW IS OUR "GROUP" DOING?
As you have seen, selecting investments for the Fund's portfolio
is really a balancing act. On one side, you have yield and, on the other, you
have risk. The Fund strives to construct a portfolio which keeps these two
opposing forces on an even keel - accepting a reasonable level of risk to
achieve a satisfactory return.
As mentioned, the Fund strives to provide shareholders with as
high a level of TRIPLE TAX-FREE income as practicable, commensurate with the
degree of capital preservation we strive to achieve.
Is our security selection process working well for us? We believe
it is.
<PAGE>
RATE OF RETURN
From July 1, 1996 through June 30, 1997, the Fund distributed to
shareholders a TRIPLE TAX-FREE income return, as measured against the maximum
public offering price, at the annualized rate of approximately 5.34%**.
One would have to earn an annualized taxable return of 7.73% at
the 28% tax bracket and the even higher return of 9.15% at the 39.6% tax
bracket in order to match the Fund's TRIPLE TAX-FREE rate. In general, it
would not have been possible for an investor to obtain such levels of taxable
return unless additional risk was taken in the form of lesser quality and/or
longer maturity securities.
COMMITMENT TO CONSISTENCY
Management is committed to providing shareholders with as
consistent investment and overall performance results from Churchill Tax-Free
Fund of Kentucky as are possible to achieve, considering prevailing market
forces.
You should be aware, however, that although there is indeed
increased safety in numbers, we are not able to eliminate the fluctuations
from market forces that swirl around us on a continuing basis.
However, as indicated, a number of investment management
techniques are used by the Fund to create a mix of securities which will help
moderate these forces.
OUR PLEDGE TO YOU
All associated with Churchill Tax-Free Fund of Kentucky pledge to
you our continued diligence in the operation of the Fund for your benefit.
Your confidence in the Churchill Tax-Free Fund of Kentucky is
most valued and appreciated.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
* A portion of dividend income may be subject to
Federal and state taxes, including the alternative minimum tax.
** The performance shown represents that of Class A
shares. Such performance data quoted represents past performance
and is not indicative of future results. The investment return and
principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's average annual total return as of
6/30/97 for the past one-year period was 2.60%; for the past
five-year period was 5.34%; and for the past 10-year period was
7.10%. As of 6/30/97, the Fund's 30-day SEC yield was 4.53%.
<PAGE>
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENT OF INVESTMENTS (unaudited)
JUNE 30, 1997
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT REVENUE BONDS (99.4%) S&P VALUE
<C> <S> <C> <C>
State Agencies (15.0%)
Kentucky Higher Education Student Loan
Corporation Insured Student Loan Revenue,
$ 980,000 6.500%, 06/01/00 A/NR $ 1,020,425
1,490,000 6.500%, 06/01/02 A/NR 1,588,712
2,955,000 6.800%, 06/01/03 A/NR 3,213,562
1,915,000 7.100%, 12/01/11 Aa-/AA 2,049,050
Kentucky Infrastructure Authority Revenue,
795,000 7.625%, 08/01/03 NR/A 862,575
205,000 7.625%, 08/01/03 NR/A 221,400
200,000 7.500%, 02/01/09 NR/AAA 213,750
1,445,000 7.500%, 02/01/99 NR/AAA 1,544,344
555,000 7.200%, 06/01/11 A/A 604,256
875,000 6.500%, 06/01/12 A/A 935,156
1,110,000 6.375%, 06/01/14 A/A 1,201,575
Kentucky Local Correctional Facilities
Construction Authority Revenue,
4,925,000 5.500%, 11/01/14 Aaa/AAA 4,912,688
Kentucky Rural Economic Development Authority
3,110,000 7.250%, 06/01/17 NR/AAA 3,316,038
Kentucky State Properties and Buildings
Commission Revenue,
375,000 7.900%, 11/01/97 A/A+ 379,901
500,000 8.400%, 11/01/97 Aaa/AAA 517,300
250,000 7.600%, 08/01/98 NR/AAA 263,878
1,460,000 7.300%, 12/01/99 A/A 1,545,775
250,000 7.600%, 02/01/01 NR/AAA 264,015
400,000 7.350%, 12/01/99 Aaa/AAA 435,000
365,000 7.000%, 02/01/06 Aaa/AAA 401,500
4,510,000 6.625%, 10/01/07 A/A+ 4,955,361
300,000 8.000%, 08/01/98 NR/AAA 317,907
750,000 7.375%, 12/01/99 Aaa/AAA 816,562
1,000,000 6.500%, 08/01/01 Aaa/AAA 1,092,500
<PAGE>
Puerto Rico Public Buildings Authority,
1,000,000 6.875%, 07/01/12 Aaa/AAA 1,121,250
Warren County Kentucky Justice,
415,000 5.350%, 09/01/29 Aaa/AAA 403,069
34,197,549
County Agencies (11.6%)
Clark County Kentucky Public Properties
Corp. Revenue,
1,120,000 6.700%, 06/01/16 A/NR 1,202,600
Franklin County Kentucky Public Projects
Corp. Revenue,
350,000 5.500%, 12/01/08 NR/A- 351,750
Jefferson County Kentucky Economic Development
Corp. Lease Revenue,
2,000,000 7.625%, 07/01/08 A1/NR 2,073,140
250,000 7.750%, 07/01/16 A1/NR 259,195
Jeffersontown Kentucky Public Project Corp.
Revenue,
500,000 5.750%, 11/01/15 A/NR 508,125
Kenton County Kentucky Public Properties
Corp. Revenue,
400,000 7.000%, 10/01/03 NR/NR* 430,000
Lincoln County Kentucky Public Properties
Corp.,
430,000 6.500%, 03/01/22 NR/NR* 468,162
Louisville and Jefferson County Kentucky,
Series B,
120,000 5.650%, 07/01/03 NR/NR* 120,422
200,000 6.625%, 07/01/15 NR/NR* 200,800
250,000 6.650%, 07/01/19 NR/NR* 250,992
Madison County Kentucky Capital Project
Corp. Revenue,
650,000 7.800%, 04/01/09 NR/NR* 696,312
<PAGE>
Mount Sterling Kentucky Lease Revenue,
1,920,000 6.150%, 03/01/13 Aa/NR 1,968,000
7,000,000 6.200%, 03/01/18 Aa/NR 7,175,000
Muhlenberg County Kentucky Industrial
Development Revenue,
1,500,000 7.000%, 09/01/01 NR/A 1,614,375
Pendleton County Kentucky Multi-County Lease
Revenue,
500,000 7.300%, 03/01/02 NR/A 540,625
570,000 7.550%, 03/01/10 NR/A 612,038
4,500,000 6.500%, 03/01/19 NR/A 4,702,500
3,000,000 6.400%, 03/01/19 NR/A 3,247,500
Woodford County Kentucky Public Properties
Corp. Revenue,
100,000 8.200%, 11/01/17 A/NR 104,366
26,525,902
City/Municipal Obligations (4.2%)
Covington Kentucky Municipal Properties Corp.
Revenue,
400,000 7.950%, 08/01/04 Baa1/NR 427,272
250,000 7.375%, 08/01/11 Baa1/NR 265,548
Covington Kentucky League Cities Funding Trust
COP,
1,715,000 6.200%, 08/01/17 NR/A- 1,815,757
Louisville Kentucky Public Properties Corp.,
4,090,000 6.700%, 12/01/20 A/A- 4,473,437
Munfordville Kentucky Industrial Development
Bond,
2,500,000 7.000%, 06/01/19 NR/A 2,700,000
9,682,014
<PAGE>
Utilities (4.4%)
Glasgow Kentucky Electric Plant Board Revenue,
280,000 7.600%, 12/01/09 NR/BBB 301,000
Harden County, Kentucky Water District,
1,000,000 5.900%, 01/01/25 Aaa/AAA 1,026,250
Kenton County Kentucky Water District,
1,600,000 6.375%, 02/01/12 Aaa/AAA 1,724,000
1,000,000 6.375%, 02/01/17 Aaa/AAA 1,075,000
Lebanon Kentucky Waterworks Revenue,
250,000 7.500%, 04/01/16 NR/NR* 268,125
Louisville and Jefferson County Kentucky
Metropolitan Sewer District Revenue,
2,000,000 5.300%, 05/15/19 Aaa/AAA 1,947,500
1,230,000 5.500%, 05/15/23 Aaa/AAA 1,211,550
1,500,000 6.500%, 05/15/24 Aaa/AAA 1,644,375
Muhlenberg County Kentucky Water District,
Waterworks Revenue,
100,000 5.500%, 01/01/12 Aaa/AAA 100,875
110,000 5.500%, 01/01/13 Aaa/AAA 110,550
115,000 5.600%, 01/01/14 Aaa/AAA 116,006
Richmond Kentucky Water Gas and Sewer Revenue,
200,000 7.300%, 07/01/05 Aaa/AAA 209,854
200,000 7.300%, 07/01/06 Aaa/AAA 209,854
9,944,939
Pollution Control Revenue (13.8%)
Ashland Kentucky Pollution Control Revenue,
1,770,000 7.375%, 07/01/09 A3/NR 1,902,750
3,000,000 6.650%, 08/01/09 Baa1/NR 3,198,750
Boone County Kentucky Pollution Control,
4,000,000 6.500%, 11/15/22 Aaa/AAA 4,235,000
735,000 5.500%, 01/01/24 Aaa/AAA 721,219
<PAGE>
Carroll County Kentucky Pollution Control
Revenue,
3,500,000 7.450%, 09/15/16 Aa2/NR 3,950,625
2,910,000 6.250%, 02/01/18 Aa2/AA- 3,026,400
Jefferson County Kentucky Pollution Control
Revenue,
1,000,000 7.750%, 02/01/19 Aa2/AA 1,038,060
5,680,000 5.625%, 08/15/19 Aa2/AA 5,651,600
3,800,000 5.900%, 04/15/23 Aa2/AA 3,838,000
Wickliffe Kentucky Pollution Control,
3,900,000 6.200%, 04/01/07 A1/A 3,909,906
100,000 6.375%, 04/01/26 A1/A 104,875
31,577,185
Transportation (10.1%)
Kenton County Kentucky Airport Board Airport
Revenue,
4,740,000 6.300%, 03/01/15 Aaa/AAA 4,917,750
Kentucky State Turnpike Authority Economic
Development Road Revenue,
2,150,000 5.625%, 07/01/15 A/A 2,176,875
100,000 6.000%, 07/01/09 Aaa/AAA 100,239
500,000 7.000%, 05/15/99 Aaa/AAA 525,000
1,035,000 7.250%, 05/15/10 Aaa/AAA 1,128,150
Kentucky State Turnpike Authority Resource
Recovery Road Revenue,
2,105,000 7.600%, 07/01/98 A/A+ 2,152,321
3,875,000 7.750%, 07/01/99 A/A+ 4,024,342
320,000 8.000%, 07/01/03 A/A+ 332,461
Kentucky State Turnpike Authority Toll Road
Revenue,
1,380,000 8.500%, 07/01/04 A/A 1,424,795
Louisville Kentucky Airport Lease Revenue,
750,000 7.850%, 02/01/09 A/A- 805,312
<PAGE>
Puerto Rico Commonwealth Highway &
Transportation Authority Highway Revenue,
4,000,000 6.625%, 07/01/12 Baa1/A 4,425,000
Puerto Rico Commonwealth Highway Authority
Highway Revenue,
1,000,000 6.750%, 07/01/05 Baa1/A 1,087,500
23,099,745
Hospitals (11.5%)
Floyd County Kentucky Hospital Revenue,
275,000 7.500%, 08/01/10 NR/AAA 300,438
510,000 5.500%, 09/01/14 NR/AAA 516,375
Hopkins County Kentucky Hospital Revenue,
1,000,000 6.625%, 11/15/11 Aaa/AAA 1,087,500
Jefferson County Kentucky Health Facilities
Revenue (Jewish Hospital),
1,500,000 5.650%, 01/01/17 Aaa/AAA 1,500,000
1,150,000 6.550%, 05/01/22 Aaa/AAA 1,240,562
230,000 5.750%, 01/01/26 Aaa/AAA 230,862
Jefferson County Kentucky Hospital Revenue,
510,000 7.750%, 10/01/97 Aaa/AAA 524,943
Kentucky Development Finance Authority
Hospital Revenue,
895,000 7.625%, 09/01/11 Aaa/AAA 946,462
235,000 7.200%, 10/01/99 A/A 247,925
2,570,000 7.300%, 10/01/03 A/A 2,749,900
810,000 7.500%, 10/01/12 A/A 857,588
400,000 7.250%, 11/01/06 A1/A+ 425,500
400,000 7.200%, 09/01/15 Aaa/AAA 431,500
750,000 7.000%, 09/01/06 NR/NR* 832,500
<PAGE>
Kentucky Development Finance Authority Revenue,
3,000,000 6.500%, 11/01/07 A1/A+ 3,198,750
100,000 6.250%, 11/01/13 A1/A+ 104,375
1,250,000 6.250%, 11/01/13 A1/A+ 1,282,812
2,150,000 6.750%, 11/01/12 A1/A+ 2,308,562
500,000 6.000%, 11/01/01 Aaa/AAA 528,750
Kentucky Development Finance Authority Kings
Daughters Medical Center,
1,375,000 6.125%, 02/01/12 Aaa/AAA 1,445,469
Kentucky Development Finance Authority
Hospital Revenue,
3,000,000 5.900%, 12/01/15 Aaa/AAA 3,063,750
2,590,000 5.000%, 08/15/15 Aaa/AAA 2,428,125
26,252,648
Housing (17.1%)
Greater Kentucky Housing Assistance Corp.
Multi-Family Housing Revenue,
500,000 7.000%, 07/01/11 NR/AA+ 525,000
320,000 6.300%, 07/01/15 Aaa/AAA 331,200
2,025,000 6.050%, 07/01/22 Aaa/AAA 2,047,781
275,000 6.400%, 07/01/23 NR/AA+ 286,000
Jefferson County Kentucky Multi-Family Revenue,
1,500,000 5.750%, 06/01/23 NR/AA 1,537,500
Kenton County Kentucky Industrial Development
1,000,000 6.125%, 12/01/17 Aa/NR 1,028,750
300,000 6.950%, 12/01/26 NR/NR* 328,125
Kentucky Housing Corporation Housing Revenue,
255,000 7.750%, 01/01/07 Aaa/AAA 269,025
835,000 7.600%, 01/01/07 Aaa/AAA 879,882
1,000,000 6.500%, 01/01/07 Aaa/AAA 1,056,250
90,000 7.875%, 01/01/08 Aaa/AAA 93,488
525,000 7.250%, 01/01/09 Aaa/AAA 550,594
<PAGE>
Kentucky Housing Corporation Housing Revenue,
980,000 7.125%, 01/01/10 Aaa/AAA 1,036,350
4,975,000 6.600%, 07/01/11 Aaa/AAA 5,211,312
225,000 5.400%, 07/01/14 Aaa/AAA 223,594
750,000 6.250%, 07/01/15 Aaa/AAA 773,438
215,000 6.150%, 07/01/16 Aaa/AAA 219,569
1,645,000 6.400%, 01/01/17 Aaa/AAA 1,723,138
1,450,000 5.800%, 01/01/19 Aaa/AAA 1,457,250
520,000 7.900%, 01/01/21 Aaa/AAA 547,950
270,000 7.800%, 01/01/21 Aaa/AAA 283,838
150,000 8.100%, 01/01/22 Aaa/AAA 158,625
2,720,000 7.450%, 01/01/23 Aaa/AAA 2,866,200
1,400,000 6.800%, 01/01/24 Aaa/AAA 1,466,500
3,500,000 6.375%, 07/01/28 Aaa/AAA 3,600,625
6,900,000 6.300%, 01/01/28 Aaa/AAA 7,055,250
1,000,000 6.250%, 07/01/28 Aaa/AAA 1,021,250
Martin County Kentucky Housing Revenue,
2,400,000 6.250%, 07/01/23 Aa/AA 2,427,000
39,005,484
Universities (0.5%)
Eastern Kentucky University,
585,000 5.375%, 05/01/04 A/A 588,996
Western Kentucky University Revenue,
325,000 7.100%, 12/01/99 Baa/BBB+ 343,688
275,000 7.100%, 12/01/01 Aaa/AAA 302,844
1,235,528
Schools (11.2%)
Boone County Kentucky School District Finance
Corp. School Building Revenue,
1,750,000 6.750%, 09/01/09 A/A 1,885,625
2,250,000 6.125%, 12/01/17 A/A 2,337,188
2,295,000 5.700%, 05/01/18 A/A 2,315,081
<PAGE>
Butler County Kentucky School Building Revenue,
270,000 7.200%, 05/01/07 A/A 296,662
290,000 7.200%, 05/01/08 A/A 318,638
Fayette County School Building Revenue,
1,780,000 5.700%, 12/01/16 A/A 1,795,575
Garrard County Kentucky School Building Revenue,
100,000 5.900%, 06/01/15 A/NR 102,125
160,000 5.900%, 06/01/16 A/NR 162,600
Grayson County Kentucky School Building Revenue,
1,940,000 6.000%, 01/01/15 A/NR 2,032,150
Harlan County Kentucky School District Corp.
School Building Revenue,
205,000 7.400%, 12/01/06 A/A 224,475
200,000 7.250%, 09/01/09 NR/A 221,250
Jefferson County Kentucky School District
Finance Corp. School Building Revenue,
370,000 6.200%, 01/01/06 Aaa/AAA 398,675
210,000 6.750%, 08/01/09 Aaa/AAA 225,225
500,000 5.875%, 01/01/11 A-1/A+ 518,125
Kenton County Kentucky School District Finance
Corp. School Building Revenue,
500,000 6.900%, 12/01/05 NR/NR* 543,125
600,000 7.000%, 12/01/07 NR/NR* 652,500
Kentucky Interlocal School Transportation
Assistance,
150,000 5.100%, 03/01/05 Aaa/AAA 150,000
400,000 6.000%, 12/01/20 Aaa/AAA 406,500
200,000 6.000%, 12/01/20 Aaa/AAA 205,000
300,000 5.800%, 12/01/20 Aaa/AAA 300,000
Lexington-Fayette Urban County Government
School Building Revenue,
250,000 7.000%, 06/01/06 A-1/A+ 272,187
400,000 7.000%, 06/01/08 A-1/A+ 435,500
370,000 7.000%, 06/01/09 A-1/A+ 402,837
<PAGE>
Mead County Kentucky School District,
400,000 5.700%, 07/01/15 A1/NR 403,000
500,000 6.000%, 07/01/16 A1/NR 518,750
Middlesboro Kentucky Independent School
District Finance Corp.,
100,000 6.000%, 07/01/16 A1/NR 104,250
Nelson County Kentucky School Building Revenue,
900,000 6.500%, 04/01/05 A/NR 967,500
1,820,000 5.750%, 04/01/15 A/NR 1,851,850
Pike County Kentucky School District Finance
Corp. School Building Revenue,
505,000 6.900%, 12/01/05 NR/A 543,506
720,000 7.000%, 12/01/09 NR/A 779,400
Rowan County Kentucky School District Finance
Corp.
215,000 5.600%, 06/01/16 NR/A 217,687
Scott County Kentucky School Building Revenue,
2,750,000 5.900%, 06/01/18 NR/A 2,825,625
Taylor County Kentucky School Building Revenue,
280,000 6.000%, 08/01/16 NR/A 291,200
Todd County Kentucky School Building Revenue,
980,000 6.300%, 10/01/14 NR/A 1,047,375
25,751,186
Total Investments (cost $217,638,449**) 99.4% 227,272,180
Other assets in excess of liabilitites 0.6 1,327,208
Net Assets 100.0% $228,599,388
<FN>* Any security not rated has been determined by the
Investment Adviser to have sufficient quality to be ranked in the top
four credit ratings if a credit rating were to be assigned by a rating
service. </FN>
<FN>** Cost for Federal tax purposes is identical. </FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments at value (identified cost $217,638,449) $ 227,272,180
Interest receivable 4,358,058
Receivable for Fund shares sold 254,121
Other Assets 1,455
Total assets 231,885,814
LIABILITIES
Payable for investment securities purchased 1,507,619
Cash overdraft 1,313,642
Payable for Fund shares redeemed 145,094
Dividends payable 131,666
Distribution fees payable 83,609
Adviser and Administrator fees payable 75,210
Accrued expenses 29,586
Total liabilities 3,286,426
NET ASSETS $ 228,599,388
Net Assets consist of:
Capital Stock - Authorized an unlimited number of
shares, par value $.01 per share $ 216,784
Additional paid-in capital 218,873,624
Accumulated net realized loss on investments (124,751)
Net unrealized appreciation on investments 9,633,731
$ 228,599,388
CLASS A
Net Assets $ 220,830,131
Capital shares outstanding 20,941,934
Net asset value and redemption price per share $ 10.54
Offering price per share (100/96 of $10.54 adjusted
to nearest cent) $ 10.98
CLASS C
Net Assets $ 705,469
Capital shares outstanding 66,905
Net asset value and offering price per share $ 10.54
Redemption price per share (*varies by length of
time shares are held) $ *
CLASS Y
Net Assets $ 7,063,788
Capital shares outstanding 669,573
Net asset value, offering and redemption price per share $ 10.55
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 6,819,715
Expenses:
Investment Adviser fees (note 3) $ 158,123
Administrator fees (note 3) 293,657
Distribution and service fees (note 3) 166,918
Transfer and shareholder servicing agent fees 64,300
Trustees' fees and expenses 30,000
Legal fees 27,900
Shareholders' reports and proxy statements 20,000
Audit and accounting fees 14,500
Custodian fees (note 7) 9,900
Registration fees and dues 8,500
Insurance 2,000
Miscellaneous 17,239
813,037
Expenses paid indirectly (note 7) (9,300)
Net expenses 803,737
Net investment income 6,015,978
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from securities transactions 100,713
Change in unrealized appreciation on investments 63,887
Net realized and unrealized gain on investments 164,600
Net increase in net assets resulting from operations $ 6,180,578
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CHURCHILL TAX-FREE FUND OF KENTUCKY
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,015,978 $ 11,830,624
Net realized gain from securities transactions 100,713 513,426
Change in unrealized appreciation (depreciation)
on investments 63,887 (3,273,903)
Change in net assets from operations 6,180,578 9,070,147
DISTRIBUTIONS TO SHAREHOLDERS (note 6):
Class A Shares:
Net investment income (6,013,647) (11,653,180)
Distributions in excess of net investment
income - (796,825)
Net realized gain on investments - -
Class C Shares:
Net investment income (14,101) (5,800)
Distributions in excess of net investment
income - (410)
Net realized gain on investments - -
Class Y Shares:
Net investment income (190,595) (171,644)
Distributions in excess of net investment
income - (10,323)
Net realized gain on investments - -
Change in net assets from distributions (6,218,343) (12,638,182)
CAPITAL SHARE TRANSACTIONS (note 8):
Proceeds from shares sold 11,274,773 25,334,669
Reinvested dividends and distributions 3,444,704 7,120,982
Cost of shares redeemed (15,227,321) (30,012,962)
Change in net assets from capital share
transactions (507,844) 2,442,689
Change in net assets (545,609) (1,125,346)
NET ASSETS:
Beginning of period 229,144,997 230,270,343
End of period $228,599,388 $229,144,997
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CHURCHILL TAX-FREE FUND OF KENTUCKY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Churchill Tax-Free Fund of Kentucky (the "Fund"), a non-diversified,
open-end investment company, was organized in March, 1987 as a Massachusetts
business trust and commenced operations on May 21, 1987. The Fund is
authorized to issue an unlimited number of shares and, since its inception to
April 1, 1996, offered only one class of shares. On that date, the Fund began
offering two additional classes of shares, Class C and Class Y shares. All
shares outstanding prior to that date were designated as Class A shares and,
as was the case since inception, are sold with a front-payment sales charge
and bear an annual service 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. The Class Y shares are only offered to institutions acting for
an investor in a fiduciary, advisory, agency, custodian or similar capacity.
They are not available to individual 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. All classes of shares
represent interests in the same portfolio of investments in the Fund and are
identical as to rights and privileges. They differ only with respect to the
effect of sales charges, the distribution and/or service fees borne by the
respective 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 generally accepted accounting principles 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 at the mean of bid and asked quotations and, in
the case of other securities, at fair value determined under procedures
established by and under the general supervision of the Board of
Trustees. Securities which mature in 60 days or less are valued at
amortized cost if their term to maturity at purchase was 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
exceeded 60 days.
In Fiscal 1996, the Fund began amortizing bond premium using the
constant yield method. Accordingly, net unrealized appreciation and
additional paid-in capital have been adjusted by equal amounts at the
beginning of the year. This change had no effect on the Fund's net asset
value or distribution policy and conforms to the amortization policy
followed by the Fund for Federal tax purposes.
<PAGE>
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 discount.
Market discount is recognized upon disposition of the security.
c) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a
regulated investment company by complying with the provisions of the
Internal Revenue Code applicable to certain investment companies. The
Fund intends to make distributions of income and securities profits
sufficient to relieve it from all, or substantially all, Federal income
and excise taxes.
d) ALLOCATION OF EXPENSES: Expenses, other than class-specific expenses,
are allocated daily to each class of shares based on the relative net
assets of each class. Class-specific expenses, which include
distribution and service fees and any other items that are specifically
attributed to a particular class, are charged directly to such class.
e) USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
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:
Management affairs of the Fund are conducted through two separate
management arrangements.
Banc One Investment Advisors Corporation (the "Adviser") became Adviser
to the Fund, effective September 11, 1995. In this role, under an Investment
Advisory Agreement, the Adviser supervises the Fund's investments and
provides various services to the Fund for which it 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 0.14 of 1% of the net assets of the Fund.
The Fund also has an Administration Agreement with Aquila Management
Corporation (the "Administrator"), the Fund's founder and sponsor. Under this
Agreement, the Administrator provides all administrative services, other than
those relating to the management of the Fund's investments. These include
providing the office of the Fund and all related services as well as
overseeing the activities of all the various support organizations to the
Fund such as the shareholder servicing agent, custodian, legal counsel,
auditors and distributor and additionally maintaining the Fund's accounting
books and records. For its services, the Administrator 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 0.26 of 1% of the net assets of the Fund.
<PAGE>
Specific details as to the nature and extent of the services provided by
the Adviser and the Administrator are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
The Adviser and the Administrator each agrees that the above fees shall
be reduced, but not below zero, by an amount equal to its pro-rata portion
(determined on the basis of the respective fees computed as described above)
of the amount, if any, by which the total expenses of the Fund in any fiscal
year, exclusive of taxes, interest and brokerage fees, shall exceed the
lesser of (i) 2.5% of the first $30 million of average annual net assets of
the Fund plus 2% of the next $70 million of such assets and 1.5% of its
average annual net assets in excess of $100 million, or (ii) 25% of the
Fund's total annual investment income. The payment of the above fees at the
end of any month will be reduced or postponed so that at no time will there
be any accrued but unpaid liability under this expense limitation. No such
reduction in fees was required during the six months ended June 30, 1997.
For the six months ended June 30, 1997, the Fund incurred fees under the
Advisory Agreement and Administration Agreement of $158,123 and $293,657,
respectively.
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
service fee payments to broker-dealers ("Qualified Recipients") or others
selected by 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, 1997, service fees on Class A
Shares amounted to $163,861, of which the Distributor received $3,259.
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 net assets represented by Class C Shares and for
the six months ended June 30, 1997, amounted to $2,293, of which the
Distributor received $2,293.
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
net assets represented by Class C Shares and for six months ended June 30,
1997, amounted to $764, of which the Distributor received $764.
<PAGE>
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
Under a Distribution Agreement, Aquila Distributors, Inc. (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, 1997,
the Distributor received sales commissions in the amount of $15,610.
4. PURCHASES AND SALES OF SECURITIES
During the six months ended June 30, 1997, purchases of securities and
proceeds from the sales of securities aggregated $19,822,931 and $17,607,509,
respectively.
At June 30, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to approximately $9,784,318 and aggregate gross unrealized depreciation for
all securities in which there is an excess of tax cost over market value
amounted to approximately $150,587, for an approximate net unrealized
appreciation of $9,633,731. At June 30, 1997, the Fund has a capital loss
carryover of approximately $125,000 of which $85,000 expire on December 31,
2002 and $40,000 expire on December 31, 2003. 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 is
used to offset future realized capital gains, it is probable that gains so
offset will not be distributed.
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. DISTRIBUTIONS
The Fund declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share or in
cash, at the shareholder's option. Net realized capital gains, if any, are
distributed annually.
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 reporting and
Federal income tax reporting requirements, distributions made by the Fund
may not be the same as the Fund's net investment
<PAGE>
income, and/or net realized securities gains. Further, a small portion of
the dividends may, under some circumstances, be subject to ordinary income
taxes. For certain shareholders, some dividends may, under some
circumstances, be subject to the alternative minimum tax. Also, annual
capital gains distributions, if any, are taxable.
7. EXPENSES
The Fund has negotiated an expense offset arrangement with its custodian,
Bank One Trust Company, N.A., an affiliate of the Adviser, wherein it
receives credit toward the reduction of custodian fees whenever there are
uninvested cash balances. During the six months ended June 30, 1997, the
Fund's custodian fees amounted to $9,900, of which $9,300 was offset by such
credits. 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 with the custodian.
<PAGE>
8. CAPITAL SHARE TRANSACTIONS
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 851,878 $ 8,939,283 1,793,117 $ 18,843,152
Reinvested distributions 327,316 3,428,348 676,874 7,110,206
Cost of shares redeemed (1,371,523) (14,386,502) (2,464,106) (25,843,142)
Exchanged into Class Y
Shares - - (369,589) (3,858,514)
Net change (192,329) (2,018,871) (363,704) (3,748,298)
<CAPTION>
Period Ended
December 31, 1996*
Shares Amount
<S> <C> <C> <C> <C>
CLASS C SHARES:
Proceeds from shares sold 24,756 260,124 40,643 424,784
Reinvested distributions 1,062 11,119 444 4,663
Cost of shares redeemed - - - -
Net change 25,818 271,243 41,087 429,447
<CAPTION>
Period Ended
December 31, 1996*
Shares Amount
<S> <C> <C> <C> <C>
CLASS Y SHARES:
Proceeds from shares sold 197,563 2,075,366 211,416 2,208,219
Reinvested distributions 500 5,237 583 6,113
Exchanged from Class A
Shares - - 369,589 3,858,514
Cost of shares redeemed (80,353) (840,819) (29,725) (311,306)
Net change 117,710 1,239,784 551,863 5,761,540
Total transactions in Fund
shares (48,801) $ (507,844) 229,246 $ 2,442,689
<FN>* From April 1, 1996 (date of inception) through December 31, 1996.</FN>
</TABLE>
<PAGE>
CHURCHILL TAX-FREE FUND OF KENTUCKY
FINANCIAL HIGHLIGHTS
(UNAUDITED)
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class A(1)
Six Months
Ended Year ended December 31,
June 30, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.55 $10.71 $9.97 $10.93 $10.49 $10.39
Income from Investment
Operations:
Net investment income 0.28 0.55 0.60 0.60 0.62 0.66
Net gain (loss) on
securities (both
realized and
unrealized) 0.00 (0.12) 0.74 (0.96) 0.47 0.19
Total from Investment
Operations 0.28 0.43 1.34 (0.36) 1.09 0.85
Less Distributions
(note 6):
Dividends from net
investment income (0.29) (0.59) (0.60) (0.60) (0.62) (0.66)
Distributions from
capital gains - - - - (0.03) (0.09)
Total Distributions (0.29) (0.59) (0.60) (0.60) (0.65) (0.75)
Net Asset Value, End
of Period $10.54 $10.55 $10.71 $9.97 $10.93 $10.49
Total Return (not
reflecting sales
charge)(%) 2.67# 4.17 13.75 (3.31) 10.50 8.48
Ratios/Supplemental Data
Net Assets, End of
Period ($ thousands)
220,831 222,889 230,270 232,656 258,632 192,600
Ratio of Expenses to
Average Net Assets
(%) 0.71* 0.74 0.79 0.72 0.59 0.42
Ratio of Net
Investment Income
to Average
Net Assets (%) 5.32* 5.23 5.75 5.81 5.67 6.21
Portfolio Turnover
Rate (%) 7.81# 8.94 17.09 35.25 31.29 50.33
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary waiver
of fees, the Administrator's voluntary expense reimbursement and the expense
offset in custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C> <C> <C> <C>
Net Investment
Income ($) 0.28 0.55 0.60 0.60 0.60 0.63
Ratio of Expenses to
Average Net Assets
(%) 0.72* 0.75 0.80 0.73 0.73 0.68
Ratio of Net
Investment Income
to Average
Net Assets (%) 5.31* 5.22 5.74 5.80 5.52 5.95
<FN> (1) Designated as Class A Shares on April 1, 1996. </FN>
<FN> # Not annualized </FN>
<FN> * Annualized. </FN>
</TABLE>
Note: Effective September 11, 1995, Banc One Investment Advisors Corporation
became the Fund's Investment Adviser replacing PNC Bank, Kentucky, Inc.
See accompanying notes to financial statements.
<PAGE>
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class C(1) Class Y(1)
Six Months Period(2) Six Months Period(2)
Ended Ended Ended Ended
June 30, Dec. 31, June 30, Dec. 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $10.55 $10.47 $10.55 $10.47
Income from Investment
Operations:
Net investment income 0.23 0.37 0.28 0.43
Net gain (loss) on securities
(both realized and
unrealized) - 0.11 0.01 0.11
Total from Investment
Operations 0.23 0.48 0.29 0.54
Less Distributions (note 6):
Dividends from net investment
income (0.24) (0.40) (0.29) (0.46)
Distributions from capital
gains - - - -
Total Distributions (0.24) (0.40) (0.29) (0.46)
Net Asset Value, End of Period $10.54 $10.55 $10.55 $10.55
Total Return (not reflecting
sales charge) (%) 2.23# 4.72# 2.84# 5.24#
Ratios/Supplemental Data
Net Assets, End of Period
($ thousands) 705 433 7,064 5.823
Ratio of Expenses to Average
Net Assets (%) 1.56* 1.55* 0.56* 0.56*
Ratio of Net Investment
Income to Average Net
Assets (%) 4.44* 4.35* 5.44* 5.42*
Portfolio Turnover Rate (%) 7.81# 8.94 7.81# 8.94
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary waiver
of fees, the Administrator's voluntary expense reimbursement and the expense
offset in custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C> <C>
Net Investment Income ($) 0.23 0.37 0.28 0.43
Ratio of Expenses to
Average Net Assets (%) 1.57* 1.56* 0.57* 0.58*
Ratio of Net Investment
Income to Average Net
Assets (%) 4.43* 4.34* 5.43* 5.41*
<FN> (1) New Class of Shares established on April 1, 1996.
<FN> (2) From April 1, 1996 to December 31, 1996.
<FN> # Not annualized.
<FN> * Annualized.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
REPORT ON THE ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
The Annual Meeting of Shareholders of Churchill Tax-Free Fund of Kentucky
(the "Fund") was held on April 25, 1997.* At the meeting, the following
matters were submitted to a shareholder vote and approved:
(i) the election of Lacy B. Herrmann, Thomas A. Christopher,
Douglas Dean, Diana P. Herrmann, Ann R. Leven, Theodore T. Mason,
Anne J. Mills, William J. Nightingale, and James R. Ramsey as
Trustees to hold office until the next annual meeting of the Fund's
shareholders or until his or her successor is duly elected (each
Trustee received at least 139,068,426 affirmative votes (98.37%);
no more than 2,299,314 votes were withheld for any Trustee
(1.63%)), and
(ii) the ratification of the selection of KPMG Peat Marwick LLP as
the Fund's independent auditors for the fiscal year ending December
31, 1997 (votes for: 134,699,428 (95.28%); votes against: 454,454
(0.32%); abstentions: 6,213,858 (4.40%); broker non-votes: 0
(0.00%)).
_____________________
* On the record date for this meeting, the holders of 21,127,291.60 Class A
shares, 50,774.7 Class C shares, and 61,025.5 Class Y shares of the Fund were
outstanding and entitled to vote representing a total net asset value of
$229,227,356.99. The holders of shares entitled to vote representing a total
net asset value of $141,367,740 (61.6%) were present in person or by proxy at
the meeting.
