----

|                              |
|-----------------------------------|
| Semi-AnnualReport                 |
| June 30, 2010                     |
|                              |
|                              |
| CHURCHILLTAX-FREE FUND OFKENTUCKY |
| A tax-free income investment      |
|                              |
|                         |
|                              |

----

|  | Serving Kentucky Investors For More Than Two Decades Churchill Tax-Free Fund of Kentucky “Consistency” |  |
|--|------------------------------------------------------------------------------------------------------------------------------|--|

|   | • | To create a tax-free product specifically designed for Kentucky residents, like you; while recognizing your need to preserve capital. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | • | To keep you well informed, while communicating with you in simple, straight-forward language -no jargon - financial or otherwise; and |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | • | To treat you, our fellow shareholders, as we ourselves would like to be treated – like individuals, not just as account numbers. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | – | Your money, |
|--------|---------|-------------|

|   | – | Invested in your Fund, |
|--------|---------|------------------------|

|   | – | Invested right here in projects in your communities. |
|--------|---------|------------------------------------------------------|

|   | • | stick with high-quality investments, |
|--------|---------|--------------------------------------|

|   | • | keep an intermediate maturity for the Fund’s portfolio, |
|--------|---------|---------------------------------------------------------------|

|   | • | diversify investments around the state, and |
|--------|---------|---------------------------------------------|

|   | • | utilize the expertise of local talent, such as Trustees and Officers. |
|--------|---------|-----------------------------------------------------------------------|

----

|                                               |                            |  |
|-----------------------------------------------|----------------------------|--|
| Lacy B. HerrmannFounder and Chairman Emeritus | Diana P. HerrmannPresident |

----

|      |      |                                     |                                                 | Rating         |        |   |   |
|-----------|-----------|------------------------------------------|------------------------------------------------------|----------------|-------------|--------|--------|
| Principal |      |                                     |                                                 | Moody’s/ |        |   |   |
| Amount    |      | General Obligation Bonds (3.8%)          |                                                 | S&P        |        | Value  |   |
|      |      | Campbell County, Kentucky Public Project |                                                 |           |        |   |   |
| $         | 1,625,000 |                                     | 4.375%, 12/01/25 Syncora Guarantee, Inc. Insured     |           | Aa2/NR      |   | $      | 1,654,136 |   |
|      |      |                                     | Highland Heights, Kentucky                           |           |        |   |   |   |   |
|      | 235,000   |                                     | 4.500%, 12/01/25                                     |           | A1/NR       |   |   | 243,542 |   |
|      | 370,000   |                                     | 4.600%, 12/01/27                                     |           | A1/NR       |   |   | 383,390 |   |
|      | 500,000   |                                     | 5.125%, 12/01/38                                     |           | A1/NR       |   |   | 517,870 |   |
|      |      |                                     | Kenton County, Kentucky Public Project               |           |        |   |   |   |   |
|      | 500,000   |                                     | 4.625%, 04/01/34                                     |           | Aa2/NR      |   |   | 510,720 |   |
|      |      |                                     | Lexington-Fayette Urban County, Kentucky             |           |        |   |   |   |   |
|      | 4,175,000 |                                     | 4.250%, 05/01/23 NPFG Insured                        |           | Aa1/AA+     |   |   | 4,315,071 |   |
|      |      |                                     | Louisville & Jefferson County, Kentucky          |           |        |   |   |   |   |
|      | 955,000   |                                     | 4.200%, 11/01/22 NPFG Insured                        |           | Aa1/AA+**** |   |   | 993,668 |   |
|      |      |                                     | Wilder, Kentucky                                     |           |        |   |   |   |   |
|      | 1,090,000 |                                     | 4.900%, 12/01/29                                     |           | Aa3/AAA     |   |   | 1,114,579 |   |
|      |      |                                     | Total General Obligation Bonds                       |           |        |   |   | 9,732,976 |   |
|      |      |
|      |      |                                     | Revenue Bonds (94.8%)                                |           |        |   |   |   |   |
|      |      |
|      |      |                                     | State Agencies (14.3%)                               |           |        |   |   |   |   |
|      |      |                                     | Kentucky Area Development District Financing         |           |        |   |   |   |   |
|      | 500,000   |                                     | 5.000%, 12/01/23 LOC Wachovia Bank                   |           | NR/AA       |   |   | 507,315 |   |
|      |      |                                     | Kentucky Asset & Liability Commission Federal    |           |        |   |   |   |   |
|      |      |                                     | Highway Notes                                        |           |        |   |   |   |   |
|      | 1,000,000 |                                     | 5.000%, 09/01/22 Series A                            |           | Aa2/AA      |   |   | 1,129,940 |   |
|      |      |                                     | Kentucky Asset & Liability Commission University |           |        |   |   |   |   |
|      |      |                                     | of Kentucky Project                                  |           |        |   |   |   |   |
|      | 500,000   |                                     | 4.500%, 10/01/22 NPFG FGIC Insured                   |           | Aa2/AA-     |   |   | 523,220 |   |
|      |      |                                     | Kentucky Asset & Liability Commission University |           |        |   |   |   |   |
|      |      |                                     | of Kentucky Project                                  |           |        |   |   |   |   |
|      | 500,000   |                                     | 5.000%, 10/01/25 Series B                            |           | Aa2/AA-     |   |   | 538,275 |   |
|      | 750,000   |                                     | 5.000%, 10/01/26 Series B                            |           | Aa2/AA-     |   |   | 803,003 |   |
|      | 1,000,000 |                                     | 5.000%, 10/01/27 Series B                            |           | Aa2/AA-     |   |   | 1,065,470 |   |
|      |      |                                     | Kentucky Economic Development Finance Authority      |           |        |   |   |   |   |
|      |      |                                     | Louisville Arena Project                             |           |        |   |   |   |   |
|      | 5,725,000 |                                     | 5.750%, 12/01/28 AGMC Insured                        |           | Aa3/AAA     |   |   | 6,164,680 |   |
|      |      |                                     | Kentucky Infrastructure Authority                    |           |        |   |   |   |   |
|      | 230,000   |                                     | 5.000%, 06/01/21                                     |           | Aa2/A+      |   |   | 232,601 |   |

----

|      |      |                                             |                                                   | Rating         |     |   |   |
|-----------|-----------|--------------------------------------------------|--------------------------------------------------------|----------------|----------|--------|--------|
| Principal |      |                                             |                                                   | Moody’s/ |     |   |   |
| Amount    |      | Revenue Bonds (continued)                        |                                                   | S&P        |     | Value  |   |
|      |      | State Agencies (continued)                       |                                                   |           |     |   |   |
|      |      | Kentucky State Property and Buildings Commission |                                                   |           |     |   |   |
| $         | 1,000,000 |                                             | 5.000%, 11/01/17 AMBAC Insured                         |           | Aa3/A+   |   | $      | 1,082,120 |   |
|      | 6,000,000 |                                             | 5.250%, 10/01/18                                       |           | Aa2/A+   |   |   | 6,131,820 |   |
|      | 1,925,000 |                                             | 5.000%, 10/01/19                                       |           | Aa2/A+   |   |   | 1,959,381 |   |
|      | 3,000,000 |                                             | 5.000%, 11/01/19 AGMC Insured                          |           | Aa2/AAA  |   |   | 3,151,950 |   |
|      | 1,020,000 |                                             | 5.000%, 11/01/20                                       |           | Aa2/A+   |   |   | 1,133,444 |   |
|      | 1,375,000 |                                             | 5.375%, 11/01/23                                       |           | Aa2/A+   |   |   | 1,519,884 |   |
|      | 2,820,000 |                                             | 5.750%, 04/01/24 AMBAC Insured                         |           | Aa3/A+   |   |   | 3,125,603 |   |
|      | 1,300,000 |                                             | 5.250%, 02/01/28 AGMC Insured                          |           | Aa2/AAA  |   |   | 1,393,483 |   |
|      | 750,000   |                                             | 5.500%, 11/01/28                                       |           | Aa2/A+   |   |   | 815,617 |   |
|      | 2,500,000 |                                             | 5.000%, 02/01/29 AGMC Insured                          |           | Aa2/AAA  |   |   | 2,624,250 |   |
|      | 2,625,000 |                                             | 5.750%, 04/01/29 AMBAC Insured                         |           | Aa3/A+   |   |   | 2,858,625 |   |
|      |      |                                             | Total State Agencies                                   |           |     |   |   | 36,760,681 |   |
|      |      |
|      |      |                                             | County Agencies (2.0%)                                 |           |     |   |   |   |   |
|      |      |                                             | Jefferson County, Kentucky Capital Projects            |           |     |   |   |   |   |
|      | 1,575,000 |                                             | 4.250%, 06/01/23 AGMC Insured                          |           | Aa2/NR** |   |   | 1,627,306 |   |
|      | 2,640,000 |                                             | 4.375%, 06/01/28 AGMC Insured                          |           | Aa2/NR** |   |   | 2,661,041 |   |
|      |      |                                             | Lexington-Fayette Urban County, Kentucky Public        |           |     |   |   |   |   |
|      |      |                                             | Facilities Revenue                                     |           |     |   |   |   |   |
|      | 500,000   |                                             | 4.125%, 10/01/23 NPFG Insured                          |           | Aa3/NR   |   |   | 510,035 |   |
|      |      |                                             | Warren County, Kentucky Justice Center                 |           |     |   |   |   |   |
|      | 365,000   |                                             | 4.300%, 09/01/22 NPFG Insured                          |           | Aa2/NR   |   |   | 376,556 |   |
|      |      |                                             | Total County Agencies                                  |           |     |   |   | 5,174,938 |   |
|      |      |
|      |      |                                             | Colleges and Universities (6.1%)                       |           |     |   |   |   |   |
|      |      |                                             | Berea, Kentucky Educational Facilities (Berea College) |           |     |   |   |   |   |
|      | 1,000,000 |                                             | 4.125%, 06/01/25                                       |           | Aaa/NR   |   |   | 1,025,640 |   |
|      |      |                                             | Boyle County, Kentucky College Refunding &         |           |     |   |   |   |   |
|      |      |                                             | Improvement                                            |           |     |   |   |   |   |
|      | 1,035,000 |                                             | 4.500%, 06/01/22 CIFG Insured                          |           | A3/A-    |   |   | 1,096,645 |   |
|      | 200,000   |                                             | 4.625%, 06/01/24 CIFG Insured                          |           | A3/A-    |   |   | 210,924 |   |
|      |      |                                             | Louisville & Jefferson County, Kentucky University |           |     |   |   |   |   |
|      |      |                                             | of Louisville                                          |           |     |   |   |   |   |
|      | 525,000   |                                             | 5.000%, 06/01/20 AMBAC Insured                         |           | NR/NR*   |   |   | 559,692 |   |
|      | 1,000,000 |                                             | 4.500%, 10/01/32                                       |           | Aa2/AA-  |   |   | 986,100 |   |

----

|      |      |                                              |                                                    | Rating         |     |   |   |
|-----------|-----------|---------------------------------------------------|---------------------------------------------------------|----------------|----------|--------|--------|
| Principal |      |                                              |                                                    | Moody’s/ |     |   |   |
| Amount    |      | Revenue Bonds (continued)                         |                                                    | S&P        |     | Value  |   |
|      |      | Colleges and Universities (continued)             |                                                    |           |     |   |   |
|      |      | Murray State University Project, Kentucky General |                                                    |           |     |   |   |
|      |      | Receipts Revenue                                  |                                                    |           |     |   |   |
| $         | 745,000   |                                              | 4.500%, 09/01/23 AMBAC Insured                          |           | Aa2/A+   |   | $      | 761,420 |   |
|      |      |                                              | University of Kentucky General Receipts                 |           |     |   |   |   |   |
|      | 885,000   |                                              | 4.500%, 10/01/22 Syncora Guarantee, Inc. Insured        |           | Aa2/AA-  |   |   | 928,082 |   |
|      | 1,545,000 |                                              | 4.500%, 10/01/23 Syncora Guarantee, Inc. Insured        |           | Aa2/AA-  |   |   | 1,611,450 |   |
|      | 1,625,000 |                                              | 4.500%, 10/01/25 Syncora Guarantee, Inc. Insured        |           | Aa2/AA-  |   |   | 1,671,166 |   |
|      | 1,010,000 |                                              | 4.500%, 10/01/26 Syncora Guarantee, Inc. Insured        |           | Aa2/AA-  |   |   | 1,034,210 |   |
|      |      |                                              | University of Louisville, Kentucky                      |           |     |   |   |   |   |
|      | 1,000,000 |                                              | 4.375%, 04/01/27 AGMC Insured                           |           | Aa2/NR   |   |   | 985,350 |   |
|      |      |                                              | Western Kentucky University Revenue General Receipts    |           |     |   |   |   |   |
|      | 2,000,000 |                                              | 4.200%, 09/01/25 Series A NPFG Insured                  |           | Aa2/A+   |   |   | 1,973,420 |   |
|      | 2,980,000 |                                              | 4.200%, 09/01/26 Series A NPFG Insured                  |           | Aa2/A+   |   |   | 2,908,093 |   |
|      |      |                                              | Total Colleges and Universities                         |           |     |   |   | 15,752,192 |   |
|      |      |                                              |                                                    |           |     |   |   |   |   |
|      |      |                                              | Hospitals (12.5%)                                       |           |     |   |   |   |   |
|      |      |                                              | Jefferson County, Kentucky Health Facilities            |           |     |   |   |   |   |
|      | 1,715,000 |                                              | 5.650%, 01/01/17 AMBAC Insured                          |           | A3/A     |   |   | 1,720,351 |   |
|      | 2,200,000 |                                              | 5.250%, 05/01/17                                        |           | NR/A     |   |   | 2,268,530 |   |
|      |      |                                              | Jefferson County, Kentucky Health Facilities University |           |     |   |   |   |   |
|      |      |                                              | Hospital                                                |           |     |   |   |   |   |
|      | 1,000,000 |                                              | 5.250%, 07/01/22 NPFG Insured                           |           | Baa1/A   |   |   | 1,002,330 |   |
|      |      |                                              | Jefferson County, Kentucky Medical Center               |           |     |   |   |   |   |
|      | 2,000,000 |                                              | 5.500%, 05/01/22                                        |           | NR/A     |   |   | 2,062,080 |   |
|      |      |                                              | Kentucky Economic Development Finance Authority,        |           |     |   |   |   |   |
|      |      |                                              | Baptist Healthcare System                               |           |     |   |   |   |   |
|      | 2,170,000 |                                              | 5.375%, 08/15/24                                        |           | Aa3/NR** |   |   | 2,357,814 |   |
|      |      |                                              | Kentucky Economic Development Finance Authority,        |           |     |   |   |   |   |
|      |      |                                              | Catholic Health                                         |           |     |   |   |   |   |
|      | 2,000,000 |                                              | 5.000%, 05/01/29                                        |           | Aa2/AA   |   |   | 2,058,800 |   |
|      | 1,000,000 |                                              | 5.000%, 05/01/29                                        |           | Aa2/AA   |   |   | 1,014,150 |   |
|      |      |                                              | Kentucky Economic Development Finance Authority,        |           |     |   |   |   |   |
|      |      |                                              | Hospital Facilities St. Elizabeth Healthcare            |           |     |   |   |   |   |
|      | 1,000,000 |                                              | 5.500%, 05/01/39                                        |           | NR/AA-** |   |   | 1,045,390 |   |

----

|      |      |                                             |                                                       | Rating         |     |   |   |
|-----------|-----------|--------------------------------------------------|------------------------------------------------------------|----------------|----------|--------|--------|
| Principal |      |                                             |                                                       | Moody’s/ |     |   |   |
| Amount    |      | Revenue Bonds (continued)                        |                                                       | S&P        |     | Value  |   |
|      |      | Hospitals (continued)                            |                                                       |           |     |   |   |
|      |      | Kentucky Economic Development Finance Authority, |                                                       |           |     |   |   |
|      |      | Kings Daughter Medical Center                    |                                                       |           |     |   |   |
| $         | 1,000,000 |                                             | 5.000%, 02/01/30                                           |           | A1/A+    |   | $      | 1,012,870 |   |
|      |      |                                             | Lexington-Fayette Urban County, Kentucky Public            |           |     |   |   |   |   |
|      |      |                                             | Facilities                                                 |           |     |   |   |   |   |
|      | 500,000   |                                             | 4.250%, 10/01/26 NPFG Insured                              |           | Aa3/NR   |   |   | 503,790 |   |
|      |      |                                             | Louisville & Jefferson County, Kentucky Metropolitan   |           |     |   |   |   |   |
|      |      |                                             | Government Health System (Sisters of Mercy)                |           |     |   |   |   |   |
|      | 1,000,000 |                                             | 5.000%, 10/01/35                                           |           | NR/NR*** |   |   | 950,430 |   |
|      |      |                                             | Louisville & Jefferson County, Kentucky Medical Center |           |     |   |   |   |   |
|      | 1,000,000 |                                             | 5.000%, 06/01/18                                           |           | NR/A     |   |   | 1,043,300 |   |
|      |      |                                             | Louisville & Jefferson County, Kentucky Metro Health,  |           |     |   |   |   |   |
|      |      |                                             | Jewish Hospital Revenue                                    |           |     |   |   |   |   |
|      | 1,250,000 |                                             | 6.000%, 02/01/22                                           |           | A3/A     |   |   | 1,295,275 |   |
|      | 1,800,000 |                                             | 6.125%, 02/01/37                                           |           | A3/A     |   |   | 1,893,816 |   |
|      |      |                                             | Louisville & Jefferson County, Kentucky Metropolitan   |           |     |   |   |   |   |
|      |      |                                             | Government Health System (Norton)                          |           |     |   |   |   |   |
|      | 8,010,000 |                                             | 5.000%, 10/01/26                                           |           | NR/A-*** |   |   | 7,974,115 |   |
|      | 4,000,000 |                                             | 5.000%, 10/01/30                                           |           | NR/A-*** |   |   | 3,900,280 |   |
|      |      |                                             | Total Hospitals                                            |           |     |   |   | 32,103,321 |   |
|      |      |                                             |                                                       |           |     |   |   |   |   |
|      |      |                                             | Housing (13.1%)                                            |           |     |   |   |   |   |
|      |      |                                             | Kentucky Housing Corporation Housing Revenue               |           |     |   |   |   |   |
|      | 555,000   |                                             | 4.200%, 01/01/17                                           |           | Aaa/AAA  |   |   | 566,372 |   |
|      | 85,000    |                                             | 5.125%, 07/01/17                                           |           | Aaa/AAA  |   |   | 85,047 |   |
|      | 470,000   |                                             | 4.800%, 01/01/18 AMT                                       |           | Aaa/AAA  |   |   | 481,712 |   |
|      | 285,000   |                                             | 4.250%, 01/01/18                                           |           | Aaa/AAA  |   |   | 290,347 |   |
|      | 575,000   |                                             | 4.800%, 07/01/18 AMT                                       |           | Aaa/AAA  |   |   | 589,329 |   |
|      | 180,000   |                                             | 4.250%, 07/01/18                                           |           | Aaa/AAA  |   |   | 183,370 |   |
|      | 900,000   |                                             | 4.800%, 07/01/20 AMT                                       |           | Aaa/AAA  |   |   | 915,975 |   |
|      | 1,150,000 |                                             | 5.350%, 01/01/21 AMT FNMA collateralized                   |           | Aaa/AAA  |   |   | 1,157,877 |   |
|      | 6,025,000 |                                             | 5.450%, 07/01/22 AMT                                       |           | Aaa/AAA  |   |   | 6,091,697 |   |
|      | 4,565,000 |                                             | 5.250%, 07/01/22 AMT                                       |           | Aaa/AAA  |   |   | 4,605,811 |   |
|      | 245,000   |                                             | 5.200%, 07/01/22                                           |           | Aaa/AAA  |   |   | 247,879 |   |

----

|      |      |                                         |                                                   | Rating         |    |   |   |
|-----------|-----------|----------------------------------------------|--------------------------------------------------------|----------------|---------|--------|--------|
| Principal |      |                                         |                                                   | Moody’s/ |    |   |   |
| Amount    |      | Revenue Bonds (continued)                    |                                                   | S&P        |    | Value  |   |
|      |      | Housing (continued)                          |                                                   |           |    |   |   |
|      |      | Kentucky Housing Corporation Housing Revenue |                                                   |           |    |   |   |
|      |      | (continued)                                  |                                                   |           |    |   |   |
| $         | 415,000   |                                         | 5.100%, 07/01/22 AMT                                   |           | Aaa/AAA |   | $      | 418,424 |   |
|      | 2,570,000 |                                         | 4.800%, 07/01/22 AMT                                   |           | Aaa/AAA |   |   | 2,612,945 |   |
|      | 2,000,000 |                                         | 4.700%, 07/01/22 Series E AMT                          |           | Aaa/AAA |   |   | 2,021,160 |   |
|      | 1,635,000 |                                         | 5.000%, 01/01/23 AMT                                   |           | Aaa/AAA |   |   | 1,674,665 |   |
|      | 665,000   |                                         | 5.000%, 07/01/24 FHA Insured                           |           | Aaa/AAA |   |   | 695,923 |   |
|      | 4,140,000 |                                         | 5.200%, 07/01/25 AMT                                   |           | Aaa/AAA |   |   | 4,164,757 |   |
|      | 600,000   |                                         | 4.750%, 07/01/26                                       |           | Aaa/AAA |   |   | 610,056 |   |
|      | 240,000   |                                         | 5.375%, 07/01/27                                       |           | Aaa/AAA |   |   | 242,882 |   |
|      | 2,300,000 |                                         | 5.000%, 07/01/27 Series N AMT                          |           | Aaa/AAA |   |   | 2,308,050 |   |
|      | 1,000,000 |                                         | 4.750%, 07/01/27 Series E AMT                          |           | Aaa/AAA |   |   | 978,320 |   |
|      | 315,000   |                                         | 4.850%, 07/01/29                                       |           | Aaa/AAA |   |   | 323,152 |   |
|      | 490,000   |                                         | 5.550%, 07/01/33                                       |           | Aaa/AAA |   |   | 491,833 |   |
|      | 600,000   |                                         | 5.150%, 07/01/39                                       |           | Aaa/AAA |   |   | 616,596 |   |
|      |      |                                         | Kentucky Housing Multifamily Mortgage Revenue          |           |    |   |   |   |   |
|      | 1,325,000 |                                         | 5.000%, 06/01/23 AMT                                   |           | NR/AAA  |   |   | 1,344,239 |   |
|      |      |                                         | Total Housing                                          |           |    |   |   | 33,718,418 |   |
|      |      |
|      |      |                                         | School Building Revenue (25.3%)                        |           |    |   |   |   |   |
|      |      |                                         | Barren County, Kentucky School Building Revenue        |           |    |   |   |   |   |
|      | 1,265,000 |                                         | 4.250%, 08/01/25 CIFG Insured                          |           | Aa2/NR  |   |   | 1,283,229 |   |
|      | 1,670,000 |                                         | 4.375%, 08/01/26 CIFG Insured                          |           | Aa2/NR  |   |   | 1,698,006 |   |
|      |      |                                         | Boone County, Kentucky School District Finance Corp.   |           |    |   |   |   |   |
|      | 1,000,000 |                                         | 4.125%, 08/01/22 Syncora Guarantee, Inc. Insured       |           | Aa2/NR  |   |   | 1,013,910 |   |
|      |      |                                         | Boone County, Kentucky School District Finance         |           |    |   |   |   |   |
|      |      |                                         | Corp. School Building Revenue                          |           |    |   |   |   |   |
|      | 140,000   |                                         | 4.750%, 06/01/20 AGMC Insured                          |           | Aa2/AAA |   |   | 142,878 |   |
|      | 1,580,000 |                                         | 4.500%, 08/01/23 AGMC Insured                          |           | Aa2/NR  |   |   | 1,637,670 |   |
|      | 1,250,000 |                                         | 4.125%, 03/01/25 AGMC Insured                          |           | Aa2/NR  |   |   | 1,229,012 |   |
|      |      |                                         | Bullitt County, Kentucky School District Finance Corp. |           |    |   |   |   |   |
|      | 200,000   |                                         | 4.300%, 10/01/21 NPFG Insured                          |           | Aa2/NR  |   |   | 203,948 |   |
|      | 2,455,000 |                                         | 4.500%, 10/01/22 NPFG Insured                          |           | Aa2/NR  |   |   | 2,534,149 |   |
|      | 2,590,000 |                                         | 4.500%, 10/01/23 NPFG Insured                          |           | Aa2/NR  |   |   | 2,663,245 |   |
|      | 1,145,000 |                                         | 4.500%, 04/01/27 AGMC Insured                          |           | Aa2/NR  |   |   | 1,169,698 |   |
|      | 1,200,000 |                                         | 4.500%, 04/01/28 AGMC Insured                          |           | Aa2/NR  |   |   | 1,220,328 |   |

----

|      |      |                                               |                                                    | Rating         |    |   |   |
|-----------|-----------|----------------------------------------------------|---------------------------------------------------------|----------------|---------|--------|--------|
| Principal |      |                                               |                                                    | Moody’s/ |    |   |   |
| Amount    |      | Revenue Bonds (continued)                          |                                                    | S&P        |    | Value  |   |
|      |      | School Building Revenue (continued)                |                                                    |           |    |   |   |
|      |      | Christian County, Kentucky School District Finance |                                                    |           |    |   |   |
|      |      | Corp.                                              |                                                    |           |    |   |   |
| $         | 720,000   |                                               | 4.000%, 08/01/19 Syncora Guarantee, Inc. Insured        |           | Aa2/NR  |   | $      | 739,274 |   |
|      | 855,000   |                                               | 4.000%, 08/01/20 Syncora Guarantee, Inc. Insured        |           | Aa2/NR  |   |   | 875,879 |   |
|      | 905,000   |                                               | 4.000%, 08/01/21 Syncora Guarantee, Inc. Insured        |           | Aa2/NR  |   |   | 926,258 |   |
|      | 1,465,000 |                                               | 4.000%, 08/01/22 Syncora Guarantee, Inc. Insured        |           | Aa2/NR  |   |   | 1,493,948 |   |
|      | 1,525,000 |                                               | 4.125%, 08/01/23 Syncora Guarantee, Inc. Insured        |           | Aa2/NR  |   |   | 1,553,258 |   |
|      | 1,590,000 |                                               | 4.125%, 08/01/24 Syncora Guarantee, Inc. Insured        |           | Aa2/NR  |   |   | 1,608,460 |   |
|      |      |                                               | Daviess County, Kentucky School District Finance Corp.  |           |    |   |   |   |   |
|      | 200,000   |                                               | 5.000%, 06/01/24                                        |           | Aa2/NR  |   |   | 209,214 |   |
|      |      |                                               | Fayette County, Kentucky School District Finance Corp.  |           |    |   |   |   |   |
|      | 5,000,000 |                                               | 4.250%, 04/01/23 AGMC Insured                           |           | Aa2/AAA |   |   | 5,124,800 |   |
|      | 4,335,000 |                                               | 4.375%, 05/01/26 AGMC Insured                           |           | Aa2/AAA |   |   | 4,415,414 |   |
|      |      |                                               | Floyd County, Kentucky School Building                  |           |    |   |   |   |   |
|      | 680,000   |                                               | 4.375%, 10/01/22                                        |           | Aa2/NR  |   |   | 698,374 |   |
|      |      |                                               | Floyd County, Kentucky School Finance Corporation       |           |    |   |   |   |   |
|      |      |                                               | School Building                                         |           |    |   |   |   |   |
|      | 1,320,000 |                                               | 4.000%, 03/01/23 Syncora Guarantee, Inc. Insured        |           | Aa2/NR  |   |   | 1,338,638 |   |
|      | 1,255,000 |                                               | 4.125%, 03/01/26 Syncora Guarantee, Inc. Insured        |           | Aa2/NR  |   |   | 1,259,029 |   |
|      |      |                                               | Fort Thomas, Kentucky Independent School District       |           |    |   |   |   |   |
|      |      |                                               | Building Revenue                                        |           |    |   |   |   |   |
|      | 610,000   |                                               | 4.375%, 04/01/25                                        |           | Aa2/NR  |   |   | 619,400 |   |
|      |      |                                               | Fort Thomas, Kentucky Independent School District       |           |    |   |   |   |   |
|      |      |                                               | Finance Corp.                                           |           |    |   |   |   |   |
|      | 785,000   |                                               | 4.375%, 04/01/21                                        |           | Aa2/NR  |   |   | 815,411 |   |
|      |      |                                               | Franklin County, Kentucky School District Finance Corp. |           |    |   |   |   |   |
|      | 1,000,000 |                                               | 5.000%, 04/01/24                                        |           | Aa2/NR  |   |   | 1,044,210 |   |
|      |      |                                               | Graves County, Kentucky School Building Revenue         |           |    |   |   |   |   |
|      | 1,260,000 |                                               | 5.000%, 06/01/22                                        |           | Aa2/NR  |   |   | 1,315,238 |   |
|      | 1,320,000 |                                               | 5.000%, 06/01/23                                        |           | Aa2/NR  |   |   | 1,368,985 |   |
|      |      |                                               | Hardin County, Kentucky School District Finance Corp.   |           |    |   |   |   |   |
|      | 1,475,000 |                                               | 4.000%, 02/01/19 AMBAC Insured                          |           | Aa2/NR  |   |   | 1,510,872 |   |

----

|      |      |                                               |                                                  | Rating         |    |   |   |
|-----------|-----------|----------------------------------------------------|-------------------------------------------------------|----------------|---------|--------|--------|
| Principal |      |                                               |                                                  | Moody’s/ |    |   |   |
| Amount    |      | Revenue Bonds (continued)                          |                                                  | S&P        |    | Value  |   |
|      |      | School Building Revenue (continued)                |                                                  |           |    |   |   |
|      |      | Jefferson County, Kentucky School District Finance |                                                  |           |    |   |   |
|      |      | Corp. School Building                              |                                                  |           |    |   |   |
| $         | 150,000   |                                               | 5.000%, 04/01/20 AGMC Insured (pre-refunded)          |           | Aa2/AAA |   | $      | 156,630 |   |
|      | 1,360,000 |                                               | 4.250%, 06/01/21 AGMC Insured                         |           | Aa2/AAA |   |   | 1,406,172 |   |
|      |      |                                               | Kenton County, Kentucky School Building Revenue       |           |    |   |   |   |   |
|      | 590,000   |                                               | 4.250%, 10/01/22 AGMC Insured                         |           | Aa2/NR  |   |   | 608,892 |   |
|      |      |                                               | Kenton County, Kentucky School District Finance Corp. |           |    |   |   |   |   |
|      | 445,000   |                                               | 4.300%, 04/01/22 CIFG Insured                         |           | Aa2/NR  |   |   | 457,042 |   |
|      | 4,250,000 |                                               | 5.000%, 06/01/22 NPFG Insured                         |           | Aa2/NR  |   |   | 4,482,135 |   |
|      | 750,000   |                                               | 4.375%, 04/01/24 CIFG Insured                         |           | Aa2/NR  |   |   | 765,405 |   |
|      | 325,000   |                                               | 4.400%, 04/01/26 CIFG Insured                         |           | Aa2/NR  |   |   | 329,755 |   |
|      |      |                                               | Larue County, Kentucky School District Finance Corp.  |           |    |   |   |   |   |
|      | 270,000   |                                               | 4.500%, 07/01/21 NPFG Insured                         |           | Aa2/NR  |   |   | 283,127 |   |
|      | 470,000   |                                               | 4.500%, 07/01/22 NPFG Insured                         |           | Aa2/NR  |   |   | 492,081 |   |
|      | 785,000   |                                               | 4.500%, 07/01/23 NPFG Insured                         |           | Aa2/NR  |   |   | 817,585 |   |
|      |      |                                               | Magoffin County, Kentucky School Building Revenue     |           |    |   |   |   |   |
|      | 375,000   |                                               | 4.250%, 08/01/23 AMBAC Insured                        |           | Aa2/NR  |   |   | 385,703 |   |
|      |      |                                               | Magoffin County, Kentucky School District             |           |    |   |   |   |   |
|      | 475,000   |                                               | 4.250%, 08/01/25 AMBAC Insured                        |           | Aa2/NR  |   |   | 483,127 |   |
|      |      |                                               | Meade County, Kentucky School District                |           |    |   |   |   |   |
|      | 490,000   |                                               | 4.250%, 09/01/26 NPFG Insured                         |           | Aa2/NR  |   |   | 496,336 |   |
|      |      |                                               | Ohio County, Kentucky School Building Revenue         |           |    |   |   |   |   |
|      | 790,000   |                                               | 4.500%, 05/01/24                                      |           | Aa2/NR  |   |   | 820,565 |   |
|      | 325,000   |                                               | 4.500%, 05/01/25                                      |           | Aa2/NR  |   |   | 335,361 |   |
|      |      |                                               | Oldham County, Kentucky School District Finance Corp. |           |    |   |   |   |   |
|      | 500,000   |                                               | 5.000%, 05/01/19 NPFG Insured                         |           | Aa2/NR  |   |   | 530,800 |   |
|      | 1,000,000 |                                               | 4.500%, 09/01/27 NPFG Insured                         |           | Aa2/NR  |   |   | 1,015,230 |   |
|      |      |                                               | Owensboro, Kentucky Independent School District       |           |    |   |   |   |   |
|      |      |                                               | Finance Corp. School Building Revenue                 |           |    |   |   |   |   |
|      | 390,000   |                                               | 4.375%, 09/01/24                                      |           | Aa2/NR  |   |   | 405,023 |   |
|      |      |                                               | Pendleton County, Kentucky School District Finance    |           |    |   |   |   |   |
|      |      |                                               | Corp. School Building Revenue                         |           |    |   |   |   |   |
|      | 730,000   |                                               | 4.000%, 02/01/23 NPFG Insured                         |           | Aa2/NR  |   |   | 735,439 |   |

----

|      |      |                                          |                                                         | Rating         |    |   |   |
|-----------|-----------|-----------------------------------------------|--------------------------------------------------------------|----------------|---------|--------|--------|
| Principal |      |                                          |                                                         | Moody’s/ |    |   |   |
| Amount    |      | Revenue Bonds (continued)                     |                                                         | S&P        |    | Value  |   |
|      |      | School Building Revenue (continued)           |                                                         |           |    |   |   |
|      |      | Pike County, Kentucky School Building Revenue |                                                         |           |    |   |   |
| $         | 1,355,000 |                                          | 4.375%, 10/01/26 NPFG Insured                                |           | Aa2/NR  |   | $      | 1,381,463 |   |
|      |      |                                          | Scott County, Kentucky School District Finance Corp.         |           |    |   |   |   |   |
|      | 1,115,000 |                                          | 4.200%, 01/01/22 AMBAC Insured                               |           | Aa2/NR  |   |   | 1,151,817 |   |
|      | 1,955,000 |                                          | 4.250%, 01/01/23 AMBAC Insured                               |           | Aa2/NR  |   |   | 2,013,748 |   |
|      | 1,560,000 |                                          | 4.300%, 01/01/24 AMBAC Insured                               |           | Aa2/NR  |   |   | 1,602,900 |   |
|      |      |                                          | Scott County, Kentucky School District Finance Corp.         |           |    |   |   |   |   |
|      |      |                                          | School Building Revenue                                      |           |    |   |   |   |   |
|      | 1,000,000 |                                          | 4.250%, 02/01/27 AGMC Insured                                |           | Aa2/NR  |   |   | 1,002,820 |   |
|      |      |                                          | Spencer County, Kentucky School District Finance             |           |    |   |   |   |   |
|      |      |                                          | Corp., School Building Revenue                               |           |    |   |   |   |   |
|      | 1,000,000 |                                          | 4.500%, 08/01/27 AGMC Insured                                |           | Aa2/NR  |   |   | 1,027,400 |   |
|      |      |                                          | Warren County, Kentucky School District Finance Corp.        |           |    |   |   |   |   |
|      | 295,000   |                                          | 4.125%, 02/01/23 NPFG Insured                                |           | Aa2/NR  |   |   | 300,953 |   |
|      |      |                                          | Total School Building Revenue                                |           |    |   |   | 65,200,244 |   |
|      |      |
|      |      |                                          | Transportation (8.1%)                                        |           |    |   |   |   |   |
|      |      |                                          | Kenton County, Kentucky Airport Board Airport Revenue        |           |    |   |   |   |   |
|      | 1,300,000 |                                          | 5.000%, 03/01/23 NPFG Insured AMT                            |           | A3/A    |   |   | 1,300,559 |   |
|      |      |                                          | Kentucky State Turnpike Authority Revenue                    |           |    |   |   |   |   |
|      | 2,500,000 |                                          | 5.000%, 07/01/25                                             |           | Aa2/AA+ |   |   | 2,718,625 |   |
|      | 2,250,000 |                                          | 5.000%, 07/01/27                                             |           | Aa2/AA+ |   |   | 2,410,447 |   |
|      | 1,100,000 |                                          | 5.000%, 07/01/28                                             |           | Aa2/AA+ |   |   | 1,170,697 |   |
|      | 800,000   |                                          | 5.000%, 07/01/29                                             |           | Aa2/AA+ |   |   | 854,280 |   |
|      |      |                                          | Louisville, Kentucky Regional Airport Authority              |           |    |   |   |   |   |
|      | 1,000,000 |                                          | 5.250%, 07/01/23 AGMC Insured AMT                            |           | Aa3/AAA |   |   | 1,040,990 |   |
|      | 2,610,000 |                                          | 5.000%, 07/01/24 AMBAC Insured AMT                           |           | A1/A+   |   |   | 2,617,960 |   |
|      |      |                                          | Louisville & Jefferson County Regional Airport, Kentucky |           |    |   |   |   |   |
|      | 1,000,000 |                                          | 5.250%, 07/01/18 AGMC Insured AMT                            |           | Aa3/AAA |   |   | 1,039,990 |   |
|      | 2,000,000 |                                          | 5.250%, 07/01/20 AGMC Insured AMT                            |           | Aa3/AAA |   |   | 2,056,660 |   |
|      | 1,370,000 |                                          | 5.250%, 07/01/21 AGMC Insured AMT                            |           | Aa3/AAA |   |   | 1,403,784 |   |
|      | 3,390,000 |                                          | 5.250%, 07/01/22 AGMC Insured AMT                            |           | Aa3/AAA |   |   | 3,463,122 |   |
|      | 275,000   |                                          | 5.375%, 07/01/23 AGMC Insured AMT                            |           | Aa3/AAA |   |   | 279,626 |   |
|      | 500,000   |                                          | 5.000%, 07/01/25 NPFG Insured AMT                            |           | A1/A+   |   |   | 494,285 |   |
|      |      |                                          | Total Transportation                                         |           |    |   |   | 20,851,025 |   |

----

|      |      |                                           |                                                     | Rating         |     |   |   |
|-----------|-----------|------------------------------------------------|----------------------------------------------------------|----------------|----------|--------|--------|
| Principal |      |                                           |                                                     | Moody’s/ |     |   |   |
| Amount    |      | Revenue Bonds (continued)                      |                                                     | S&P        |     | Value  |   |
|      |      | Utilities (13.4%)                              |                                                     |           |     |   |   |
|      |      | Bardstown, Kentucky Combined Utilities Revenue |                                                     |           |     |   |   |
| $         | 200,000   |                                           | 5.000%, 12/01/19 NPFG Insured                            |           | Aa3/NR   |   | $      | 205,754 |   |
|      |      |                                           | Boone County, Kentucky Pollution Control Revenue         |           |     |   |   |   |   |
|      |      |                                           | (Dayton Power & Light)                               |           |     |   |   |   |   |
|      | 2,000,000 |                                           | 4.700%, 01/01/28 FGIC Insured                            |           | Aa3/A    |   |   | 1,995,260 |   |
|      |      |                                           | Campbell & Kenton Counties, Kentucky (Sanitation     |           |     |   |   |   |   |
|      |      |                                           | District) Revenue                                        |           |     |   |   |   |   |
|      | 1,695,000 |                                           | 4.300%, 08/01/24 NPFG Insured                            |           | Aa2/AA   |   |   | 1,747,935 |   |
|      | 300,000   |                                           | 4.300%, 08/01/27 NPFG Insured                            |           | Aa2/AA   |   |   | 304,800 |   |
|      | 1,450,000 |                                           | 4.300%, 08/01/28 NPFG Insured                            |           | Aa2/AA   |   |   | 1,466,182 |   |
|      |      |                                           | Carroll County, Kentucky Environmental Facilities        |           |     |   |   |   |   |
|      |      |                                           | Revenue (Kentucky Utilities) AMT                         |           |     |   |   |   |   |
|      | 1,500,000 |                                           | 5.750%, 02/01/26 AMBAC Insured                           |           | A2/BBB+  |   |   | 1,539,135 |   |
|      |      |                                           | Kentucky Rural Water Finance Corp.                       |           |     |   |   |   |   |
|      | 205,000   |                                           | 4.250%, 08/01/19 NPFG Insured                            |           | Baa1/AA- |   |   | 213,680 |   |
|      | 595,000   |                                           | 5.000%, 02/01/20 NPFG Insured                            |           | Baa1/AA- |   |   | 615,801 |   |
|      | 210,000   |                                           | 4.250%, 08/01/20 NPFG Insured                            |           | Baa1/AA- |   |   | 218,308 |   |
|      | 200,000   |                                           | 4.375%, 08/01/22 NPFG Insured                            |           | Baa1/AA- |   |   | 208,712 |   |
|      | 240,000   |                                           | 4.500%, 08/01/23 NPFG Insured                            |           | Baa1/AA- |   |   | 250,745 |   |
|      | 200,000   |                                           | 4.500%, 02/01/24 NPFG Insured                            |           | Baa1/AA- |   |   | 205,356 |   |
|      | 255,000   |                                           | 4.500%, 08/01/24 NPFG Insured                            |           | Baa1/AA- |   |   | 265,009 |   |
|      | 355,000   |                                           | 4.600%, 02/01/25                                         |           | NR/AA-   |   |   | 370,670 |   |
|      | 290,000   |                                           | 4.500%, 08/01/27 NPFG Insured                            |           | Baa1/AA- |   |   | 296,951 |   |
|      | 245,000   |                                           | 4.600%, 08/01/28 NPFG Insured                            |           | Baa1/AA- |   |   | 250,988 |   |
|      | 315,000   |                                           | 4.625%, 08/01/29 NPFG Insured                            |           | Baa1/AA- |   |   | 322,097 |   |
|      |      |                                           | Kentucky State Municipal Power Agency, Prairie St.       |           |     |   |   |   |   |
|      |      |                                           | Project                                                  |           |     |   |   |   |   |
|      | 1,000,000 |                                           | 5.000%, 09/01/23 AGMC Insured                            |           | Aa3/AAA  |   |   | 1,082,720 |   |
|      |      |                                           | Louisville & Jefferson County, Kentucky Metropolitan |           |     |   |   |   |   |
|      |      |                                           | Sewer District                                           |           |     |   |   |   |   |
|      | 2,380,000 |                                           | 4.250%, 05/15/20 AGMC Insured                            |           | Aa3/AAA  |   |   | 2,509,091 |   |
|      | 2,510,000 |                                           | 4.250%, 05/15/21 AGMC Insured                            |           | Aa3/AAA  |   |   | 2,631,082 |   |
|      | 1,500,000 |                                           | 5.000%, 05/15/26 AGMC Insured                            |           | Aa3/AAA  |   |   | 1,585,230 |   |

----

|      |      |                                               |                                              | Rating         |         |   |   |
|-----------|-----------|----------------------------------------------------|---------------------------------------------------|----------------|--------------|--------|--------|
| Principal |      |                                               |                                              | Moody’s/ |         |   |   |
| Amount    |      | Revenue Bonds (continued)                          |                                              | S&P        |         | Value  |   |
|      |      | Utilities (continued)                              |                                              |           |         |   |   |
|      |      | Louisville, Kentucky Waterworks Board Water System |                                              |           |         |   |   |
| $         | 5,000,000 |                                               | 5.250%, 11/15/22 AGMC Insured (pre-refunded)      |           | Aaa/AAA      |   | $      | 5,088,900 |   |
|      | 2,415,000 |                                               | 5.250%, 11/15/24 AGMC Insured (pre-refunded)      |           | Aaa/AAA      |   |   | 2,457,939 |   |
|      |      |                                               | Northern Kentucky Water District                  |           |         |   |   |   |   |
|      | 660,000   |                                               | 5.000%, 02/01/23 NPFG FGIC Insured                |           | Aa3/NR       |   |   | 669,524 |   |
|      | 1,825,000 |                                               | 6.000%, 02/01/28 AGMC Insured                     |           | Aa3/NR       |   |   | 2,092,162 |   |
|      |      |                                               | Owensboro, Kentucky Electric and Power            |           |         |   |   |   |   |
|      | 1,555,000 |                                               | 5.000%, 01/01/20 AGMC Insured                     |           | Aa3/AAA      |   |   | 1,566,865 |   |
|      |      |                                               | Owensboro, Kentucky Water Revenue                 |           |         |   |   |   |   |
|      | 500,000   |                                               | 5.000%, 09/15/27 AGMC Insured                     |           | Aa3/NR       |   |   | 539,680 |   |
|      |      |                                               | Owensboro-Daviess County, Kentucky Regional Water |           |         |   |   |   |   |
|      |      |                                               | Resource Agency Wastewater Refunding &        |           |         |   |   |   |   |
|      |      |                                               | Improvement Revenue                               |           |         |   |   |   |   |
|      | 930,000   |                                               | 4.375%, 01/01/27 Series A Syncora Guarantee, Inc. |           |         |   |   |   |   |
|      |      |                                               | Insured                                           |           | NR/AA-       |   |   | 916,561 |   |
|      |      |                                               | Trimble County, Kentucky Environmental Facilities |           |         |   |   |   |   |
|      | 3,000,000 |                                               | 4.600%, 06/01/33 AMBAC Insured                    |           | A2/BBB+      |   |   | 2,864,880 |   |
|      |      |                                               | Total Utilities                                   |           |         |   |   | 34,482,017 |   |
|      |      |                                               | Total Revenue Bonds                               |           |         |   |   | 244,042,836 |   |
|      |      |                                               | Total Investments (cost $246,415,462-note 4)      |           |   98.6% |   |   | 253,775,812 |   |
|      |      |                                               | Other assets less liabilities                     |           | 1.4          |   |   | 3,582,023 |   |
|      |      |                                               | Net Assets                                        |           | 100.0%       |   | $      | 257,357,835 |   |

----

|   | *                                                       | Any security not rated (NR) by any of the approved credit rating services 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 credit rating service. |             |
|--------|--------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|
|   |                                                         |                                                                                                                                                                                                                                                              |
|   | Fitch ratings                                                |                                                                                                                                                                                                                                                              |             |   |   |
|   | **                                                      | AA                                                                                                                                                                                                                                                                |             |   |   |   |
|   | ***                                                     | A                                                                                                                                                                                                                                                                 |             |   |   |   |
|   | ****                                                    | AAA                                                                                                                                                                                                                                                               |             |   |   |   |
|   |                                                         |                                                                                                                                                                                                                                                              |             |   |   | Percent of |   |
|   | Portfolio Distribution By Quality Rating                     |                                                                                                                                                                                                                                                              | Portfolio† |   |
|   |                                                         |                                                                                                                                                                                                                                                              |
|   | Aaa of Moody’s or AAA of S&P or Fitch              |   31.5%                                                                                                                                                                                                                                                      |             |
|   | Pre-refunded bonds††/ Escrowed to maturity bonds | 3.0                                                                                                                                                                                                                                                               |             |
|   | Aa of Moody’s or AA of S&P or Fitch                |                                                                                                                                                                                                                                                              | 50.9   |   |
|   | A of Moody’s or S&P or Fitch                       |                                                                                                                                                                                                                                                              | 14.4   |   |
|   | Not rated*                                                   |                                                                                                                                                                                                                                                              | 0.2              |   |
|   |                                                         |                                                                                                                                                                                                                                                              | 100.0%           |   |
|   |                                                         |                                                                                                                                                                                                                                                              |
|   | †                                                 | Calculated using the highest rating of the three rating services.                                                                                                                                                                                                 |             |
|   | ††                                          | Pre-refunded bonds are bonds for which U.S. Government Obligations have been placed in escrow to retire the bonds at their earliest call date.                                                                                                                    |             |
|   |                                                         |                                                                                                                                                                                                                                                              |
|   | PORTFOLIO ABBREVIATIONS                                      |                                                                                                                                                                                                                                                              |
|   | AGMC - Assured Guaranty Municipal Corp.                      |                                                                                                                                                                                                                                                              |
|   | AMBAC - American Municipal Bond Assurance Corp.              |                                                                                                                                                                                                                                                              |
|   | AMT - Alternative Minimum Tax                                |                                                                                                                                                                                                                                                              |
|   | CIFG - CDC IXIS Financial Guaranty                           |                                                                                                                                                                                                                                                              |
|   | FGIC - Financial Guaranty Insurance Co.                      |                                                                                                                                                                                                                                                              |
|   | FHA - Financial Housing Administration                       |                                                                                                                                                                                                                                                              |
|   | FNMA - Federal National Mortgage Association                 |                                                                                                                                                                                                                                                              |
|   | LOC - Letter of Credit                                       |                                                                                                                                                                                                                                                              |
|   | NPFG - National Public Finance Guarantee                     |                                                                                                                                                                                                                                                              |
|   | NR - Not Rated                                               |                                                                                                                                                                                                                                                              |

----

| ASSETS                                                                              |   |   |        |
|-------------------------------------------------------------------------------------|--------|--------|-------------|
| Investments at value (cost $246,415,462)                                            |   | $      | 253,775,812 |   |
| Cash                                                                                |   |   | 466,882     |   |
| Interest receivable                                                                 |   |   | 3,639,298   |   |
| Receivable for Fund shares sold                                                     |   |   | 79,159      |   |
| Other assets                                                                        |   |   | 2,239       |   |
| Total assets                                                                        |   |   | 257,963,390 |   |
| LIABILITIES                                                                         |   |   |        |   |
| Dividends payable                                                                   |   |   | 288,583     |   |
| Payable for Fund shares redeemed                                                    |   |   | 177,286     |   |
| Management fee payable                                                              |   |   | 84,257      |   |
| Distribution and service fees payable                                               |   |   | 1,041       |   |
| Accrued expenses                                                                    |   |   | 54,388      |   |
| Total liabilities                                                                   |   |   | 605,555     |   |
| NET ASSETS                                                                          |   | $      | 257,357,835 |   |
| Net Assets consist of:                                                              |   |   |        |   |
| Capital Stock - Authorized an unlimited number of shares, par value $0.01 per share |   | $      | 242,960     |   |
| Additional paid-in capital                                                          |   |   | 250,244,591 |   |
| Net unrealized appreciation on investments (note 4)                                 |   |   | 7,360,350   |   |
| Undistributed net investment income                                                 |   |   | 95,335      |   |
| Accumulated net realized loss on investments                                        |   |   | (585,401    | ) |
|                                                                                |   | $      | 257,357,835 |   |
| CLASS A                                                                             |   |   |        |   |
| Net Assets                                                                          |   | $      | 200,806,362 |   |
| Capital shares outstanding                                                          |   |   | 18,958,665  |   |
| Net asset value and redemption price per share                                      |   | $      | 10.59       |   |
| Maximum offering price per share (100/96 of $10.59 adjusted to nearest cent)        |   | $      | 11.03       |   |
| CLASS C                                                                             |   |   |        |   |
| Net Assets                                                                          |   | $      | 6,256,481   |   |
| Capital shares outstanding                                                          |   |   | 591,003     |   |
| Net asset value and offering price per share                                        |   | $      | 10.59       |   |
| 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)                                          |   | $      | 10.59       | * |
| CLASS I                                                                             |   |   |        |   |
| Net Assets                                                                          |   | $      | 8,132,135   |   |
| Capital shares outstanding                                                          |   |   | 768,186     |   |
| Net asset value, offering and redemption price per share                            |   | $      | 10.59       |   |
| CLASS Y                                                                             |   |   |        |   |
| Net Assets                                                                          |   | $      | 42,162,857  |   |
| Capital shares outstanding                                                          |   |   | 3,978,099   |   |
| Net asset value, offering and redemption price per share                            |   | $      | 10.60       |   |

----

| Investment Income:                                     |   |   |      |   |   |      |
|--------------------------------------------------------|--------|--------|-----------|--------|--------|-----------|
|                                                   |   |
| Interest income                                        |   |   |      |   | $      | 5,789,233 |   |
|                                                   |   |
| Expenses:                                              |   |   |      |   |   |      |   |
|                                                   |   |
| Management fee (note 3)                                |   | $      | 504,174   |   |   |      |   |   |
| Distribution and service fees (note 3)                 |   |   | 178,806   |   |   |      |   |   |
| Transfer and shareholder servicing agent fees (note 3) |   |   | 76,107    |   |   |      |   |   |
| Trustees’ fees and expenses (note 8)             |   |   | 61,295    |   |   |      |   |   |
| Legal fees (note 3)                                    |   |   | 24,812    |   |   |      |   |   |
| Fund accounting fees                                   |   |   | 18,060    |   |   |      |   |   |
| Shareholders’ reports and proxy statements       |   |   | 13,922    |   |   |      |   |   |
| Auditing and tax fees                                  |   |   | 10,789    |   |   |      |   |   |
| Custodian fees (note 6)                                |   |   | 10,021    |   |   |      |   |   |
| Insurance                                              |   |   | 6,717     |   |   |      |   |   |
| Registration fees and dues                             |   |   | 4,543     |   |   |      |   |   |
| Chief compliance officer (note 3)                      |   |   | 2,235     |   |   |      |   |   |
| Miscellaneous                                          |   |   | 14,099    |   |   |      |   |   |
| Total expenses                                         |   |   | 925,580   |   |   |      |   |   |
|                                                   |   |
| Expenses paid indirectly (note 6)                      |   |   | (44       | )      |   |      |   |   |
| Net expenses                                           |   |   |      |   |   |      | 925,536 |   |
| Net investment income                                  |   |   |      |   |   |      | 4,863,697 |   |
|                                                   |   |
| Realized and Unrealized Gain (Loss) on Investments:    |   |   |      |   |   |      |   |   |
|                                                   |   |
| Net realized gain (loss) from securities transactions  |   |   | 113,101   |   |   |      |   |   |
| Change in unrealized appreciation on investments       |   |   | 1,800,099 |   |   |      |   |   |
|                                                   |   |
| Net realized and unrealized gain (loss) on investments |   |   |      |   |   |      | 1,913,200 |   |
| Net change in net assets resulting from operations     |   |   |      |   |   | $         | 6,776,897 |   |

----

|                                                            |   | Six Months Ended |        |   |              |   |
|-----------------------------------------------------------------|--------|------------------|-------------|--------|-------------------|--------|
|                                                            |   | June 30, 2010    |        |   | Year Ended        |   |
|                                                            |   | (unaudited)      |        |   | December 31, 2009 |   |
| OPERATIONS:                                                     |   |             |        |   |              |   |
| Net investment income                                           |   | $                | 4,863,697   |   |              | $      | 9,481,325 |   |
| Net realized gain (loss) from securities transactions           |   |             | 113,101     |   |              |   | (200,761 | ) |
| Change in unrealized appreciation (depreciation) on investments |   |             | 1,800,099   |   |              |   | 25,337,616 |   |
| Change in net assets from operations                            |   |             | 6,776,897   |   |              |   | 34,618,180 |   |
| DISTRIBUTIONS TO SHAREHOLDERS (note 10):                        |   |             |        |   |              |   |   |   |
| Class A Shares:                                                 |   |             |        |   |              |   |   |   |
| Net investment income                                           |   |             | (3,755,061  | )      |              |   | (7,313,389 | ) |
|                                                            |   |             |        |   |              |   |   |   |
| Class C Shares:                                                 |   |             |        |   |              |   |   |   |
| Net investment income                                           |   |             | (71,053     | )      |              |   | (98,972 | ) |
|                                                            |   |             |        |   |              |   |   |   |
| Class I Shares:                                                 |   |             |        |   |              |   |   |   |
| Net investment income                                           |   |             | (148,311    | )      |              |   | (307,836 | ) |
|                                                            |   |             |        |   |              |   |   |   |
| Class Y Shares:                                                 |   |             |        |   |              |   |   |   |
| Net investment income                                           |   |             | (870,568    | )      |              |   | (1,750,804 | ) |
| Change in net assets from distributions                         |   |             | (4,844,993  | )      |              |   | (9,471,001 | ) |
| CAPITAL SHARE TRANSACTIONS (note 7):                            |   |             |        |   |              |   |   |   |
| Proceeds from shares sold                                       |   |             | 16,437,518  |   |              |   | 35,468,477 |   |
| Reinvested dividends and distributions                          |   |             | 1,847,927   |   |              |   | 3,804,880 |   |
| Cost of shares redeemed                                         |   |             | (15,884,358 | )      |              |   | (28,780,114 | ) |
| Change in net assets from capital share transactions            |   |             | 2,401,087   |   |              |   | 10,493,243 |   |
| Change in net assets                                            |   |             | 4,332,991   |   |              |   | 35,640,422 |   |
| NET ASSETS:                                                     |   |             |        |   |              |   |   |   |
| Beginning of period                                             |   |             | 253,024,844 |   |              |   | 217,384,422 |   |
| End of period*                                                  |   | $                | 257,357,835 |   |              | $      | 253,024,844 |   |
|                                                            |   |
| * Includes undistributed net investment income of:              |   | $                | 95,335      |   |              | $      | 76,631 |   |

----

| 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) | Fair Value Measurements: The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s investments and are summarized in the following fair value hierarchy. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Valuation Inputs                                            |   |   | Investments in Securities |   |
|-------------------------------------------------------------|--------|--------|---------------------------|--------|
| Level 1 – Quoted Prices                               |   | $      | —                   |   |
| Level 2 – Other Significant Observable Inputs — |   |   |                      |   |
| Municipal Bonds*                                            |   |   | 253,775,812               |   |
| Level 3 – Significant Unobservable Inputs             |   |   | —                   |   |
| Total                                                       |   | $      | 253,775,812               |   |

| c) | Subsequent events: In preparing these financial statements, the Fund has evaluated events and transactions for potential recognition or disclosure through the date these financial statements were issued. There were no events or transactions that occurred during the period that materially impacted the amounts or disclosures in the Fund’s financial statements. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| d) | 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. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| e) | Federal income taxes: It is the policy of the Fund to continue 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.  Management has reviewed the tax positions for each of the open tax years (2007-2009) and has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| f) | 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 also charged directly to such class on a daily basis. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| g) | 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. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| h) | 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. On December 31, 2009 the Fund increased undistributed net investment income by $2,335 and decreased additional paid-in capital by $2,335. These reclassifications have no effect on net assets or net asset value per share. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| i) | Accounting pronouncement: In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “Improving Disclosures about Fair Value Measurements” (“ASU”). The ASU requires enhanced disclosures about a) transfers into and out of Levels 1 and 2, and b) purchases, sales, issuances, and settlements on a gross basis relating to Level 3 measurements. The first disclosure is effective for the first reporting period beginning after December 15, 2009, and for interim periods within those fiscal years. There were no significant transfers into and out of Levels 1 and 2 during the current period presented. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                       |   | Six Months EndedJune 30, 2010 |      |   | Year Ended        |   |
|----------------------------|--------|-------------------------------|-----------|--------|-------------------|--------|
|                       |   | (unaudited)                   |      |   | December 31, 2009 |   |
|                       |   | Shares                        |      |   | Amount            |   |   | Shares |   |   | Amount |   |
|                       |   |
| Class A Shares:            |   |                          |      |   |              |   |   |   |   |   |   |   |
| Proceeds from shares sold  |   |                          | 1,060,283 |   |              | $      | 11,205,790 |   |   |   | 2,169,858 |   |   | $ | 22,316,773 |   |
| Reinvested distributions   |   |                          | 155,971   |   |              |   | 1,647,923 |   |   |   | 327,487 |   |   |   | 3,368,846 |   |
| Cost of shares redeemed    |   |                          | (791,810  | )      |              |   | (8,358,456 | ) |   |   | (1,956,408 | ) |   |   | (19,972,149 | ) |
| Net change                 |   |                          | 424,444   |   |              |   | 4,495,257 |   |   |   | 540,937 |   |   |   | 5,713,470 |   |
|                       |   |
| Class C Shares:            |   |                          |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from shares sold  |   |                          | 233,141   |   |              |   | 2,463,915 |   |   |   | 211,585 |   |   |   | 2,187,246 |   |
| Reinvested distributions   |   |                          | 4,542     |   |              |   | 47,974 |   |   |   | 6,556 |   |   |   | 67,529 |   |
| Cost of shares redeemed    |   |                          | (47,093   | )      |              |   | (496,197 | ) |   |   | (103,685 | ) |   |   | (1,058,133 | ) |
| Net change                 |   |                          | 190,590   |   |              |   | 2,015,692 |   |   |   | 114,456 |   |   |   | 1,196,642 |   |
|                       |   |
| Class I Shares:            |   |                          |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from shares sold  |   |                          | –   |   |              |   | – |   |   |   | 13,106 |   |   |   | 136,866 |   |
| Reinvested distributions   |   |                          | 11,356    |   |              |   | 119,868 |   |   |   | 28,913 |   |   |   | 297,017 |   |
| Cost of shares redeemed    |   |                          | (37,519   | )      |              |   | (394,702 | ) |   |   | (76,705 | ) |   |   | (769,822 | ) |
| Net change                 |   |                          | (26,163   | )      |              |   | (274,834 | ) |   |   | (34,686 | ) |   |   | (335,939 | ) |
|                       |   |
| Class Y Shares:            |   |                          |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Proceeds from shares sold  |   |                          | 261,993   |   |              |   | 2,767,813 |   |   |   | 1,061,868 |   |   |   | 10,827,592 |   |
| Reinvested distributions   |   |                          | 3,044     |   |              |   | 32,162 |   |   |   | 6,966 |   |   |   | 71,488 |   |
| Cost of shares redeemed    |   |                          | (627,656  | )      |              |   | (6,635,003 | ) |   |   | (683,019 | ) |   |   | (6,980,010 | ) |
| Net change                 |   |                          | (362,619  | )      |              |   | (3,835,028 | ) |   |   | 385,815 |   |   |   | 3,919,070 |   |
| Total transactions in Fund |   |                          |      |   |              |   |   |   |   |   |   |   |   |   |   |   |
| shares                     |   |                          | 226,252   |   |              | $      | 2,401,087 |   |   |   | 1,006,522 |   |   | $ | 10,493,243 |   |

----

----

|                             |   | Year Ended December 31, |      |
|----------------------------------|--------|-------------------------|-----------|
|                             |   | 2009                    |      |   | 2008 |   |
| Net tax-exempt income            |   | $                       | 9,470,948 |   |   | $ | 9,482,925 |   |
| Taxable income                   |   |                    | 53        |   |   |   | – |   |
| Net realized gain on investments |   |                    | –   |   |   |   | 1,190,261 |   |
|                             |   | $                       | 9,471,001 |   |   | $ | 10,673,186 |   |

| Capital loss carry forward      |   | $      | (652,842  | )      |
|---------------------------------|--------|--------|-----------|--------|
| Unrealized appreciation         |   |   | 5,636,882 |   |
| Undistributed tax-exempt income |   |   | 574,986   |   |
| Other accumulated losses        |   |   | (45,660   | )      |
| Other temporary differences     |   |   | (574,986  | )      |
|                            |   | $      | 4,938,380 |   |

----

|                                                                                            |   | Class A     |    | Class C                 |
|-------------------------------------------------------------------------------------------------|--------|-------------|---------|-------------------------|
|                                                                                            |   | Six Months  |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Six Months |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                            |   | Ended       |    | Year Ended December 31, |   | Ended |   | Year Ended December 31, |
|                                                                                            |   | 6/30/10     |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6/30/10 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                            |   | (unaudited) |    | 2009                    |   | 2008 |   | 2007 |   | 2006 |   | 2005 |   | (unaudited) |   | 2009 |   | 2008 |   | 2007 |   | 2006 |   | 2005 |
| Net asset value, beginning of period                                                            |   | $           | 10.51   |                    |   | $ | 9.42 |   |   | $ | 10.38 |   |   | $ | 10.59 |   |   | $ | 10.60 |   |   | $ | 10.74 |   |   | $ | 10.51 |   |   | $ | 9.42 |   |   | $ | 10.38 |   |   | $ | 10.58 |   |   | $ | 10.59 |   |   | $ | 10.73 |   |
| Income (loss) from investment operations:                                                       |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net investment income                                                                           |   |        | 0.20    | (1)                     |   |   | 0.41 | (1) |   |   | 0.40 | (1) |   |   | 0.39 | (1) |   |   | 0.39 | (2) |   |   | 0.39 | (2) |   |   | 0.16 | (1) |   |   | 0.32 | (1) |   |   | 0.31 | (1) |   |   | 0.31 | (1) |   |   | 0.30 | (2) |   |   | 0.30 | (2) |
| Net gain (loss) on securities (both                                                             |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| realized and unrealized)                                                                        |   |        | 0.08    |                    |   |   | 1.09 |   |   |   | (0.92 | ) |   |   | (0.15 | ) |   |   | 0.03 |   |   |   | (0.14 | ) |   |   | 0.08 |   |   |   | 1.09 |   |   |   | (0.91 | ) |   |   | (0.15 | ) |   |   | 0.03 |   |   |   | (0.14 | ) |
| Total from investment operations                                                                |   |        | 0.28    |                    |   |   | 1.50 |   |   |   | (0.52 | ) |   |   | 0.24 |   |   |   | 0.42 |   |   |   | 0.25 |   |   |   | 0.24 |   |   |   | 1.41 |   |   |   | (0.60 | ) |   |   | 0.16 |   |   |   | 0.33 |   |   |   | 0.16 |   |
| Less distributions (note 10):                                                                   |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends from net investment income                                                            |   |        | (0.20   | )                       |   |   | (0.41 | ) |   |   | (0.39 | ) |   |   | (0.39 | ) |   |   | (0.40 | ) |   |   | (0.39 | ) |   |   | (0.16 | ) |   |   | (0.32 | ) |   |   | (0.31 | ) |   |   | (0.30 | ) |   |   | (0.31 | ) |   |   | (0.30 | ) |
| Distributions from capital gains                                                                |   |        | – |                    |   |   | – |   |   |   | (0.05 | ) |   |   | (0.06 | ) |   |   | (0.03 | ) |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (0.05 | ) |   |   | (0.06 | ) |   |   | (0.03 | ) |   |   | – |   |
| Total distributions                                                                             |   |        | (0.20   | )                       |   |   | (0.41 | ) |   |   | (0.44 | ) |   |   | (0.45 | ) |   |   | (0.43 | ) |   |   | (0.39 | ) |   |   | (0.16 | ) |   |   | (0.32 | ) |   |   | (0.36 | ) |   |   | (0.36 | ) |   |   | (0.34 | ) |   |   | (0.30 | ) |
| Net asset value, end of period                                                                  |   | $           | 10.59   |                    |   | $ | 10.51 |   |   | $ | 9.42 |   |   | $ | 10.38 |   |   | $ | 10.59 |   |   | $ | 10.60 |   |   | $ | 10.59 |   |   | $ | 10.51 |   |   | $ | 9.42 |   |   | $ | 10.38 |   |   | $ | 10.58 |   |   | $ | 10.59 |   |
| Total return                                                                                    |   |        | 2.69    | %(3)(5)                 |   |   | 16.05 | %(5) |   |   | (5.05 | )%(5) |   |   | 2.38 | %(5) |   |   | 4.02 | %(5) |   |   | 2.39 | %(5) |   |   | 2.26 | %(3)(6) |   |   | 15.06 | %(6) |   |   | (5.85 | )%(6) |   |   | 1.61 | %(6) |   |   | 3.15 | %(6) |   |   | 1.53 | %(6) |
| Ratios/supplemental data                                                                        |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net assets, end of period                                                                       |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (in thousands)                                                                                  |   | $           | 200,806 |                    |   | $ | 194,816 |   |   | $ | 169,582 |   |   | $ | 194,140 |   |   | $ | 211,501 |   |   | $ | 223,811 |   |   | $ | 6,256 |   |   | $ | 4,207 |   |   | $ | 2,694 |   |   | $ | 4,120 |   |   | $ | 5,686 |   |   | $ | 7,296 |   |
| Ratio of expenses to average                                                                    |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net assets                                                                                      |   |        | 0.74    | %(4)                    |   |   | 0.76 | % |   |   | 0.79 | % |   |   | 0.75 | % |   |   | 0.76 | % |   |   | 0.77 | % |   |   | 1.58 | %(4) |   |   | 1.60 | % |   |   | 1.64 | % |   |   | 1.60 | % |   |   | 1.62 | % |   |   | 1.62 | % |
| Ratio of net investment income to                                                               |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| average net assets                                                                              |   |        | 3.85    | %(4)                    |   |   | 3.96 | % |   |   | 3.97 | % |   |   | 3.77 | % |   |   | 3.71 | % |   |   | 3.66 | % |   |   | 2.96 | %(4) |   |   | 3.06 | % |   |   | 3.10 | % |   |   | 2.92 | % |   |   | 2.87 | % |   |   | 2.81 | % |
| Portfolio turnover rate                                                                         |   |        | 2.44    | %(3)                    |   |   | 8.18 | % |   |   | 13.76 | % |   |   | 18.92 | % |   |   | 19.07 | % |   |   | 24.87 | % |   |   | 2.44 | %(3) |   |   | 8.18 | % |   |   | 13.76 | % |   |   | 18.92 | % |   |   | 19.07 | % |   |   | 24.87 | % |
| The expense ratios after giving effect to the expense offset for uninvested cash balances were: |   |
| Ratio of expenses to average                                                                    |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net assets                                                                                      |   |        | 0.74    | %(4)                    |   |   | 0.76 | % |   |   | 0.78 | % |   |   | 0.74 | % |   |   | 0.76 | % |   |   | 0.76 | % |   |   | 1.58 | %(4) |   |   | 1.60 | % |   |   | 1.63 | % |   |   | 1.59 | % |   |   | 1.61 | % |   |   | 1.61 | % |

----

----

|                                                                                            |   | Class I     |    | Class Y                 |
|-------------------------------------------------------------------------------------------------|--------|-------------|---------|-------------------------|
|                                                                                            |   | Six Months  |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Six Months |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                            |   | Ended       |    | Year Ended December 31, |   | Ended |   | Year Ended December 31, |
|                                                                                            |   | 6/30/10     |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 6/30/10 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                            |   | (unaudited) |    | 2009                    |   | 2008 |   | 2007 |   | 2006 |   | 2005 |   | (unaudited) |   | 2009 |   | 2008 |   | 2007 |   | 2006 |   | 2005 |
| Net asset value, beginning of period                                                            |   | $           | 10.51   |                    |   | $ | 9.42 |   |   | $ | 10.38 |   |   | $ | 10.58 |   |   | $ | 10.59 |   |   | $ | 10.73 |   |   | $ | 10.52 |   |   | $ | 9.43 |   |   | $ | 10.39 |   |   | $ | 10.59 |   |   | $ | 10.61 |   |   | $ | 10.75 |   |
| Income (loss) from investment operations:                                                       |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net investment income                                                                           |   |        | 0.19    | (1)                     |   |   | 0.39 | (1) |   |   | 0.38 | (1) |   |   | 0.38 | (1) |   |   | 0.38 | (2) |   |   | 0.38 | (2) |   |   | 0.21 | (1) |   |   | 0.42 | (1) |   |   | 0.41 | (1) |   |   | 0.41 | (1) |   |   | 0.41 | (2) |   |   | 0.41 | (2) |
| Net gain (loss) on securities (both                                                             |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| realized and unrealized)                                                                        |   |        | 0.08    |                    |   |   | 1.09 |   |   |   | (0.91 | ) |   |   | (0.14 | ) |   |   | 0.02 |   |   |   | (0.14 | ) |   |   | 0.08 |   |   |   | 1.09 |   |   |   | (0.91 | ) |   |   | (0.14 | ) |   |   | 0.01 |   |   |   | (0.14 | ) |
| Total from investment operations                                                                |   |        | 0.27    |                    |   |   | 1.48 |   |   |   | (0.53 | ) |   |   | 0.24 |   |   |   | 0.40 |   |   |   | 0.24 |   |   |   | 0.29 |   |   |   | 1.51 |   |   |   | (0.50 | ) |   |   | 0.27 |   |   |   | 0.42 |   |   |   | 0.27 |   |
| Less distributions (note 10):                                                                   |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends from net investment income                                                            |   |        | (0.19   | )                       |   |   | (0.39 | ) |   |   | (0.38 | ) |   |   | (0.38 | ) |   |   | (0.38 | ) |   |   | (0.38 | ) |   |   | (0.21 | ) |   |   | (0.42 | ) |   |   | (0.41 | ) |   |   | (0.41 | ) |   |   | (0.41 | ) |   |   | (0.41 | ) |
| Distributions from capital gains                                                                |   |        | – |                    |   |   | – |   |   |   | (0.05 | ) |   |   | (0.06 | ) |   |   | (0.03 | ) |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (0.05 | ) |   |   | (0.06 | ) |   |   | (0.03 | ) |   |   | – |   |
| Total distributions                                                                             |   |        | (0.19   | )                       |   |   | (0.39 | ) |   |   | (0.43 | ) |   |   | (0.44 | ) |   |   | (0.41 | ) |   |   | (0.38 | ) |   |   | (0.21 | ) |   |   | (0.42 | ) |   |   | (0.46 | ) |   |   | (0.47 | ) |   |   | (0.44 | ) |   |   | (0.41 | ) |
| Net asset value, end of period                                                                  |   | $           | 10.59   |                    |   | $ | 10.51 |   |   | $ | 9.42 |   |   | $ | 10.38 |   |   | $ | 10.58 |   |   | $ | 10.59 |   |   | $ | 10.60 |   |   | $ | 10.52 |   |   | $ | 9.43 |   |   | $ | 10.39 |   |   | $ | 10.59 |   |   | $ | 10.61 |   |
| Total return                                                                                    |   |        | 2.62    | %(3)                    |   |   | 15.89 | % |   |   | (5.16 | )% |   |   | 2.33 | % |   |   | 3.87 | % |   |   | 2.24 | % |   |   | 2.77 | %(3) |   |   | 16.21 | % |   |   | (4.88 | )% |   |   | 2.63 | % |   |   | 4.08 | % |   |   | 2.55 | % |
| Ratios/supplemental data                                                                        |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net assets, end of period                                                                       |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (in thousands)                                                                                  |   | $           | 8,132   |                    |   | $ | 8,345 |   |   | $ | 7,810 |   |   | $ | 8,363 |   |   | $ | 8,018 |   |   | $ | 7,764 |   |   | $ | 42,163 |   |   | $ | 45,657 |   |   | $ | 37,299 |   |   | $ | 41,648 |   |   | $ | 46,625 |   |   | $ | 47,816 |   |
| Ratio of expenses to average                                                                    |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net assets                                                                                      |   |        | 0.88    | %(4)                    |   |   | 0.90 | % |   |   | 0.93 | % |   |   | 0.89 | % |   |   | 0.91 | % |   |   | 0.92 | % |   |   | 0.59 | %(4) |   |   | 0.61 | % |   |   | 0.64 | % |   |   | 0.60 | % |   |   | 0.61 | % |   |   | 0.62 | % |
| Ratio of net investment income to                                                               |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| average net assets                                                                              |   |        | 3.71    | %(4)                    |   |   | 3.82 | % |   |   | 3.83 | % |   |   | 3.62 | % |   |   | 3.57 | % |   |   | 3.52 | % |   |   | 4.01 | %(4) |   |   | 4.10 | % |   |   | 4.12 | % |   |   | 3.92 | % |   |   | 3.86 | % |   |   | 3.81 | % |
| Portfolio turnover rate                                                                         |   |        | 2.44    | %(3)                    |   |   | 8.18 | % |   |   | 13.76 | % |   |   | 18.92 | % |   |   | 19.07 | % |   |   | 24.87 | % |   |   | 2.44 | %(3) |   |   | 8.18 | % |   |   | 13.76 | % |   |   | 18.92 | % |   |   | 19.07 | % |   |   | 24.87 | % |
| The expense ratios after giving effect to the expense offset for uninvested cash balances were: |   |
| Ratio of expenses to average                                                                    |   |        |    |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net assets                                                                                      |   |        | 0.88    | %(4)                    |   |   | 0.90 | % |   |   | 0.92 | % |   |   | 0.88 | % |   |   | 0.90 | % |   |   | 0.91 | % |   |   | 0.59 | %(4) |   |   | 0.61 | % |   |   | 0.63 | % |   |   | 0.59 | % |   |   | 0.61 | % |   |   | 0.61 | % |

----

----

|    |   | Actual           |   |      |   |      |   |          |
|---------|--------|------------------|--------|-----------|--------|-----------|--------|---------------|
|    |   | Total Return     |   | Beginning |   | Ending    |   | Expenses      |
|    |   | Without          |   | Account   |   | Account   |   | Paid During   |
|    |   | Sales Charges(1) |   | Value     |   | Value     |   | the Period(2) |
| Class A |   | 2.69%            |   | $1,000.00 |   | $1,026.90 |   | $3.72         |
| Class C |   | 2.26%            |   | $1,000.00 |   | $1,022.60 |   | $7.92         |
| Class I |   | 2.62%            |   | $1,000.00 |   | $1,026.20 |   | $4.42         |
| Class Y |   | 2.77%            |   | $1,000.00 |   | $1,027.70 |   | $2.97         |

| (1) | Assumes reinvestment of all dividends and capital gain distributions, if any, at net asset value and does not reflect the deduction of the applicable sales charges with respect to Class A shares or the applicable contingent deferred sales charges (“CDSC”) with respect to Class C shares. Total return is not annualized, as it may not be representative of the total return for the year. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Expenses are equal to the annualized expense ratio of 0.74%, 1.58%, 0.88% and 0.59% for the Fund’s Class A, C, I and Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|    |   | Hypothetical |   |      |   |      |   |          |
|---------|--------|--------------|--------|-----------|--------|-----------|--------|---------------|
|    |   | Annualized   |   | Beginning |   | Ending    |   | Expenses      |
|    |   | Total        |   | Account   |   | Account   |   | Paid During   |
|    |   | Return       |   | Value     |   | Value     |   | the Period(1) |
| Class A |   | 5.00%        |   | $1,000.00 |   | $1,021.12 |   | $3.71         |
| Class C |   | 5.00%        |   | $1,000.00 |   | $1,016.96 |   | $7.90         |
| Class I |   | 5.00%        |   | $1,000.00 |   | $1,020.43 |   | $4.41         |
| Class Y |   | 5.00%        |   | $1,000.00 |   | $1,021.87 |   | $2.96         |

| (1) | Expenses are equal to the annualized expense ratio of 0.74%, 1.58%, 0.88% and 0.59% for the Fund’s Class A, C, I and Y shares, respectively, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

| Dollar Amount of Votes |
|------------------------|
| Trustee                |   | For |   | Withheld |
| Thomas A. Christopher  |   | $219,972,271 |   | $1,506,619 |
| David A. Duffy         |   | $219,595,950 |   | $1,882,929 |
| Diana P. Herrmann      |   | $220,360,427 |   | $1,118,464 |
| Theodore T. Mason      |   | $220,077,403 |   | $1,401,487 |
| Anne J. Mills          |   | $220,149,838 |   | $1,329,052 |
| John J. Partridge      |   | $220,344,262 |   | $1,134,628 |
| James R. Ramsey        |   | $217,396,102 |   | $4,082,788 |
| Laureen L. White       |   | $219,015,178 |   | $2,463,712 |

| Dollar Amount of Votes |
|------------------------|
|                   | For |   | Against |   | Abstain |
|                   | $218,296,977 |   | $1,437,862 |   | $1,744,050 |

----

|   | • | A copy of the agreement to be renewed; |
|--------|---------|----------------------------------------|

|   | • | A term sheet describing the material terms of the agreement; |
|--------|---------|--------------------------------------------------------------|

|   | • | The Annual Report of the Fund for the year ended December 31, 2009; |
|--------|---------|---------------------------------------------------------------------|

|   | • | 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 |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Quarterly materials reviewed at prior meetings on the Fund's performance, operations, portfolio and compliance. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------|

----

----

| 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                        |
| David A. Duffy                                      |
| Diana P. Herrmann                                   |
| Theodore T. Mason                                   |
| Anne J. Mills                                       |
| John J. Partridge                                   |
| James R. Ramsey                                     |
| Laureen L. White                                    |
|                                                |
| Officers                                            |
| Diana P. Herrmann, President                        |
| Todd W. Curtis, Vice President                      |
| and Portfolio Manager                               |
| Jason T. McGrew, Vice President                     |
| Robert S. Driessen, 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            |
| BNY MELLON INVESTMENT SERVICING (US) INC.           |
| 101 Sabin Street                                    |
| Pawtucket, Rhode Island 02860                       |
|                                                |
| Custodian                                           |
| JPMORGAN CHASE BANK, N.A.                           |
| 1111 Polaris Parkway                                |
| Columbus, Ohio 43240                                |
|                                                |
| Further information is contained in the Prospectus, |
| which must precede or accompany this report.        |

----

| ITEM 2. | CODE OF ETHICS. |
|---------|-----------------|

| ITEM 3.   | AUDIT COMMITTEE FINANCIAL EXPERT. |
|---------------------|-----------------------------------|

| ITEM 4.   | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
|---------------------|-----------------------------------------|

----

| ITEM 5.   | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
|---------------------|----------------------------------------|

| ITEM 6.  | SCHEDULE OF INVESTMENTS. |
|---------------|--------------------------|

| ITEM 7.   | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
|---------------------|----------------------------------------------------------------------------------------------------|

| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
|---------|-------------------------------------------------------------------|

| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
|---------|-------------------------------------------------------------------------------------------------------|

| ITEM 10.   | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
|----------------------|------------------------------------------------------|

----

| ITEM 11.   | CONTROLS AND PROCEDURES. |
|----------------------|--------------------------|

| ITEM 12.   | EXHIBITS. |
|----------------------|-----------|

----

| By:  | /s/ Diana P. Herrmann                  |   |
|-----------|----------------------------------------|--------|
|      | President and TrusteeSeptember 7, 2010 |   |
|      |                                   |   |
|      |                                   |   |
| By:  | /s/ Joseph P. DiMaggio                 |   |
|      | September 7, 2010                      |   |

| By:  | /s/ Diana P. Herrmann                                                     |   |
|-----------|---------------------------------------------------------------------------|--------|
|      | Diana P. Herrmann President and TrusteeSeptember 7, 2010                  |   |
|      |                                                                      |   |
|      |                                                                      |   |
| By:  | /s/ Joseph P. DiMaggio                                                    |   |
|      | Joseph P. DiMaggio Chief Financial Officer and TreasurerSeptember 7, 2010 |   |

----